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Omnicom Group Inc (NYSE:OMC): Did It Outperform The Industry?

After looking at Omnicom Group Inc’s (NYSE:OMC) latest earnings announcement (30 June 2018), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways.

See our latest analysis for Omnicom Group

Despite a decline, did OMC underperform the long-term trend and the industry?

OMC’s trailing twelve-month earnings (from 30 June 2018) of US$1.15b has declined by -2.14% compared to the previous year. Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 3.59%, indicating the rate at which OMC is growing has slowed down. Why is this? Let’s examine what’s transpiring with margins and whether the entire industry is experiencing the hit as well.

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In the last few years, revenue growth has failed to keep up which indicates that Omnicom Group’s bottom line has been propelled by unsustainable cost-reductions. Eyeballing growth from a sector-level, the US media industry has been growing its average earnings by double-digit 32.49% over the prior twelve months, and a more subdued 8.66% over the previous five years. This growth is a median of profitable companies of 25 Media companies in US including Shaw Communications, Manchester United and Independent News & Media. This means whatever uplift the industry is profiting from, Omnicom Group has not been able to gain as much as its industry peers.

NYSE:OMC Income Statement Export August 21st 18
NYSE:OMC Income Statement Export August 21st 18

In terms of returns from investment, Omnicom Group has invested its equity funds well leading to a 41.29% return on equity (ROE), above the sensible minimum of 20%. However, its return on assets (ROA) of 5.97% is below the US Media industry of 6.11%, indicating Omnicom Group’s are utilized less efficiently. Furthermore, its return on capital (ROC), which also accounts for Omnicom Group’s debt level, has declined over the past 3 years from 22.05% to 19.93%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 109.20% to 163.47% over the past 5 years.

What does this mean?

Though Omnicom Group’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have unpredictable earnings, can have many factors impacting its business. I recommend you continue to research Omnicom Group to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for OMC’s future growth? Take a look at our free research report of analyst consensus for OMC’s outlook.

  2. Financial Health: Are OMC’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.