Newswire

UPDATE 3-Omnicom profit climbs on U.S. advertising

(Adds details, updates stock price)

By Adam Pasick

NEW YORK, Oct 29 (Reuters) - Omnicom Group Inc. , the world's third-largest advertising firm, on Tuesday posted gains in its third-quarter earnings on the strength of an improving U.S. market.

Omnicom said it was comfortable with its fourth-quarter profit estimate, a forecast that came after its larger peers, No. 1 WPP Group and No. 2 Interpublic Group of Cos. , warned earlier this month of falling profits.

"With all the blowouts that are going on ... what (Omnicom) is doing really is pretty impressive," CIBC World Markets analyst David Doft said.

Omnicom, whose clients include PepsiCo and DaimlerChrysler , had forecast a 10 percent increase in full-year profit, which would mean earnings of about $1.08 per share in the fourth quarter. Analysts on average expect $1.07 per share, according to research firm Multex.

The company's stock was up 95 cents, or 1.6 percent, to $59.30 in afternoon trading on the New York Stock Exchange. Shares of Interpublic and WPP, along with the French ad firms Publicis and Havas Advertising , were all down on the day.

Omnicom, whose ad agencies include BBDO and TWBA, said its third-quarter earnings totaled $126.1 million, or 68 cents per share, compared with $114 million, or 61 cents a share, in the year-earlier period. The results matched the mean analyst consensus, according to Multex.

The company's year-ago results were adjusted to assume the cessation of goodwill amortization. Omnicom's third-quarter income rose 37 percent from $92.4 million, or 50 cents per share, a year ago excluding the adjustment.

U.S. OUTPACING EUROPE

For the first time in 10 quarters, Omnicom's net new business wins -- which include both newly won accounts and incremental new business from additional clients -- fell below $1 billion, totaling $876 million due to the loss of clients like Qwest Communications and Gillette .

But thanks to recent account wins, including Sony Corp. , the company expects fourth-quarter net new business wins to climb back above the $1 billion threshold.

Worldwide revenue rose 12.6 percent to $1.77 billion from $1.57 billion a year earlier. Organic revenue, which excludes the effects of acquisitions, rose 4.7 percent.

"Generally across our businesses we continue to experience weaker market conditions in the United Kingdom and Europe than (in) the United States," Chief Financial Officer Randall Weisenburger said in a conference call with analysts.

Omnicom's U.S. revenue for the third quarter rose 19 percent to $991.5 million while international revenue advanced 5 percent to $777 million.

TRICKLE-DOWN TV?

A strong turnaround in television advertising, with the inventory for commercial time tight due in part to heavy spending by car makers and politicians, has yet to trickle down to ad agencies. But Chief Executive John Wren said he was not worried that advertisers would scrimp on paying for new commercials.

"Clients are being forced to spend more money for the same 30- and 60-second spots that they've had to in the past," he said. "Clients (will) not run commercials that are five years old when they're paying for that kind of media."

Analysts said that while some clients may attempt to save money by using slightly old ads, they would eventually be forced to pay more money to companies like Omnicom.

"I think maybe a customer would run a six-month-old or one-year-old ad, but at some point you're going to reinvest in your creative," Bear Stearns analyst Alexia Quadrani said. "When you're moving into an ad recovery, the next stage is new product launches," which require new ads.

Separately, Weisenburger said Omnicom planned to make an announcement within several weeks about "redoing or reworking our current bank credit relationships," and said he was hopeful the company "will be able to come out of the penalty box" with the credit rating agencies.

Standard & Poor's revised its credit outlook on Omnicom to negative, and Moody's placed the company's ratings on review for downgrade in June after a story in The Wall Street Journal raised questions about the company's accounting policies.