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Omnicom Q2: Wren Sees More Layoffs in Q3; Cashflow Still Negative

Omnicom chief John Wren told investors today that he expects to see more layoffs at his agencies in the third quarter of the year. Omnicom reported its revenue decreased 17.4 percent to $2.8 billion and net income decreased 24 percent to $233.4 million.

When asked by an analyst about "severance" (that's a Wall Street euphemism for layoffs) Wren said there was more to come:

Alexia Quadrani -- JPMorgan: And with regard to severance should we assume it will be a little bit more modest in Q3?

John Wren: Yes. Most of our actions at this point given the level of business have been taken. There is some anticipated severance in the third quarter. And we believe that we have done a very good job of identifying those areas where we can take action. So you should see a far more modest than the third quarter. And hopefully then we are close to done.

So far, Omnicom agencies have laid off more than 3,500 employees, with agencies such as BBDO and TBWA taking the brunt. Ad agency folk might find themselves relatively protected this time round. Agencies are the part of Omnicom's business that is declining the least, Omnicom reported:
  • Sector, % decline
  • Ad agencies: 15.5%
  • PR: 18.5%
  • CRM: 18.7%
  • Specialty: 20.1%
That's counterintuitive because, as the most old-fashioned part of the business, you'd think that agencies would be in steepest decline. But Wren and CFO Randy Weisenberger indicated that digital advertising is baked in to the Omnicom agency offering, and they expect robust recovery in that area.

Also, those layoffs have worked: Omnicom's revenue yield on its operating expenses ticked up considerably this quarter, an indicator that layoffs need not be dramatic.

Cashflow problems continue It was another rough quarter in terms of cashflow. (BNET first noted Omnicom's cashflow difficulties in February.) The company lost $697.4 million this quarter. In Q1, it lost $685 million. In Q4 it lost nearly $700 million.

Much of that was a $478 million in working capital losses -- that tells us Omnicom's still having difficulty collecting its bills on time and delaying payments to vendors as long as possible. Weisenberger admitted there had been some "pressure":

Our overall working capital performance has been extremely good. I mentioned last quarter we have experienced considerable added working capital pressure due to the overall economic environment and credit environment.
However, in response, we have redoubled our own efforts. I am happy to say that due to the considerable efforts on the part of our agencies globally we have more than held our ground to-date and our bad debt losses have been minimal.