Omnicom Q4: Slashing Jobs Faster Than Revenues Shrink Seems to Work

One takeaway from Omnicom's Q4 earnings results is the depressing news that firing people works. To deal with the recession, Omnicom has laid off 3,500 people across its network of agencies. That reduced its operating expenses by 6 percent between Q3 and Q4. The result is that the revenue yield for every dollar Omnicom invested in salaries and office space went up, from $1.13 to $1.15. That's still not the $1.17 it was getting back in Q4 2007, but it's better than nothing.

The agency did this even though its revenue and net income declined slightly. The bad news didn't end there: It posted a cashflow loss of $695 million -- more than double its net income.

Note that Omnicom's press release shows only the income statement, which has the agency in the black. The SEC filing, however, contains the cashflow statement, which has the agency in the red. (One records the official state of the business including unpaid bills, the other measures actual flows of cash through its accounts.)

Also, hidden in there somewhere is the 1 million stock option bonus that CEO John Wren "earned" after he fired all those people and delivered a down year for the company. Apparently, not being successful at Omnicom makes you rich.

Bottom line: what we have with Omnicom is a company that is managing its decline: It is making itself marginally more productive by firing staff and reducing compensation -- its only real room for maneuver -- at a faster rate than its business is contracting.