Omnicom Q1: CFO Weisenberger Hints at More Layoffs to Come

It was an awful Q1 2009 at Omnicom, which saw revenue and profit declines exacerbating what is traditionally the hardest quarter of the year for the agency business — the time when media buyers must make advance buys and wait for reimbursement from clients. Omnicom CFO Randy Weisenberger also hinted that more layoffs may come, and that Omnicom will not give out numbers on that as it did last year.

The basics: Revenues were $2.7 billion, down 14 percent from $3.1 billion in 2008. Net income was $178 million, down 23 percent from $233 million the year before.

Omnicom continued to lose cash, as BNET has noted before. OMC agencies — BBDO, TBWA et al — lost $685 million in cash last quarter. A big chunk of that was a decrease in “operating capital” of $474 million. In plain English: they paid vendors more than they collected in billings from clients. Much of that was probably due to advance media buys, but as MDC Partners noted earlier in the week, a portion of it is due to recession-afflicted clients delaying payments.

Omnicom also had to make $842 million in debt payments. This is a comparison of the current cash picture with a year ago:

• Category, Q109, Q108
• Cash on hand: $412m, $1 billion
• Current liabilities: $8.2 billion, $9.7 billion.
• Total liabilities: $12 billion, $13.5 billion

So although Omnicom reduced its debts, its cash declined at a faster rate. Credit ratings agency Fitch affirmed that OMC’s rating is stable.

One piece of good news: Those bonus cuts taken by management worked. If you separate the salary costs from other operating costs, then Omnicom’s productivity remained flat despite the falling revenue. Overall operating efficiency was still down, meaning that Omnicom’s fixed office costs — rent, etc. — are now becoming part of the problem.

Here’s what Weisenberger told analysts about layoffs:

Jason Helfstein – Oppenheimer: Given the timing of headcount reductions, could second quarter expenses be down even more …?

Randall J. Weisenburger: Well, we’ll go through the second quarter as we go through it. I’m sure there are still more cost actions to be taken, that has to be done. The cost actions are taken agency by agency and based upon specific changes in staffing requirements by clients. The second quarter is also a difficult comp quarter. It’s generally one of the larger quarters in the year, so I wouldn’t get too aggressive quite this early.

Ben Swinburne – Morgan Stanley: Randy, if you could give the level of headcount reductions in the fourth quarter and first quarter that you’ve taken …?

Randall J. Weisenburger: The expected savings of severance in Q4 was around $215 million, and the expected savings of severance actions taken in Q1 is about $125 million. As far as headcount, that’s not a number that we’ve given out.

• See previous coverage:
• Omnicom’s Top Execs Saw Pay Slashed to Save Bonuses for Underlings
• Omnicom Delaying Payments to Photographers, Too
  
• Omnicom, in Cash Crunch, to Delay Payments to U.S. TV Producers
• Omnicom Sought to Delay TV Production Payments; a Sign of Cash Crisis?
• Clients Are Delaying Payments to Agencies
• Omnicom, Publicis Worst Hit in Auto Brand Axings
• Omnicom’s Credit Crunch: a Gamble by CEO Wren That Didn’t Pay Off
• Omnicom Q4: Slashing Jobs Faster Than Revenues Shrink Seems to Work
• Omnicom’s John Wren Got $25 Mil. Stock Bonus Days After 3,500 Layoffs