A trainee walks pass a communist party logo at the China Executive Leadership Academy of Pudong in Shanghai on Sept. 24, 2012. The upcoming transition in China’s leadership is among factors cited by U.S. advertising giant Omnicom Inc. as contributing to clients’ conservatism.CARLOS BARRIA/Reuters
Omnicom Group Inc., the largest U.S. advertising company, said the looming "fiscal cliff" in the United States and the leadership transition in China are creating uncertainty among clients, making it difficult to forecast the next few quarters.
However, the company said it was benefiting as customers spread their advertising budgets among fewer agencies.
"With China being off a little bit, Europe not solved yet and the uncertainty with the fiscal cliff as people await the election, there's conservatism," chief executive John Wren said on a conference call with analysts.
"We're not certain yet what the outcome is going to be in the fourth quarter or into the first quarter of next year."
The "fiscal cliff" refers to the $500-billion or so of tax hikes and the more than $100-billion in government spending cuts that will automatically start on Jan. 2 unless politicians agree on a budget deal.
Omnicom shares were down nearly 3 per cent at $50.95 (U.S.) on the New York Stock Exchange on Tuesday.
Analysts on average are expecting fourth-quarter revenue of $3.97-billion and annual revenue of $14.29-billion, according to Thomson Reuters I/B/E/S.
Mr. Wren said the company's teams in Europe have been facing the "most challenging conditions" in its global footprint.
Revenue from the euro zone fell 14.4 per cent during the third quarter. Third-quarter growth in Germany, France and the Netherlands was negative, the company said.
Mr. Wren said the modest reduction in revenue growth in China was temporary and growth will return after the leadership transition is completed.
Omnicom, home to advertising, media and public relations agencies such as BBDO Worldwide, DDB Worldwide, TBWA Worldwide and Fleishman-Hillard, said it was benefiting from the account consolidation in the advertising industry.
PepsiCo Inc., a long-time Omnicom client, said in February it reduced the number of advertising agencies in North America, while raising marketing spend between $500-million and $600-million this year.
"I think this (account consolidation) trend will only continue because most of the major companies around the world are under some degree of pressure to become more efficient. That's where we are today, and I think, as we go into 2013," Mr. Wren said.
Evercore Partners analyst Douglas Arthur said Wall Street's growth expectations from Omnicom for 2013 are too high.
"Nothing in this quarter tells me that I am wrong on that," he said.
Analysts' estimates for annual revenue for 2013 are $14.93-billion, while Arthur expects revenue of $14.80-billion.
Net profit rose slightly to $203.9-million, or 74 cents per share, in the third quarter, from $203.7-million, or 72 cents per share, a year earlier, reflecting fewer shares outstanding.
Revenue rose to $3.41-billion from $3.38-billion.
Analysts had expected earnings of 72 cents per share on revenue of $3.42-billion, according to Thomson Reuters I/B/E/S.
International income, which accounts for nearly half of the company's revenue, declined 1.7 per cent in the quarter. Domestic revenue rose 3.2 per cent.
The company said a strong dollar caused a revenue decline of about 6.9 per cent, or $115-million, in the quarter.
Revenue from the U.K. was flat due to a slowdown in field marketing despite the Summer Olympics-related spending.
The company competes against WPP Plc, Interpublic Group of Cos. Inc., and Publicis Groupe SA.