Q3 2019 Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Omnicom third.
Good morning, ladies and gentlemen, and welcome to the Omnicom third quarter 29 teams earnings release Conference call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session to enter the queue for questions. Please press. One then zero if you need assistance during the call. Please press Star then zero as a reminder, this comp.
Lets call is being recorded at this time I'd like to introduce you to your host for today's conference Senior Vice President of Investor Relations Shoe Mukherjee. Please go ahead.
Good morning.
Thank you for taking the time to listen July 3rd quarter 2019 earnings call on the close with me today, Johnson, Chairman and Chief Executive Officer, and Phil Angelastro Chief Financial Officer.
I hope everyone has had a chance to that view on names Shirley.
Weve postage to Www Dot Omnicom group Dot Com. This mornings press release, along with the presentation covering the information they'd be wins with you. This morning.
This call. It is also being Simon cast and will be archived on all that site.
Before we start I've been asked you remind everyone to read the forward looking statements and other information that we have included at the end about presentation.
And you point out that said one of the statements made today may constitute forward looking statements ended these statements are our present expectations and that actual events or results may differ materially.
I would also like to remind you that during the course of the call. We visit discuss some non-GAAP measures in talking about omnicom's performance.
You can find reconciliation of those measures to the notice comparable GAAP measures in the presentation material.
We are going to begin this morning schools with an overview of our business than Johnson.
Then Phil Angelastro view <unk> financial results for the quarter.
And then be been open the line feel questions.
Thank you good morning, I'm pleased to speak to this morning about a third quarter results.
Got it growth for the quarter was 2.2%.
Growth in the United States and several practice areas core to our business performed better than our overall results reflect.
Ill provide more color on this just a few moments.
As a reminder, in the third quarter of 2018, we recorded a net gain from the sale of cell bitel offset by charges related to several dispositions and repositioning actions.
Well as certain 2017 tax act provisions.
Phil will provide more details during his remarks my remarks will exclude the impact of these items in comparing Q3 2019 results to Q3 2018.
Third quarter EBIT margin was 13.1%.
Increase of 40 basis points versus the prior year, which is bit better than our expectations and EPS for the quarter was up 6.5% to.
To $1.32 per share overall, our results continue to demonstrate the consistency and diversity of omnicom's operations.
Our ability to deliver consumer centric strategic business solutions to our clients.
And our best in industry creative talent combined with market, leading digital data and analytical expertise.
Turning to our organic growth by discipline.
Advertising and media was up 3.4%.
Advertising and media agencies continue to rapidly evolve their offerings in a manner that has allowed them to remain highly relevant for their clients.
Healthcare had another very strong quarter with growth of 9.5%.
Omnicom Health group as some of the top agencies in the world, serving the health care and pharmaceutical industries and the group is very well positioned for continued growth.
Hi, I'm consumer experience, which includes digital and precision marketing events branding and shopper marketing was up 1.8% in the quarter.
Our precision marketing and digital agencies had high single digit growth in the quarter.
This growth was offset by a reduction in project revenues in our events and shopper agency.
As expected CRM execution support was down 1.5%.
Within this group field marketing performed well in the quarter.
While the not for profit specialty production and merchandising and point of sale businesses had negative growth.
Finally, PR was down 3.8% in the quarter, while some areas of VR face difficult comps, our PR business underperformed, we're committing significant resources to improving the operations.
Our PR group.
Looking at our performance by geography, the U.S. it was up 2.7% in the quarter.
Advertising media health care, and CRM experience business performed very well and as a whole had mid single digit growth.
This growth was offset by weak results in CRM executions port, which we had expected and have discussed in past calls and RPR business declined more than we expected.
Yeah in the United States, the North American region, primarily consisting of Canada was up 2.7 present in the quarter.
The UK was up 3% our agencies in the UK had very strong results across advertising and media and health care, partially offset by declines in CRM consumer experience in CRM execution support.
Overall growth in the Euro and non Euro region was 1.6%.
In the Euro markets, Italy, the Netherlands, and Spain performed well.
France had negative growth as it continued to be impacted by the loss or the specialty print production client.
In our events business also had negative performance due to difficult comps.
The non euro markets overall performed quite well led by the Czech Republic, Poland, and Russia Asia.
Asia Pacific organic growth was four tenths of upset.
India, Japan, and Zealand had double digit growth, Australia, and China were negative in the quarter.
Latin America was up 6.6% with the exception of Columbia, All the countries in Latin America performed well in the quarter.
Smallest region in the Middle Eastern Africa was down 4.5%, primarily due to weak performance in South Africa.
Looking at our cash flow in the nine months of 2019.
We generated just over 1.2 billion in free cash flow and returned approximately 960 million to shareholders.
Through dividends and share repurchases.
Our use of cash remains unchanged paying our dividend pursuing accretive acquisitions and repurchasing shares with the balance of our free cash flow.
Our balance sheet and liquidity remained very strong.
Overall, we're pleased with our financial performance in this quarter and remain on track to achieve a full year targets for 2019.
Turning now to our strategy and operations.
Please to report that we're in a very strong competitive position.
We remain focused on our key strategic objectives that has served US well. These strategies are centered around hiring and retaining the best talent driving organic growth by evolving our service offerings, improving operational efficiencies and investing in areas of growth.
As part of this process, we are continually making internal investments in our agencies across all of our practice areas as well as pursuing acquisitions, particularly in the areas of data analytics digital transformation precision marketing in health care over the past few quarters. We've made good progress on the enhancement.
Bill cities in digital transformation machine learning and audience centric services.
In the third quarter, Omnicom precision marketing group, which manages our CRM and digital agencies acquired a majority stake in smart digital Smart digital services and technology platforms are used to deliver large scale real time personalization solutions that enable individual.
Brand experiences and increase loyalty across all consumer touch points.
It significantly strengthens opium g.'s offerings.
Vision Sciences automation and machine learning.
Smart digital falls on the heels of the group's acquisition of Cordero.
Cordero overlays management consulting and digital transformation on top of old PMT is existing CRM and digital offerings.
A little more than a year crude errors help us Ford stronger relationships and partnerships.
With many of our multinational clients we've continued to invest in its growth and are currently launching new offices in New York in Chicago.
Acquisitions of Smart digital and Cordero have built upon opium geez already strong ability to work with clients from the very beginning of developing a marketing transformation strategy all the way through two campaign execution.
These investments in opium GE are fully aligned with our investments in omni.
In order to execute CRM campaigns, Oh, PMG agencies leverage their clients first party data and combine it with third party data available through omni.
To create powerful end to end individualize customer experience solutions.
As you are aware omni is our world class people based data and analytical service platform.
Oh PMG is one example of where our agencies are using omni to enhance their offering using data driven solutions.
On these tools and applications are used by agencies across the group to deliver growth efficiency and scale to our clients.
Fact, we're very pleased that our ability to integrate data into the creative process was cited in the recent analysis from leading research and advisory firm Forrester, when comparing data and technology platforms across the various holding companies.
Report states that the omni platform.
Offers the most creative integration of agency platforms. This advantage was achieved because our investment in omni were made for the purpose of servicing the specific needs or agencies and clients.
It cannot be achieved simply by buying legacy data platforms that weren't built with the flexibility required to meet the rapidly changing demands of today's marketers.
At Omnicom creativity is that our core we were founded by Creatives and it's part of our DNA omni is used by our creative agencies to employ data driven insights for developing the most effective marketing and advertising content for clients.
So while we continue to stress the importance of data analytics and technology. We also realized that they can only take us so far.
As I've said before it these are tools in service of creativity and content.
Which is also why it's critical that all of our agencies from CRM to creative to media to PR healthcare experiential.
And shopper leverage omni.
To date, we've scaled omni by training over 4000 employees worldwide. This training is critical to our strategy lose we know a platform is only as good as the people in our agencies who use it.
This has been our long held view, which Forrester eloquently stated in its report it's a combination of humans and machines that will give cmos the data driven execution, they desire and agencies, the new capabilities they need to remain relevant.
I now want to highlight a few new business wins that have come organically from existing clients as well as adding new marketers to our roster of clients.
In the third quarter, we deepened and expanded our existing engagements with some of the largest clients, including Astra Zeneca Novartis Wells Fargo, and Unilever, who awarded US two of their product lines Rexona to BBB and Sunsilk to Adam and Eve DDB.
We also won several new clients engagements from World class market is during the quarter.
Kroger the largest grocer in the United States and the second largest retailer behind Walmart named DDB, New York as its first ever creative agency of record Oh, M.D., one the global Boehringer Ingelheim animal health care.
And Aliansce named a number omnicom agencies for an integrated offering which will include creative media branding NPR. These results can only be obtained by having the best talent in the industry, who continue to be recognized by winning more of their fair share of industry Awards.
After winning big at the Cannes Lions Festival CR agencies continue their winning streak at the 2019 spikes Asia Festival of creativity was especially gratifying here a few highlights from spikes, which is often referred to is the column of Asia.
We had two networks within the top three with BBD being named network of the year for the six fear in a row and GBW a placing thered be video also had a strong performance in the APAC agency of the year category with coal Enzo be video coming in first and BB, though Pakistan coming in.
There.
Due to the outstanding work of our agencies, we walked away from the festival with over 120 Spike Awards 12 of which were Grand Prix, which translates as the highest honors in over half of the spike categories.
In summary, we made significant strides in evolving our services capabilities and organization to better service, our clients and their growing data needs.
While remaining grounded in our core business creativity.
We're pleased with our financial performance in third quarter, which continued to reflect the benefits of our strategies.
As we move forward in the fourth quarter.
I'm confident that we are well positioned to deliver our internal targets for the full year 2019.
I'll now turn the call over to fill for a closer look at third quarter results Phil.
Thank you John and good morning.
As John said, we had a solid quarter as our agencies continue to find a good balance between meeting the needs of their clients and managing their cost structures.
Before I start.
And as a reminder for comparison purposes.
There are a number of items that impacted our prior year third quarter 2018 results.
They included pre tax gain of $178 million on the disposition of cell Bitel, our European based sales support business, along with a number of other small transactions.
Pre tax charge of 149 million related to repositioning actions, primarily resulting from incremental severance and lease terminations.
And additional tax expense of approximately $29 million, resulting from adjustments to the provisional amounts originally recorded in connection with the 2017 tax Act.
As we reported last year.
The net impact of these items increased our reported Q3 2018 operating profit by 29 million net income by 18.2 million and diluted earnings per share by eight cents.
Therefore, we will present, our 2019 results in comparison to 2018.
Both with and without these items.
non-GAAP adjusted amounts on slides five through eight.
Present last year's results, excluding these items and show how our underlying business performed year on year on a comparable basis, which we believe as a meaningful presentation for investors.
And it is consistent with how management analyzers, our 2019 operating performance.
For the third quarter organic revenue growth totaled 2.2% or $83 million.
The continued strength of the U.S. dollar over the past 12 months created an FX headwind, which reduced our reported revenue by $57 million or 1.5%.
The reduction in revenue from dispositions made during the last 12 months, primarily in our CRM execution and support discipline exceeded revenue from acquisitions in the quarter.
As a result, our third quarter revenue was reduced by $117 million or about 3.1%.
In total our reported revenue decreased 2.4%.
3.6 billion in the quarter.
We will discuss the drivers of the changes in revenue in more detail out a few minutes.
Moving to slide five our operating profit or either for the quarter was $473 million with an operating margin of 13.1%.
In comparison to last year's non-GAAP adjusted results.
Operating income in total was effectively flat, while operating margin was up 40 basis points.
Q3, EBITDA was 495 million.
For the corresponding EBITDA margin of 13.6%.
Up 20 basis points first the adjusted 2018 Q3 results.
Improvement in margins when compared to last year.
Continue to stem from our ongoing efforts to improve efficiency throughout the organization, particularly in the areas of real estate portfolio management.
Back office services procurement and I T services as well as the change in business mix, resulting from the strategic disposition of several non core or underperforming agencies over the past year.
Net interest expense for the quarter was 49.3 million down 7.4 million compared to the third quarter of 2018.
And down $900000 versus Q2 this year.
Most of the decrease as a result of our refinancing activity. This quarter. However, the full effect of the resulting decrease the interest expense will not occur until Q4.
I will summarize the activity for you.
In early July we issued 1 billion Euro of senior notes in two parts.
We issued 500 million euro of eight year senior notes due in 2027 at an effective rate of 0.92%.
An additional 500 million of 12 year Euro senior notes due in 2031 had an effective rate of 1.53% to.
Together the Euro note issuance after deducting the underwriting discount at offering expenses.
Resulted in net proceeds.
Of $1.1 billion at an average rate of 1.23%.
Part of the proceeds were used to retire the 500 million of 6.25% 2019 senior notes, which came due in mid July .
In addition.
We called 400 million of the 4.4 or 5% 2020 senior notes for redemption on August Onest.
As a result of the refinancing activities this past quarter.
Expected ongoing long term debt portfolio will be comprised of.
$4 billion in U.S. dollar denominated debt.
And 1 billion euro in euro denominated debt.
In addition, with the drop in long term interest rates, we opportunistically settled our fixed to floating rate interest rate swaps at a small game.
As a result, our debt portfolio is now 100% fixed rate debt at very attractive rates.
Total third party interest expense for the quarter.
Decreased by $4.7 million when compared to Q3 of 2018.
Interest income increased slightly less than a million dollars period over period.
Interest expense on our debt decreased $3.9 million.
Versus Q2 of 29 team.
It was also driven by the refinancing activity in the quarter.
While interest income decreased 2.9 million.
For Q4, we expect interest expense savings of approximately $9 million from the refinancing activity.
However, total interest expense for Q4 and going forward.
We subject to the translation of our newly issued Euronote interest expense into dollars.
Regarding income taxes are reported effective tax rate for the third quarter was 26.5%.
Our year to date rate for 2019 now stands at 26%.
Anticipate that our effective tax rate for the fourth quarter will be a little bit higher or approximately 27%, excluding the impact of share based compensation items.
We cannot predict because they are subject to changes in our share price and the impact of future stock option exercises.
Earnings from our affiliates totaled $500000 for the quarter down slightly versus Q3 of last year, including the effect of FX rates and the allocation of earnings to the minority shareholders and are less than fully owned subsidiaries was $22 million during the quarter down 3.5 million versus the adjusted Q3 2018.
Come out.
Of the gain on the cell Bitel disposition included about $7 million allocated to minority shareholders in Q3 2018.
So for the quarter.
After adjusting to exclude the net impact of the gain on the dispositions and repositioning charges and the additional tax expense recorded in connection with the tax act of 18.2 million.
Our net income was $290.2 million, which represented an increase of 9.5 million or 3.4% versus last years, adjusted non-GAAP and now.
Of 280.7 million.
On a reported basis, our net income decreased by 8.7 million year on year.
Now turning to slide six.
Our share repurchase activity over the past 12 months decreased our diluted share count for the quarter by 2.9% versus Q3 of last year.
To 219.4 million shares.
Diluted EPS for the quarter was $1.32 per share up eight cents or 6.5%.
This is our non-GAAP diluted EPS of $1.24 in Q3 2018.
Since these adjustments added eight cents to last year's quarterly diluted EPS on a reported basis EPS was flat versus Q3 of last year.
On slides three and four we provide the summary, PL S and other information for the year to date period.
We've also provided the non-GAAP adjusted presentation for the nine month results on slide seven and eight which also excludes third quarter items that we separately reported last year.
Since the year to date results are in line with our Q3 performance I will just give you a few highlights.
Organic revenue growth was 2.5% during the first nine months of the year and inline with our expectations.
FX translation decreased revenue by 2.5%.
And the net impact of acquisitions and dispositions reduced revenue by 3.5%.
So for the year to date period reported revenue totaled 10.8 billion.
The decrease of 3.5% compared to the first nine months of 2018.
EBIT total a little under 1.5 billion and our year to date operating margin of 13.6%.
Was up 40 basis points, when compared to last years adjusted nine month numbers.
On a reported basis EBIT margin was up 20 basis points.
And our nine month diluted EPS was $4.17 per share up 19 cents or 4.8% versus the adjusted diluted EPS of $3, a 98 cents and up 11 cents compared to the amount reported a $4 on six cents.
Returning to the details of our revenue performance in third quarter, starting on slide nine.
Because of the dollars continued strength in the third quarter. The FX impact on our reported revenue again creates a headwind to our quarterly performance.
The impact of changes in currency rates decreased reported revenue by 1.5% or $57 million and revenue for the quarter.
The impact was once again widespread on a year over year basis. The dollar strengthened against most every one of our major foreign currencies, except the Japanese yen and the Russian ruble.
The largest FX movements in the quarter continue results from changes in the dollar compared to the euro the UK pound and the Australian dollar.
Looking forward if currencies stay where they currently are we anticipate that the FX impact will again reduce our reported revenue by approximately 1.5% for the fourth quarter.
For the full year. We're currently estimating that the FX impact will be negative by approximately two on a quarter percent.
The impact of our recent acquisitions net of dispositions decreased revenue by $117 million on the quarter or 3.1%.
As we've mentioned we completed the disposition of Sal Vitale, our European based sales support business at the end of August 2018. So we have now cycled through the impact of that disposition.
During the quarter.
We acquired smart digital.
Marketing Technology agency based in Germany.
And a welcome addition to our best in class precision marketing and digital transformation capabilities.
Based on transactions completed to date.
We estimate the impact of our acquisition activity net of dispositions will be a net negative of about 1.5% for the fourth quarter.
Melting in a net negative impact of 3% for all of 2019.
And finally, while remaining mix by geography, and by disciplined organic growth for the third quarter was up 2.2% or $83 million geographically.
Strongest performance was from our agency is based on the U.S., the UK, Japan and Spain.
Regarding our disciplines, our health care and advertising disciplines had solid performances and our CRM consumer experience discipline also performed well.
While our PR and CRM execution sport disciplines lagged.
Slide 10 shows our mix of business by discipline for the third quarter. The split was 56% trad retiring and 44% from marketing services.
As for their organic growth by disciplined advertising was up 3.4%.
Our media business as an advertising agencies continue to deliver solid performances, particularly domestically and in the UK.
CRM consumer experience was up 1.8% for the quarter.
Once again precision marketing had a very strong quarter.
Offsetting slightly sluggish performance elsewhere in the discipline, which faced difficult comparisons to the prior year, especially in our branding businesses, while CRM execution and support was down 1.5%.
PR, while next by market was down 3.8%.
And health care continued to turn in a very strong performance up 9.5% and once again, we saw solid growth across our agencies and the geography is they operate in.
On slide 11, which details the regional mix of business you can see during the quarter. The split was 55% in the U.S.
3% for the rest of North America.
10% for the UK, 17% for the Euro zone, and the rest of Europe , 12% for Asia Pacific, where the remaining 5% split between our Latin America, and Middle Eastern Africa markets.
Turning to the details of our performance by region on Slide 12.
Organic revenue growth in the third quarter in the U.S. was 2.7%.
Led by our advertising and media agencies, and our health care and precision marketing agencies.
Partially offsetting this was the performance of our PR agencies as well as our CRM execution support agencies, including or not for profit and merchandising point of sale agencies.
Our other north American businesses were up 2.7% with media driving the organic growth.
The UK was positive again this quarter up 3% driven by strong performance from our advertising media and healthcare agencies.
The rest of Europe was up 1.6% organically in the quarter.
The performance remains a decidedly next by market and by discipline.
In the Euro zone, our strongest markets, where it'll lead the Netherlands, and Spain, Germany.
Germany was slightly positive in the quarter, while France, driven by weak performance and our CRM execution and support business as locally once again lagged.
And our organic growth in Europe outside the eurozone continues to be positive across most markets.
Several of our largest markets in Asia Pacific facing difficult comps versus Q3 of 2018, when the regions organic growth was in excess of 14%.
Organic growth this quarter was a modest four tenths of a percent.
Our greater China agencies were down mainly due to decreases at our media agencies.
As was the case and the second quarter, China was facing a difficult comparison to Q3 of 2018 when its growth was also double digits.
Elsewhere in the region, we saw strong performance from our agencies in India, Japan, and New Zealand.
Latin America was up 6.6% organically in the quarter.
Mexico in Chile for positive, while Colombia was down organically.
Brazil had positive organic growth.
But our businesses there continue to encounter a significant macroeconomic issues.
And lastly, the middle East in Africa, which was our smallest region was down for the quarter.
Turning to slide 13, we present, our mix of revenue by our clients industry sector.
And comparing the year to date revenue for 2019 to 2018.
We continue to see a small shift in our mix.
Primarily as the result of the reduction of the contribution from our technology clients.
Melting from the Sal Vitale disposition.
Turning to our cash flow performance on slide 14, you can see that in the first nine months of the year, we generated just over $1.2 billion of free cash flow.
Including changes in working capital for the first nine months of 2019.
As for the primary uses of that cash on slide 15.
Dividends paid to our common shareholders were $423 million up slightly versus the first nine months of last year.
As you recall, we increased our quarterly dividend by five cents per share effective with april's payment.
The increase in the cash payment was partially offset by a reduction in common shares over the past 12 months.
Dividends paid to our non controlling interest shareholders totaled $72 million.
Capital expenditures were $77 million year to date down compared to 2018.
The last leasehold improvement activity this year as well as an increase in our equipment leasing program.
Acquisitions, including earn out payments totaled $76 million down when compared to last year.
When we executed on several acquisitions.
And stock repurchases net of proceeds received from stock issuances under our employee share plans.
Increased to $540 million.
All in we generated a little over $20 million, a net free cash flow year to date.
On page 16, we present, our capital structure as of September Thirtyth, which reflects the changes we discussed earlier regarding the refinancing actions we took in the quarter.
Regarding our capital structure at the end of the quarter, our total debt as just a little over $5.1 billion.
And our net debt position at the end of the quarter was in line with our expectations at $2.67 billion.
Down 90 million from this time last year and up 1.4 billion compared to the yearend 12 31 2018.
Over the first nine months of the year compared to year end. The increase in net debt was primarily the result of the typical uses of working capital that historically occur as we progress through the year.
Year on year.
Improvement in net debt is primarily due to improvements in our working capital management.
As for our debt ratios they remain solid.
Our total debt to EBITDA ratio was 2.2 times and our net debt to EBITDA ratio was 1.1 times.
And while our interest coverage is 9.6 times.
Down due to the increase in interest expense.
And a reduction in reported EBITDA, we anticipate that our refinancing activity will positively impact this ratio going forward.
And finally on slide 17, you can see we continue to manage and build the company through a combination of well focused internal development initiatives and prudently priced acquisitions.
The last 12 months, our return on invested capital ratio was 23%.
While our return on equity was 54.6%.
And that concludes our prepared remarks. Please note that we've included a number of other supplemental slides in the presentation materials for your review.
But at this point, we're going to ask the operator to open the call for questions.
Thank you.
Okay, ladies and gentlemen, if you'd like to ask a question. Please press one than zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command if you're using the speakerphone. Please pick up the handset for pressing the numbers. Once again, if you have a question. Please press one then zero at this time and one moment. Please for your first question.
Your first question comes from the line of Alexia Quadrani from JP Morgan. Please go ahead.
Hi, Thank you very much I guess first off just for maybe for John any color you can give us on how the advertising.
Dealing with sort of a feeling about the overall outlook are they incrementally nervous about the economy or is it more business not more so than usual just any update on account of business would be great.
I would suggest that it's business as usual.
There are always macro concerns.
They change from quarter to quarter period to period, but there's always something out there.
Folks are focused on our clients' needs and we don't see any.
Any significant change.
Reported.
And then on the CRM execution business you know it sounds like its remaining weaken the last 10 I think also you mentioned that the UK.
It is that a business that you should ultimately see turning our improving or is it may be something that you're still assessing for potentially you know picking up more potential divestitures.
We're constantly.
That's the one sector, we've we've been focused on.
Over the course really the last two and half years, and we continue to evaluate properties in in that particular sector.
Many of the companies there are affected.
By changes in technology.
That has an impact.
On on the growth that we experience.
So.
That's something we can having said that we continue to look at the entire portfolio, but yes, certainly some good businesses in the portfolio and several.
Yes, several categories that that we think.
Our promising I may not be on the top of our list of of.
Categories that were going up.
Actively pursue acquisitions and but.
There are parts of the portfolio that we continue to work very hard with management on to improve and there are other parts of the portfolio the doing just fine.
And I guess, just lastly, just overall in the any UK within just a little bit as a softening of the otherwise good great acute team.
I think anything sort of Brexit related or is it just more kind of normal course of business.
This quarter.
Hi, I couldn't attributed to Brexit.
It's just some of the events business is some things that.
Projects timing was off in terms of one.
When they were.
Yeah, we really haven't seen any negative.
A negative impact some of Brexit in our businesses at this point.
We still certainly with our management teams keep keep close eye on on what the impacts might be.
But nobody knows really when or if.
Net never mind.
What what the impact that would be on on our agencies themselves, but overall.
We have a great portfolio companies and in the UK and they've been doing a great job for quite awhile.
Hi, Thank you very much.
Your next question comes from the line of Julien Roch from Barclays. Please go ahead.
Yes. Good morning, Thank you for taking the question.
The first two for John the last one Phil.
And John are you seeing any slowing in media.
Like Publicis always it's specific to them because that's one of the three reasons. They said that the organic was put in Q3 that media, we're starting to so.
That's my first question.
The second one is Q4 independence, you've always talked about it as as an adjustment in Florida.
Do you see the adjustment this yeah.
Again business as usual, we'll macro make advertisers more nervous.
That's the second one.
And then on fulfill a just.
Yes, good question I couldn't impact and then on the net interest guidance, you say 9 million savings.
Do you mean quarter on quarter year on year.
Thank you.
I haven't read the publicist transcript, but our army of your business continues to perform very well as reflected in our numbers.
And.
Right.
Very vibrant business and we continue to win.
Our fair share for more than our fair share of accounts.
With respect to the fourth quarter, I think I'll say something very similar to what I've said the last 20 to 23 years of fourth quarters and that is there's always a.
On an identified projects in the fourth quarter. They generally in our case start off looking like $200 million.
We ended September and I think all but one of the years with now that the great recession, we've been able to fill those gaps in the projects in and.
And budget releases from clients, who might have been holding back.
As of September Conservative. So so we're cautiously optimistic as usual and people are very focused on.
On obtaining that revenue.
Okay.
Yeah on.
Your last question Julien on on net interest expense.
The reference was a quarter on quarter.
For Q4.
We anticipate savings in 2020 as well.
Right I think I think that might vary a little bit.
For each of the quarters in 2020 based on how much.
How much of the benefit we had already achieved.
So as we get.
Closer to I'm, starting to plan for 2020 will be a little more definitive on what those numbers are as far as an expectation in 2000.
And I can.
Oh Accuen actually one is is just about flat I think the number overall was down about 4 million Bucks.
Okay fantastic. Thank you very much thank you.
Your next question comes from the line of Greg Huber from Huber Research Partners. Please go ahead.
Correct.
A question.
Sean Whats the thought right now on the U.S. the common as you call.
Yes.
Can you guys.
There are issues.
I don't know if it's a cell phone or you're breaking up a little bit can you. Please repeat it.
Yes, it's a cellphone ill speak a little slower maybe what's your thought Jonathan the yield on and do you feel like that you back.
Revenue in the U.S.
I think for US economy is strong I see I think as I said in my remarks.
When we look at our core businesses the ones that we anticipate growth from grew very well mid single digits. They were dragged down.
Bye.
Bye.
Vince and some projects, which did not come through the quarter and.
Has been some variance in that business. This year also.
Some impacts in the shopper marketing area, which we expect will grow through at some point.
And then as Phil was mentioning before in an earlier question some of the CRM execution businesses were a bit challenged and and.
As I mentioned in the call our PR business was challenged.
Quarter if.
If that it's simply been flat our reported organic growth would have been.
A lot higher so I mean, you can do the math simply by looking at our presentation.
And we're working on that.
Good afternoon.
Yes.
I'm sorry, Greg.
It was having trouble hearing you correct.
Yes.
Not sure what's going on now.
So much difference each of the three months for your organic growth third quarter versus a 2.2% overall.
Yeah, I think I heard that I think I think the question was was that much of a difference month by month in organic growth.
Yes fully.
I think the answer is we don't we don't really look at it that way.
You know each month.
We don't new hard close I'm like we do each quarter and at year end, so while directionally.
We certainly are focused on.
The monthly results that are agency summit.
We're also looking at their forecasts for.
Full quarter and and end the year as we review the results with the companies because the timing.
Like Barry month by month of of water project was completed or or or how the.
Loves played out versus last year.
So we're really focused on the quarterly results and then the full year. So I don't think I would say there was anything significantly different month by month or.
Year on year.
Relative to each month.
Terms, how we look at the business.
But another if you can you hear me with consumer packaged goods clients CPG are you seeing any stabilization there with the revenues.
You know I think in our case.
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CPG relative to some of our competitors is not as large a component of our.
Portfolio of clients.
And you know that I think.
Actual results or are probably next with our CPG clients some of them.
Have in fact.
Some of our revenues have in fact from down in some of our revenues on other clients in the CPG space have gone up a bit.
So I think is probably a mixed performance for us as opposed to one overall trend for all of our clients in that space, but the only thing I would add to that Greg is.
We've been fortunate to be winning business in that category as I mentioned in my comments Unilever assigned to its previous brands to us.
Just recently so.
So net net we're okay.
Thanks, Greg.
Your next question comes from the line of Tim Nolan from Macquarie. Please go ahead.
Hi, Thanks, a couple of things. Please first off can you remind us maybe so what the timing is on rolling off of the effects of the disposition that looks like the effect is slowing into Q4 with less of a negative impact do you cycle through that as of Q1 and related Lee.
He is there any impact on the organic growth that you could call out as a as it refers to that he.
Has them coming off this year helped raise your organic growth a little bit this year secondly.
More kind of broadly strategically on the data driven businesses. The digital transformation businesses, you're talking about now you'd mostly built fees and you've talked about these quite a bit the last few quarters. You've now referred to a couple of acquisitions I guess to relatively small I just wonder if there's any shift in strategy toward more acquisitions in the space and if you could comment maybe on on where you see this.
Line of business going you're talking a bit more about I T a bit more about consulting maybe what kind of work maybe emerging in this area. Thanks.
Sure So all I'll start with.
The dispositions and then.
I'll pass your second question on to John first.
As far as the impact and in 2020.
And.
Q4, 19, Q4, 19, but I think and our prepared remarks, we said we expect.
Disposition.
Dispositions to outweigh acquisitions by about 1.5%, so 1.5% negative in the fourth quarter.
In the first quarter based on dispositions and acquisitions, we completed to date.
In the past the first quarter, we expect probably is going to be somewhere around negative 0.5%.
And after that.
Got it flattens out.
And our our expectation is.
Similar to our strategy that we've been pursuing pretty consistently what we're going to continue to try and find.
Accretive acquisitions and and as many as we can find that are.
In line with our.
Criteria in terms of it being a good step with our existing portfolio of businesses and our clients it's on strategy.
And the pricing is is a fairly reasonable.
You know, we're going to pursue those acquisitions and if we can do more we want to do more so.
Yeah, the expectation though.
Is or the number just based on what we completed to date or expectation is we're going to continue to pursue those acquisitions and and the goal would be for that number to turn positive again.
In terms of just the second part of that question.
The impact of those dispositions on organic growth.
In the quarter in 19.
I'd say, it really hasn't impacted our organic growth one way or the other in a meaningful way.
There might have been a little bit of a benefit but not meaningful enough to call it out.
Okay.
Okay and in terms of our focus I'll refer you back to my prepared remarks, where I said that.
Our our primary focus and pursuing acquisitions is an area of data analytics digital transformation in precision marketing.
Yes.
Most of our practice areas.
But echo fills point.
We will throw reckless money, if things were capable of building.
So we're very disciplined about the acquisitions we make.
So some just one last point I mean, I think in terms of some of the deals. We we completed recently cordero.
Which has been with us for a little while now.
As has really worked out well, it's been integrated into our precision marketing group and is growing quite nicely and to the extent that as John said, we can find more.
Deals in the areas that were particularly interested in we're going to pursue them.
Thank you.
Your next question comes from the line of Ben Swinburn from Morgan Stanley . Please go ahead.
Thank you good morning.
Two questions.
What I was curious John I know you mentioned, you didn't read or listen to the.
Excuse me the publicists call but.
I have filled that asking you about someone else's comments, but one of things they've talked about for a long time has been the impact of attrition in the U.S. sort of in house, seeing or insourcing, particularly around media and they're obviously, a large company I'm just curious if you see that as a trend.
If you do it doesn't seem to be impacting your financials. So how are you sort of offsetting that or maybe just don't see it is as much of a factor in the business as a as they do.
And then I just wanted to ask about the Disney when I know you guys don't like to talk about specific account wins and losses too much but that's a sizable one I'm just curious if you could help us think about how incremental that is to the existing Disney business and when we might see that start impacting your results.
Thank you guys.
Again, I haven't studied publicists as media business I was little bit shocked to see is in decline because earlier in the year. They've won a couple of very large accounts, yeah I'm not on the inside of it. So I can't tell you the answer they probably have suffered more than we certainly have because of their.
CPG clients and some of the changes that are happening there, but again I can't speak for public sees any accuracy. So you have to take that comment where the grain of salt.
The Disney when is very important but.
Part of that win.
Was business, we already had so yeah. It was incremental business that we received.
We're able to defend our business very well and so we're very pleased with our relationship there and look forward to is growing as we go forward.
Yeah as far as one the transition exactly who is going to is going to benefit us.
Yeah.
Not sure that.
It's going to be any different than any other any other clients situation, though there will be a transition period.
I think our intention will be to tell transition what we don't have as quickly as we can but.
In a lot of that is based on on.
How quickly that client wants to change to occur.
Maybe just John as a follow up is.
Bringing more and more media in house, they CPG specific.
Trend in your mind or do you think its broader.
You mentioned that piece of the puzzles before.
I haven't truly study did it.
Closely I mean technology changes what comes in house, and what stays out an agency.
Yes, oftentimes somebody who is doing something with us and they decide to in house, we follow looming in house to help them.
Set up and grow and that's just and enhances the relationship so.
But I think the most dramatic.
Changes that we've noticed.
And in housing has really been.
Really been CPG area, others do it.
But they do it for whilst on the do it for a while men decided they can't do income actors.
So it's just a constant.
Yeah, I mean clot clients covenants that experimenting within a housing for years, we expect they'll continue to do so.
With your your question specifically geared toward media.
Yeah, the there's some significant investments required.
And you know we've made them and we've been making them over the last 10 plus years.
And they're not.
Easy to duplicate yeah in our business.
We've been looking to do more.
Outsourcing specialists, who can do some of the.
Functions that we've been performing internally more efficiently and effectively.
So.
We don't we don't see this trend is as much difference and then ultimately.
Clients eventually going back to the specialists and the people that have made the necessary investments and that can get to scale and and the skills.
To help them.
What they're trying to achieve.
I think I think given the.
Timing and in the markets about so when we we have time for one more call.
Your next question comes from the line of Michael Nathanson from Moffettnathanson. Please go ahead.
Thanks, I appreciate it I'll be quick one for John one for trying to fill so John given the problems that these European competitors of yours have in North America you know.
It's pretty obvious it losing a lot of share here to you are you seeing any change in the competitive pressure to either retain talent or on deal terms or anything that you see a happening in the marketplace due to their weakness.
Not.
Not that I could call on individually.
We've always.
In terms of talent, we're always in search we think we have the best talent in industry.
Yes.
In an effort to.
To acquire bar over that better talent so.
In that regard.
Yes.
There's a lot of recruiting that comes on within the industry.
That quite.
Answers your question, but.
Yeah.
Like we've seen dramatic changes in terms of deal terms of.
And it certainly has an ease the if.
As a result of our competitors, maybe being less active on the acquisition phone true.
Okay. Let me ask you both so on dividends versus buybacks.
You called out where where are you finding that's your long term paper, that's incredibly cheap and you know how low rates are.
Is there any internal thinking about maybe positioning more of your capital returns to dividends versus buybacks as time goes August to make a stock more attractive is that conversation you guys have entered into it all.
Hi, Dave dividends or our matter that are our board.
Consider is on a periodic basis and it's something that yeah, we certainly discuss a few times a year.
And yeah. The board looks at a very seriously, we certainly want to be as consistent as we can in terms of.
Our dividend policy in our capital allocation policy.
I think yeah, we think we've certainly done that.
I don't think we have any intentions of of change yet in any significant way.
But as it is more of a aboard decision.
Okay. Thank you.
Thank you all cert for taking the time to join us on the call.
Ladies gentlemen that does conclude your conference for today. Thank you for your participation and for using ATM T. Executive teleconference. You may now disconnect.
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