Q1 2022 Omnicom Group Inc Earnings Call
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Good afternoon, ladies and gentlemen, and welcome to the Omnicom first quarter 2022 earnings release Conference call.
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Later, we will conduct a question and answer session to participate please press one zero.
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As a reminder, this conference 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 Gregory Lundberg. Please go ahead.
Good afternoon. Thank you for joining our first quarter 2022 earnings call with me today are John Wren, Chairman and Chief Executive Officer, and Phil Angela Astro Executive Vice President and Chief Financial Officer.
On our website Omnicom group Dot com with posted a press release, along with the presentation covering the information will review today as well as the webcast of this call.
An archived version will be available on today's call concludes.
Before we start I'd like to remind everyone to read the forward looking statements non-GAAP financial and other information that we have included at the end of our Investor presentation.
Certain of the statements made today may constitute forward looking statements and these statements are our present expectations relevant factors that could cause actual results to differ materially are listed in our earnings materials and in our SEC filings, including our 2021 Form 10-K . During the course of today's call. We will also discuss certain non-GAAP measure.
You can find a reconciliation of these to the nearest comparable GAAP measures in the presentation materials. We will begin the call with an overview of our business from John then Phil will review our financial results for the quarter. After our prepared remarks, we will open the line up for your questions.
I'll now hand, the call over to John .
Greg Good afternoon, everybody and thank you for joining today, we're pleased to share our first quarter results before I discuss our performance I want to address the ongoing war in the Ukraine we.
We continue to be witness to this horrific war and our focus remains.
The safety and wellbeing of our Ukrainian colleagues and their families.
We've been in constant contact with our agency leaders in the Ukraine and continued to deliver needed humanitarian assistance and support.
Was privilege to meet our senior regional leaders in Wausau, a few weeks ago.
I continue to admire the tremendous spray very high value creamy and colleagues as they defend their country and protect their families.
Since the onset of the war our teams in the region from Poland, Czech Republic, Romania, Slovakia, Bulgaria and hungry.
Been providing extraordinary support to their coworkers from Ukraine.
He was truly remarkable to see.
I'm honored to lead a company with a culture of caring and compassion that displays such unity and strength I want to extend my gratitude to our people around the world that have selflessly and tirelessly worked to help our Ukrainian colleagues.
We hope for and into these atrocities and a peaceful resolution to the war.
Omnicom will continue to offer whatever assistance as necessary and will support our people for as long as needed.
Turning now to our financials, we increased our operating margin and exceeded our expectations for the quarter with organic growth of 11, 9%.
We made the decision to withdraw from Russia, and dispose of our operations.
As a result, the financials for the quarter reflect our Russian business only through the end of February .
We also took a charge arising from the effects of the war and the Ukraine.
Phil will provide more details during his remarks.
Our revenue growth and margin performance in the quarter was very strong across all geographies and disciplines.
Our revenue performance reflects the continuing investments that our clients are making to strengthen their marketing branding consumer experience E Commerce and digital transformation efforts in a rapidly evolving digital economy opt.
Operating profit margin for the quarter, excluding the charge arising from the effects of the war in Ukraine was also very strong at 13.7%.
This is 10 basis points higher than our margin in 2021 I want to complement our agency management teams for growing their businesses, while tightly managing costs in line with revenue growth.
Earnings per share for the quarter, excluding the charge was $1 39.
Up four 5% versus 2021.
Finally, our cash flow and balance sheet remain very strong and support our primary uses of cash.
Dividends acquisitions and share repurchases.
During the quarter, we continued to invest internally and through accretive acquisitions in high growth areas like CRM and precision marketing.
Digital transformation and Martech.
Analytics E Commerce performance media and the health sector.
In the quarter, we acquired T. A digital a leading global digital experience consultancy.
The acquisition further expands the digital transformation contact management Congress and customer experience capabilities within our precision marketing group.
Throughout the group our agencies are delivering connected consumer experiences across media and commerce platforms within owned paid and earned environments.
All of this is enabled by omni I D.
Our proprietary person based identity solution delivering reach and precision that is part of our omni open operating system.
Omni I D is built to be privacy compliant and is a future proof framework for a post cookie marketplace.
It delivers the highest possible degree of first party and CRM data management control and governance.
Our investments in these high growth areas in our data and technology capabilities and in our best in class talent have positioned us extremely well to service our clients now and in the future.
I wanted to take a moment to welcome and congratulate two new members of our board of directors.
Tricia solace pin Nader and Mark Gerstein diversity of Omnicom's Board is something we take pride in especially as we look to continue to improve diversity equity and inclusion throughout our entire organization.
The end of 2021, we saw meaningful progress in our workforce diversity across all professional levels in the United States.
We're not done and we will continue to drive improvements throughout 2022.
Overall, we're very pleased with our quarterly results, while we're off to a strong start in 2022, we continue to plan cautiously for the remainder of the year given the ongoing war in the Ukraine the effects of the pandemic across markets the continuing disruption of.
Global supply chains, and the economic risks posed by higher inflation and oil prices with that said given our strong performance in the first quarter, where you are increasing our forecast for organic growth to between 6% and six 5% for the full year 'twenty 'twenty.
Two and we anticipate delivering the same strong operating margins for the full year 2022 that we delivered in 2021 .
I'm confident we will continue to operate at a high level through this business cycle as our agencies remain an integral partner in growing our clients' businesses.
I wanted to thank our people around the world for your compassion and dedication.
You have continued to produce incredible work for our clients your resilience not only drives our financial success. It defines who we are as a company.
So thank you once again.
I want to now turn the call over to Phil for a closer look at our financials Bill.
Thanks, John and good afternoon.
Thank you for taking the time to join us today.
Our first quarter results were very strong.
It's good to see the continued momentum which resulted in growth across every one of our disciplines.
Before we go into the details.
Please turn to slide three where I'd like to draw your attention to the fact that our operating profit and EPS were negatively impacted by the announcement of our withdrawal from Russia as.
As well as charges related to the effects of the war in Ukraine on our agencies there.
We have sold or committed to dispose of all of our businesses in Russia and during the quarter. These actions resulted in a pretax charge of $113.4 million.
As a result.
Operating profit of $353 million was down $112 4 million or 24, 1% compared to Q1 of 2021.
Our tax rate was elevated due to the non deductibility of the charges plus an additional $4.8 million tax charge related to our withdrawal from Russia.
Reported revenues were down slightly as strong organic growth of 11, 9% was offset by the negative impact of foreign exchange rates and disposition revenue in excess of acquisition revenue.
Turning to slide four which shows non-GAAP adjusted amounts you can see after adjusting for the charge our first quarter operating profit was $466 4 million.
Slightly above last year and our operating profit margin was 13, 7% also slightly above last year.
Amortization expense was flat year over year and as a result, non-GAAP adjusted EBITDA and EBITDA margin were flat with last year.
As a reminder.
Last year's 15.4% operating profit margin included a gain from the sale of a subsidiary of $51 million, which was recorded in the second quarter.
As John said, we are still comfortable with our guidance of 15, 4% for the full year 2022.
Slide five shows the non-GAAP adjusted amount for net income of 292 million for the first quarter and diluted EPS of $1 39 per share up four 5%.
We are pleased with this underlying performance and the strong organic growth across our businesses and geographies as well as a work and travel environment that continues to normalize.
Let's now go into some more detail beginning on slide six.
Our organic growth was a strong 11, 9% or $408 million the.
The impact of foreign exchange rates decreased our revenue by two five percentage points.
If rates stay where they were as of April 15th.
We estimate the impact of foreign exchange rates will reduce our revenue by approximately 3% in the second quarter.
And by 2% for the year.
The impact on revenue from our net acquisitions and dispositions decreased revenue by nine 9%.
This was consistent with our expectations and is primarily the result of disposition activity from Q2 of 2021 and.
And our advertising and media discipline in the U S, which will cycle through after the second quarter we.
We expect this reduction from dispositions, including the disposition of our businesses in Russia.
To reduce our revenue by approximately six 5% in the second quarter of 2022 and.
And we expect acquisitions net of dispositions based on deals completed to date.
To be approximately negative four 5% for the full year.
Now, let's look at the changes in our total revenues by business discipline on slide seven.
Advertising and media our largest category.
Posted 9% organic growth in the quarter with continued momentum in both our media and our creative agencies.
Precision marketing grew 23% organically in the quarter and is now approximately 10% of our total revenues.
Up two points from the first quarter of last year.
Our strong growth is being led by demand for our capabilities in digital transformation.
Our tech.
Data and analytics and activation in particular Cordero <unk> continues to perform exceptionally well.
Commerce and brand consulting was up 13.8% led by our branding agencies and continued benefits from corporate spinoffs brand architecture work and widespread focus on corporate reputation around D Eni and ESG issues.
We're also seeing increased demand from clients looking for retail media E Commerce and D. T C solutions.
Experiential had organic growth of 68% compared to negative 33% in Q1 of 2021.
Reflecting an increase in number of global in person events.
These events are important to our clients brands.
Cause they engage with customers and build loyalty in unique ways.
Results were especially strong in the middle East as we look forward. This year, we expect growth to continue.
But will likely be choppy by quarter as clients adjust to the post COVID-19 environment.
Execution and support was up six 3% led by demand in field marketing and a pickup in physical retail activity.
PR was up a very strong 14%.
Reflecting growth from both long standing and new clients and a pickup in overall activity as clients adapt their post pandemic positioning.
Health care grew seven 7% with strong performance across our agencies.
Turning to slide eight we saw a strong organic growth rates in virtually every region and we're pleased that growth was solid within each of these regions and across all of our disciplines.
In the U S. Our 10.6% organic growth was led by precision marketing advertising and media and public relations.
Outside of the U S.
Growth was led by Europe , and its growth was driven by advertising and media experiential N P. R.
The Asia Pacific Region was also a key driver as well as the middle East, which saw a strong growth and experiential and advertising and media.
Looking at revenue by industry sector on slide nine relative to the first quarter of 2021, the broad distribution of our clients remained fairly stable.
The only notable shifts were two point increase in technology offset by a reduction in revenue from clients in the travel and entertainment industry.
This change was largely driven by the disposition of a business that had a high concentration of clients in this industry in Q1 of 2021.
Let's move down the income statement now on slide 10, and review our operating expenses for the quarter.
In total our operating expense levels were down by 20 basis points year over year.
Despite the significant pick up in our business activity and the continuation of our strategic investments in the business.
When you look at operating expenses as a percentage of revenue the.
The year over year comparison is not comparable because of the impact of dispositions made subsequent to Q1 of 2021 Sam.
Salary related service costs, our largest category.
Increased by eight 8% consistent with growth in our revenues, excluding dispositions and acquisitions.
Adjusting 2021 for amounts related to acquisitions and dispositions salary and related service costs were 53% of revenue.
Roughly the same level as this year.
Third party service costs were down $199 million or 22% they decreased by approximately $315 million from dispositions and were offset by an increase of approximately $114 million from growth in our businesses.
Adjusting 2021 for amounts related to acquisitions and dispositions third party service costs were approximately 19% of revenue similar to the level this year.
Occupancy and other costs, which are less directly linked to changes in revenue were up 2.9% year on year due to an increasing number of people returning to the office, partially offset by lower rent and other occupancy costs as we continue to efficiently manage our real estate portfolio.
The increase in SG&A expenses on a year over year basis was due primarily to a normalization of our business.
Two 8% of revenues this quarter SG&A has been around this level for 12 months now and is in line with our pre pandemic run rate.
There's one thing I would like to highlight regarding interest expense going forward.
Please remember that our interest expense in Q2 of 2021 had a $26 million one time charge related to the early redemption of our 3.625% notes.
Our total interest expense in that quarter was $80 million compared to just 51 million this quarter and 43 million net of interest income.
We expect net interest expense for Q2, and the remainder of 2022 to approximate that run rate.
We expect our tax rate for the remainder of the year to approximate 26, 5% similar to our rate this quarter after adjusting for the charges arising from the effects of the war in Ukraine.
Our diluted share count was down three 2%, primarily due to our share repurchase activity in the second half of 2021 and in the first quarter of 2022.
Let's now turn to slide 11 for our cash flow performance, we define free cash flow as net cash provided by operating activities. Excluding changes in working capital, which are generally positive for us on an annual basis.
Free cash flow of $340 million was down $43 million.
Adjusting for the cash related portion of the charges arising from the effects of the war in Ukraine, a $48 million free cash flow was flat year on year.
Regarding our uses of cash.
We used $147 million of cash to pay dividends to common shareholders and another 14 million for dividends to noncontrolling interest shareholders.
Our capital expenditures of $23 million were back to normalized levels.
Acquisitions net of dispositions and other items were $259 million as.
As highlighted at the back of this presentation. This included the purchase of T. A digital and is aligned with our stated strategy of pursuing acquisitions in our faster growing disciplines.
And lastly, our stock repurchases during the first quarter with $287 million net.
This puts us on the way toward our historical annual range of 500 million to $600 million.
This capital allocation mix may vary and emphasis as opportunities present themselves.
But our overall approach and philosophy have not changed.
Slide 12 is an overview of our credit liquidity and debt maturity schedule. There were no changes in our long term debt outstanding during the quarter.
As of March 31, our total leverage was two five times in.
In addition to the $4 billion of cash and short term investments on the balance sheet.
We also have a $2 billion U S commercial paper program.
Stop by our $2 5 billion revolving credit facility.
I'll end my prepared remarks today.
On slide 13, which shows our strong return on invested capital of 26, 4% for the 12 months ended March 31, and 41.7% return on equity.
These returns are both extremely strong.
And are a reflection of our consistent operating performance and consistent approach to capital allocation.
At this point operator, please open the lines for questions and answers. Thank you.
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Our first question comes from the line of David Karnofsky JP Morgan. Please go ahead.
Thanks for taking the question just on the outlook given the really strong result in Q1. It does appear you're assuming a not insignificant deceleration in organic for the rest of the year on you know what I think are relatively similar to your comps just wondering John if he can speak a little bit more to the conversations youre, having with clients on inflate.
<unk> supply chain or the economy and kind of how that's impacting your view on guidance. Thank you.
Sure.
Thanks for the question David.
Our guidance really is based first sort of on a bottoms up review.
Company by company sector by sector or practice area by practice area.
I think just about every client.
I've spoken to and I'm struggling to quite a few and across the United States and Europe .
Hum.
Now as the uncertainty that's out there.
They're not been they're not stepping back from their spending or their commitment to the brands.
At this point.
But there is uncertainty.
Yeah.
We're confident enough in our.
In our <unk>.
Performance in our forecast that we raised and I think this is the first time.
In my 26 years, and you can multiply that by four is how many quarters have been on this thing.
That we've ever raised after the first quarter our estimates now it is.
Conservative.
Hum.
You have to remember that.
There is a.
Project work that comes out throughout the year and the further you get out.
In a year.
You know the more uncertainty it is.
You don't know how any of these things are going to end.
If you look at the chatter.
In the U S.
There's a strong argument to be made that.
We're probably at peak inflation, but we don't know how long was it going to go or what the other impacts are going to be.
So we're very comfortable with the.
With the estimates for what we're going to do this year, which was we said between six and six 5%.
And that we're going to maintain at least maintain our margins that we achieved last year of 15, 4%.
Okay, and then maybe just a follow up on the outlook would be interested to get your views on areas like experiential and execution and support.
You know at the end of 'twenty 'twenty. One these segments for you know running still well below 2019, and we did see a big celebration for events in the quarter, maybe less over to execution I'm just wondering how much of a lift towards pre pandemic levels, you're expecting or seeing as restrictions fully go away.
Well you know that's an interesting question and it ties exactly into the last question you asked.
Hmm.
If I was answering this a month ago I would have been extremely extremely bullish.
And then they closed down in Shanghai.
Right.
So.
These things tend to be.
Planned but.
The windows between when you assigned the business and the execution occurs.
<unk> is generally not that long, it's no generally no more than.
Yep 12 to 14 weeks and.
You know, it's a little hard to believe.
That you can close down a city as large as Shanghai or the way that the Chinese decided to do it. So we were a bit conservative there we are confident.
In our forecast for the U S.
In this area we're confident.
And most of our forecast for Europe .
And the middle East, but the Asian.
Forecast that we've seen we've discounted.
And I think our expectations for those those two disciplines are our.
Yeah, certainly more subject to.
Or.
And you know we've got less visibility.
It's probably a better way to describe it when you get to the second half of the year certainly the businesses have done a good job.
Getting ready to come out of Covid and they've been growing.
Coming out of Covid, So we're happy with their performance, but as we look at the second half of the year since they are largely project based.
Yeah their forecasts are probably more conservative.
And then most.
And I think I think yes subject to a little bit more uncertainty in terms of clients' spending plans.
Especially experiential given.
Yeah. Some of the changes that could occur like the ones that are being experienced in China right now so those two disciplines in particular.
Yeah, We're we're certainly happy with our operating performance, but but in the second half, there's a little less visibility.
To how they're going to perform sitting here today.
Thank you.
Sure.
Okay.
And the next question comes from the line of Jason Bazinet with Citi. Please go ahead.
I guess I just.
I'm going to ask this question because I'm gonna get asked by a cynic I'm sure Tomorrow, if I don't ask it so.
Kris and the outlook, which is unusual as you said usually don't do it in the first quarter with the sort of flat margins at 15 four relative to your prior outlook I think a cynic would say this is just because inflation ran harder than you anticipated.
Is that is that a wrong interpretation.
Yes, I'd say it is.
Oh God, what one one reminder, I think in terms of the the the the expectations of operating margin for the year.
The prior year baseline.
15 four.
Included.
Our gain on sale of business of $50 million. So so there is some operating performance improvement expected for the year.
Hum, but.
Yeah, I don't know if that's what you're after or are you just focused on the perfect.
Yeah, that's perfect that's super helpful. Thank you.
Sure.
Yeah.
Yeah.
And the next question comes from the line of Tim Nolan with Macquarie. Please go ahead.
Hi, Thanks, very much yeah, just a very strong result in Q1, and if you look at the Q1 acceleration versus the Q4 number and I don't normally do this but if you look on a kind of a stacked basis you know in Q4 'twenty one versus Q4, 'twenty you were basically flat organic and in Q1 'twenty to rescue which one of you.
We're basically up 14% if I'm looking at my numbers right. So it's a really surprisingly strong growth figure and I, just wonder given a whopping year over year comparison coming up in Q2, you were at 24, 4% last year. When if you can give us any idea how to think about Q2.
Again understanding everything you've said thus far.
On a full year outlook and all the uncertainties in the second half and so on that'd be very helpful. Thanks.
Sure.
I'm not sure this is <unk>.
Precise answer but.
Two things.
Absolutely impacted.
When you look at just year to year, I think the impact of Covid.
Added.
To that recovery at that rate.
But also I don't want anyone to forget.
For the.
Four years prior.
To Covid, we were cleaning up our portfolio.
We emerged from last year with a portfolio, we feel very very.
Strongly about and we think.
He is well suited to provide what our clients need today.
I don't know if that.
Fully answers your question if you can call up so okay, yeah yeah.
No. That's helpful. I mean, I understand there are a lot of other factors. It's just it's it's a very difficult comparison coming up in Q2.
So I guess, it's good to hear.
The optimism on the growth rate for the second half of the year.
Trying to understand how to think about the Q2 growth rate given that youre a high base.
Yeah.
In terms of profit on.
Q2 has that.
The proceeds from the sale the gain from the sale there Phil <unk>.
You mentioned when he answered the last question.
So.
Yeah.
Yeah, I think from a revenue perspective.
Tim certainly the the first quarter of 'twenty one.
And as far as the baseline goes.
Yeah that was the last quarter of of some of the post some of the Covid hangover as we were coming out of Covid.
Yeah, principally starting in Q2 of last year.
So so the bar wasn't quite as high.
Relatively speaking.
For this quarter's performance relative to last year was certainly very.
Very pleased with the results as we head into the second quarter.
Yeah, the second quarter of last year was was again.
Hum.
The first quarter really post COVID-19 , where performance jumped quite a bit because you know the 2020 numbers were down.
Yeah, a great deal and weren't all that comparable so.
Yeah. It is a it is a quarter, where the business had kind of finally bounce back in terms of the baseline we're facing in Q2 of 'twenty two.
But certainly the performance in the first quarter is very encouraging and.
We've got some momentum we expect that momentum to continue.
As we look at the second half of the year.
You know as John said, there's a little more uncertainty in the back half and a little less visibility.
From where we sit today.
Sure Yeah, I understand I don't know if I look back at the last four quarters, basically well Q2, Q3, and Q4 of last year, all more or less in percentage organic growth terms reversed the declines of the prior year almost precisely and now just your Q1 was just such a stronger number.
Is that so I'll just leave it at that that's good to see could I could I just maybe tack on one other last thing you said you said John that Youre pretty optimistic Youre pretty confident in your forecast for Europe . I was wondering if you could comment a little bit more obviously, Russia and Ukraine aside.
Yeah.
Else you could comment on growth in the other regions, maybe that the border regions, the neighboring countries, Poland et cetera.
And as you move further west or are you still optimistic on the growth. Thanks.
Well the one great thing.
In terms of.
Numbers.
Is that.
Those are not.
Significant percentage of our business.
And as I mentioned in my.
Our prepared remarks.
I've had an opportunity to we should go.
To me.
All of the leaders from all of the disciplines.
From Romania, all the way up through Poland that border the Ukraine.
And.
They're all bullish about their business, but their primary concern was taken.
Taking care of the premiums that were coming across the border because they've had surges suddenly.
Then the populations and what their requirements are so.
You know our largest markets in Europe are.
The big five.
The U K, Spain.
France.
Germany and.
Italy.
Although.
Belgium, and Netherlands are also very very strong performance.
So merrell.
At the moment in great shape.
Okay. Good thanks, very much for the views.
Sure.
Yes.
Next we'll go to line of Dan Salmon with BMO capital. Please go ahead.
Okay, great good afternoon, everyone and a.
Couple of questions first John in the past you've talked about it being important for omnicom to remain agnostic to different technologies, whether that's AD Tech Martech. You also I think generally held that view about third party data assets as well. So my question is does the army I D represent.
Little step in that direction I would like to hear about a little bit about it specifically, but it's more of a bigger picture view that I'm interested in.
And then a second fulfill you mentioned the uptick in the technology vertical as a percentage of revenue is that just a matter of of where the verticals landed this quarter or would you like to see that trend continue.
Okay.
Bob.
Okay.
On the I D.
It is very unique.
We were shrinking.
Quite a bit of money on it over a very long period of time.
Testing proof.
Proving it out proving it to global clients that it actually work.
<unk> and works well.
When you look at the data that's available.
The various privacy laws.
We have the same access if not better access.
Two.
Everyone else, who counts that they own something.
Well they bought something that was a business that had revenue before they bought it.
So they're not giving it away to their clients.
In.
It's still for sale. So there is no.
Particularly the secret sauce, and what they have debt that we're missing.
And.
The most important aspect.
That'd be willing to share publicly about on the IV.
It is the fact, because we've been at it for so long.
We have over 40000 of our staff.
Around the world that are trained and utilizing it and we've deployed it.
To a significant number of our most significant our largest clients.
And the insights data for data.
Does it mean too much is what you do with the data.
And the insights that you can draw.
In.
In properly analyzing the data for the benefit of the client and what they wanted to sell so.
Other than that I'd be describing.
No.
What makes coke coke and I'm not prepared to do that publicly.
[laughter] Yep fair.
On on the so just on technology on the second question Dan So so.
The Tech Verde.
Vertical as a percentage of our.
Overall revenues of the revenue of our clients in the tech and the tech industry relative to Omnicom's total revenues ticked up I I'd say, yeah. It's a combination of two things. One is just the change in mix as I indicated in my prepared remarks.
Travel and entertainment went down largely due to the disposition of a business that had a high concentration in that space. So.
And we've had some good growth across.
Almost all of our disciplines with tech clients. So I think yeah, we're happy to see any of those any of those groups or any of those industry groups grow with us were happy for it to be tack, but but certainly or offering has resonated with a number of with a number of clients in the <unk>.
Tax base.
As well as health care and some others.
And you know I I think.
We'd love to see it continue to grow and we expect.
Overall, though when you talk about the 5000 plus clients we have.
Those those are industry metrics.
Don't move very often and I wouldn't expect.
Yeah, they're going to move by percentage points consistently every quarter.
It takes a lot to move those numbers that I don't expect them to move too much going forward.
Okay. That's great very helpful. Thank you both.
Thank you.
Okay.
Yeah.
And next we'll go to the line of Stephen Cahill with Wells Fargo. Please go ahead.
Thank you maybe first I think historically the media buying business has been a leading indicator of advertising inflection points and I know you gave a bit of a conservative guide for the outlook of the rest of the year certainly makes a lot of sense given the macro is as to why you've done that so just wondering if theres been any evidence in.
Your media buying business that things are either slowing down or infecting or is it more just that you step back and you look at this overall picture and especially with the strong start to the year, just warrants itself to be a little bit cautious.
Uh huh.
Agree with that statement.
Everything that's going on in the world.
This is warrants to be a little bit.
Conservative.
But we're very happy with our media business overall.
And it's been very successful both with existing clients and then new business opportunities it's been presented.
When you look at.
History.
Inflation has always been good that element to a part of the business.
And we don't see anything materially changing.
At the moment.
The other thing, which is yet to be seen.
I've been.
Predicting it since it really started.
Is what I'm anticipating to be the streaming wars.
And.
In the environment, where the consumer might have a little as to be a little bit more cautious.
The amount of money they spend to get what they want.
I think youre going to see more and more advertising.
In some of these services.
People like Uber and others have proven that it works.
And I think the others are all adapted.
They were all in my view, they're always going to adopt it I think.
<unk>.
The environment, we're in today will speed that process up.
So very comfortable with our portfolio.
Thanks, and then maybe just a follow up on your comment about inflation I know that at times inflation has been a helper to growth whether that's in media buying or where your clients use you know revenue as a basis to set their AD spend so at this point in the inflation cycle do you view inflation as a risk to the business.
Or is it helping you our organic growth profile right now thank you.
Okay, well you asked me about our segment there my business and the impact of inflation.
As I said earlier.
We build our forecast from the bottom up looking at what our reality is.
And we're comfortable that we've taken into consideration and that's why we're holding we're actually improving.
Our margins by holding our margins is the same as last year because of the unusual gain that we had from the sale of a subsidiary last year.
So.
There's a awful lot of moving parts and components.
And.
We spend a great deal of detail.
Time.
Testing the information that we're getting.
From our various subsidiaries in the markets that we operate in.
Phil wants to add anything just to just a couple of additions so as John has said.
You know what we've.
Our agencies have considered you know some of these challenges and in this environment.
As they put together their forecasts and certainly it's a challenge that that our businesses are dealing with in addressing.
But we continue to pursue efficiency plans.
Related to outsourcing and offshoring and automation.
And a number of other initiatives.
Because ultimately we've got a flexible cost structure and our agencies have done a great job managing it relative to <unk>.
The rap the revenue levels in their business overall, we haven't seen any reductions in our spend and the spending plans of our clients at this point.
And clients need to continue to sell stuff in an inflationary environment or in a non inflationary environment.
And we expect.
Yeah. The clients that are going to be successful we're going to continue.
To invest in marketing and branding.
And continue to invest in the services that we provide them.
Because they do.
Want to continue to sell stuff and they're gonna continue they've got a need to continue to invest.
So overall.
You know, while we're somewhat cautious.
Regarding the second half.
We're still very optimistic in the performance of the business and you know where we're headed.
For the rest of 'twenty two.
Thanks, a lot for the color.
Sure.
Yeah.
Sure.
And next we'll go to line of Ben Swinburne with Morgan Stanley . Please go ahead.
Thanks, Good afternoon.
Just a couple quick housekeeping on the guidance I have a question for John .
Maybe Phil is a 15.4, including the Russia charge the margin guidance for 'twenty, two and I was just wondering if you could answer this but does your new guidance reflect any different outlook for your European business relative to what you guys gave us the beginning of the year.
So specifically with respect to Russia, and Ukraine, No. The 15 four excludes the $113 million charge, we took this quarter.
For Ryder, where we may be good, but we're not we're not that good.
[laughter].
So so that you know that was obviously totally unexpected one when we were on the call in February .
And yeah. It it hasn't it has not been an easy situation to deal with.
Largely because of.
The people and and Yeah, what John had mentioned in his prepared remarks, and then earlier on this call. So the 15 four excludes that charge.
And you know with respect to Europe .
We haven't seen any any meaningful or significant changes in our forecasts from Europe . We've got a number of conversations with people who run our businesses then.
John can add some color on his conversations with clients in that region, but we haven't seen any big changes.
In our forecast from our European businesses at this point.
Got it.
And then on another topic, John I don't know if you saw this article in the journal yesterday about e-commerce slowing a bit.
Sort of a rebound in brick and mortar.
Which I thought was interesting I'm wondering when you look at your businesses you have exposure in both of those areas I think field marketing is probably an area you guys over index are you seeing.
Some of this in the performance of your disciplined sort of this normalization of e-commerce trends a bit and a rebound in sort of maybe more traditional retail activity and is that something you see in your results and maybe you expect that to continue through the year I'd be interested in your insights on that topic.
Our men and to be perfectly honest with you.
I did not see that article yesterday.
I will go back and read it now and see what they say.
In the conversations that I've had with our clients.
We see both being well.
I have not noticed any.
Deterioration.
At all in.
In terms of e-commerce and <unk>.
So.
So the quick answer to your question.
As I have not seen evidence to today to support the articles.
Anything on cause I you know in your.
Execution and support business is that a business you see growing faster are rebounding back to kind of pre COVID-19 levels and I wasn't sure earlier your outlook is for that discipline from a growth point of view.
Yeah.
I'll go first in comments it I think that the direct answers now.
We don't see you know cigna.
Significant increases in growth trends relative to what our expectations were.
The last few quarters, I think they're solid businesses.
They are yeah in some respects project based and you know clients might change yeah. There their investment you know a little bit more quickly than some of our other businesses, but.
They've done well, we expect them to continue to do well their growth profile, though is probably a little lower than.
You know certainly other parts of our business as you can see.
When you look at the revenue breakout that we provide.
Our expectations for the second for the for the rest of the year for them or not you know not as robust as the rest of the business.
Makes sense. Thanks.
Thanks, guys.
Thank you.
And next we'll go to line of Craig Huber with Huber Research partners. Please go ahead.
Thank you John My first question with all the privacy data changes out there or.
Both of them with iOS for example, but also government mandated privacy changes out there.
Last couple of years is that good bad or sort of in different for your business. How do you sort of view that right now.
Well.
It's changing and you're absolutely right very rapidly and matter of fact, I don't know that he is on staff, but we just brought on.
Very very experienced dedicated.
Attorney.
Who has spent his entire career working on just this privacy issues as well as the other people that were already within the company.
I think.
Net net.
We'll benefit from that because.
We haven't made any huge investments or.
Or you know puts strong expensive stakes in the ground.
And we're pretty agile and we can adapt and adjust.
To what ever the environment is and whatever changes.
The various <unk>.
Jurisdictions.
Come up with and.
And I think this is gonna be a constant theme.
For a good long time and I'm much happier.
With our decision to be as agile as we are.
Today than the day that we made that decision several years ago.
I think the the the changes are only going to make it more complex for clients.
To reach the consumers, they're trying to reach.
And yeah.
In that environment, we certainly think it benefits us because.
We're an independent third party with.
The skills and the tools and.
The technology to help them.
You know make the appropriate decisions they need to make.
To continue to find and reach those consumers. So the complexity certainly we view it as a positive.
And then also John you said in the 26 years, helping to run the company. It's the first time you can recall that you've raised your outlook for organic revenue with this early on in the calendar year, just maybe a little bit more beat on that what exactly are you seeing out there. If you could just help us or why you felt compelled.
To change your outlook right now given all the huge number of macro issues out there that people are grappling with.
Yeah, there are several components to organic growth.
One of which is.
New business wins.
And the other which is inevitable in every one of them.
Yeah.
US and our competitors periodically our losses that you.
Experience.
At some point.
During the prior year, because you haven't had yet a full year or either.
We've entered.
'twenty two.
And a very strong position.
Having had a very successful.
2021.
And that's.
That's giving us a lot of confidence.
But.
This is not just sitting here at corporate.
Divining.
What's going on in the ground on the ground.
Our forecasts are built truly from the bottom bottom up.
<unk>.
There's a weekly dialogue with all the leaders of our practice areas and.
And networks.
Note changes even subtle changes that are going on so.
We were as close as we can be too.
Do what's going on yeah, and I think you know it's it's it's some of it is as simple math.
And.
When when you look at the that the great performance in the first quarter.
My guess is if we didn't.
Address yeah. The guidance is we have.
For organic growth for the full year relative to where we were in February .
You'd probably be asking us a different question regarding <unk>.
Given the performance how come you Havent increased your guidance. So yeah. It was great performance in the first quarter.
And you know I think I think the change was driven by our expectations that.
Yeah.
Still optimistic about the rest of the year certainly.
Yeah, there is some uncertainty in the back half, but but we're comfortable with.
With where we are right now and however, how our businesses are performing.
I think we were pretty damn good at math.
Uh huh.
Fair enough guys. Thank you.
Youre welcome.
And we have no other questioners in queue at this time.
Well really wanted to thank all of you for spending the time with us and speaking with us today.
And we look forward to speaking with you in the coming weeks.
Thank you.
Yeah.
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