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Omnicom Group (OMC) Q1 Earnings: Is a Surprise in Store?

Advertising services provider Omnicom Group Inc. OMC is scheduled to report first-quarter 2016 results before the opening bell on Apr 19. Let’s see how things are shaping up ahead of this announcement.

Last quarter, the company’s earnings were in line with expectations. Omnicom’s earnings track record has been decent over the past few quarters, with the company beating estimates in three out of the four trailing quarters for an average beat of 1.44%.

Key Factors in this Past Quarter

Omnicom is one of the largest advertising, marketing and corporate communications companies in the world, and it continually strives to expand its client base. In recent times, Omnicom has been actively focusing on the acquisition of complementary companies across the world. Last November, it acquired Grupo ABC – the largest Brazilian diversified advertising firm, in order to augment its regional presence in Brazil, which is arguably one of the largest economies in Latin America.  We expect the acquisition to add to the company’s top line in the quarter under review.

Also, Omnicom’s OMD division has been able to secure most contracts of The Procter & Gamble Company’s PG North American media planning and buying business. These contracts are likely to have a positive impact on the company’s revenues.

However, Omnicom has widespread international operations, and is exposed to the risk of unfavorable foreign currency translation and monetary devaluation. Macroeconomic slowdown and geopolitical issues also remain concerns as they have a direct impact on client spending.

Also, these macroeconomic risks continue to drive other companies to be cautious with regard to advertising and marketing outlay, thereby squeezing advertising budgets. These developments might prove to be a strain on Omnicom in the upcoming quarterly results.

The company also faces concentration risk as it relies on a few big clients for its businesses. This often reduces its operating margins and affects its profitability. In addition, Omnicom is subject to intense competition, as agencies and media services compete to maintain existing client relationships and win new clients.  These factors might affect Omnicom’s profitability in the impending quarter.

Earnings Whispers

Our proven model does not conclusively show that Omnicom is likely to beat earnings this quarter as it lacks the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently at 0.00%.

Zacks Rank: Omnicom’s Zacks Rank #2 when combined with 0.00% ESP makes an earnings beat prediction uncertain.

We caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a couple of companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

CalAmp Corp. CAMP, Earnings ESP of +3.70% and a Zacks Rank #1.

Hanmi Financial Corporation HAFC, Earnings ESP of +2.44% and a Zacks Rank #3.

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OMNICOM GRP (OMC): Free Stock Analysis Report
HANMI FINL CP (HAFC): Free Stock Analysis Report
CALAMP CORP (CAMP): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis Report
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