Good morning ladies and gentlemen and welcome to the Omnicom's Second Quarter 2017 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. 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, Vice President of Investor Relations, Shub Mukherjee. Please go ahead.

Good morning. Thank you for taking the time to listen to our second quarter 2017 earnings call. On the call with me today is John Wren, President and Chief Executive Officer, and Phil Angelastro, Chief Financial Officer. We hope everyone has had a chance to review our earnings release we have posted on our Web site, www.omnicomgroup.com, this morning’s press release along with the presentation covering the information that we will review this morning. This call is also being simulcast and will be archived on our Web site. Before we start, I’ve been asked to remind everyone to read the forward-looking statements and other information that we have included at the end of our investor presentation, and to point out that certain of the statements made today may constitute forward-looking statements, and that these statements are our present expectation and that actual events or results may differ materially. I'd also like to remind you that during the course of the call, we will discuss some non-GAAP measures in talking about Omnicom’s performance. You will find the reconciliation of those measures to the nearest comparable GAAP measures in the presentation materials. We are going to begin this morning’s call with an overview of our business from John Wren. Then Phil Angelastro will provide our financial results for the quarter, and then we will open-up the line for your questions.

Thank you, Shub. Good morning and thank you for joining our call. I am pleased to speak to you this morning about our second quarter results. We had a solid second quarter. Organic growth was 3.5% in line with our expectations. We also met our margin targets for the quarter and remain on track to deliver 50 basis point margin improvement for the balance of the year. For the second quarter, EBITDA margin was 15.7% versus 15.2% last year. In the second quarter, total revenue was down 2.4% compared to the prior year. As we discussed on our last call, we had several dispositions during the past few quarters. As a result, net acquisition disposition revenue for the quarter was negative 4.4%. in addition, FX reduced revenue for the quarter by 1.5%. We don’t expect any additional significant dispositions in 2017. Excluding the impact of any future acquisitions, net acquisition disposition revenue will continue to be negative in the second half of the year. Phil will provide more details on this during his remarks. Geographically our results for the quarter were mixed. Outside North America we saw very strong growth across markets in Europe, Asia-Pacific, Latin America, and the Middle East. Our total organic growth outside North America was 8.1%. In North America, organic growth was just 0.2% in the quarter. The quarter was drag down in large part by weak performances in our PR, shopper marketing and branding businesses. Branding business, which is largely project-based continue to struggle in the quarter. Although we have corrected some of the operational and management issues, we encountered and expect the business to begin to stabilize in the latter part of the year and move back into a growth mode. Our other operations were impacted mostly by client-specific events. These declines offset positive…

Thank you, John, and good morning. As John mentioned, Q2 was a solid quarter for our businesses. Our agencies continue to execute and deliver on the ever-changing marketing needs of our clients, as well as meeting the challenging financial and strategic goals that we set for them. Total revenue for the second quarter was $3.79 billion with organic revenue growth of 3.5%. Regarding FX, currency rates continue to be a negative drag on our revenue in the quarter although at lower levels than we saw last year. The largest negative driver continue to be the weakness of the British pound. Overall in the quarter the FX impact reduced revenue by 1.5% or about $57 million. As we mentioned during our Q1 call, as part of our ongoing evaluation of our portfolio of businesses, during the last few quarters we disposed several agencies, including those in the field marketing and events area, as well as our specialty print media business. These dispositions along with our acquisition activity over the past 12 months reduced our quarterly revenue by $172 million or 4.4%.I'll go into detail regarding our revenue changes in a few minutes. Looking at the income statement items below revenue, operating profit or EBIT for the quarter increased to $566 million with operating margin improving to 14.9%, 40 basis point margin improvement versus Q2 of last year. Q2 EBITDA increased as well to $594 million and the resulting EBITDA margin of 15.7% represents a 50 basis point increase over Q2 of last year. The main drivers of our margin improvement continue to be related to our continuing efforts to seek out opportunities to improve the operational efficiency of our businesses on a global basis. These efforts are focused on the areas of real estate, back office services, and procurement and to…

[Operator Instructions] Our first question today comes from the line of John Janedis representing Jefferies. Please go ahead.

Hi, thank you. John, you’ve been through a few cycles. From what you see, do you view the U.S as being on maybe the slower side of the cycle or is there something emerging here, given that the headlines around competition in the technology?

Thanks. Well, there are -- where our domestic revenue is muted this year, but this time -- at this time, especially for the quarter were really in three principal businesses in -- and for the most part the project businesses. First, I will do branding, where we have just completed a management change, where we had an executive leave us in January and it was very difficult to replace him. And that executive and some of his colleagues who left us were really the people who were selling the product. So we -- it was a setback. It was a management problem. I think we solved the problem at this point. Second area is kind of in shopper marketing. There was two things that have happened there. In one instance, a very large client that's -- that will be competitive with AT&T after the Time Warner merger is completed was uncomfortable being in the same holding company, so they tossed -- they quit using that that shopper marketing company. And I'd say that the projects associated with some of the things which would have happened in the past have shifted a little bit, because of the difficulty that the retailers are going through. We will cycle through those problems and changing our product to be more adaptive to the current environment. And the third area was in PR, which was domestically down across the board, principally from projects not being executed. If you were to put 2% growth, which is what our hope and expectation was for the domestic business, that would have been an incremental $35 million to $40 million worth of revenue. Those three operations drag down strong performances in some of our other areas to get us to the net 0.25%. We are unhappy with it. We’ve forensically identified it and we’re taking actions to do something about it. So it's that not necessarily all the current chatter of competition from consulting firms. We are not really seeing them in the pitches that we are engaged with. I don’t know if that answers your question.

Yes, that’s helpful. Thanks. And then maybe on a related topic then, now if you could kind of call that retail, but as you know some of those categories maybe retail CPG, they would seem to be under pressure maybe for -- or maybe I don’t know couple or few quarters, at least here in the U.S. Are the things within your control to mitigate the impact? And maybe to what extent you see an opportunity to gain share of wallet?

Sure. Globally our CPG business is probably about 10% of our revenue and it's pretty -- which is when compared to our competitors probably a small percentage as we were always the smaller player. We've seen pressure as they've been under pressure in their operations. We've also seen pressure as a result of some of the divestitures that won very large companies going through. So we are trying to mitigate. We're trying to become more useful and meaningful to those clients. We have won some recent assignments, which are not yet reflected in revenue, because of the quality of our work. But I think when your client suffers, you suffer along with them a bit.

Okay. Thanks a lot.

Next we will go to the line of Alexia Quadrani with JPMorgan. Please go ahead.

Thank you. John, thank you for all that color on the weakness in the CRM business. If I could just follow-up with a sort of clarifying question. I know the sales marketing has been a drag, you would highlighted in previous quarters and I understand you divested most of those or at least the businesses you had highlighted to divest. And we didn’t yet see any kind of benefit or any kind of improvement in the U.S organic following those divestitures. Is it because the delta like PR got worse or branding still got worse that kind of offset the benefit of not having those field marketing. I’m just trying to see why we didn't see a little bit of an improvement following those divestitures?

You know we had field marketing in the first quarter, we still owned it. It did provide a drag to our organic revenue.

But in the U.S field marketing actually isn't that -- we never had that big of a presence in the U.S. The businesses that the primary dispositions happened outside the U.S and we still do own a business that's largely European-based and we are certainly not out of the business entirely. So the business we’ve European business we have -- is doing fine, but it is a challenging segment and we certainly spent a lot of time focused on that -- on that area.

Yes, the biggest business we disposed of in the United States was the print media business. And we disposed of it not because it was hurting us from an organic growth basis -- on a current basis, but we saw a very dark future for the needs that company -- the services that company provided. And so we took the decision that while it was still viable to sell it on to management who would have more flexibility in trying to run it and expanded services and that's what we actually did. So there was -- not a different reason other than just a quarterly organic growth calculation for motivating that disposition.

I guess that Phil, maybe it would be helpful, do you have a number of what organic growth would look like in the second quarter exit of exodus position in the U.S., just to give us a sense if they were impactful at all. And then -- and John, maybe just a follow-up on the strength that you’ve seen recently in Europe and the U.K., is that a real sort of healthier underlying growth in the market or is it really these mix business and the fact you’re gaining share? Just trying to get a sense of how sustainable that very healthy growth you’re seeing in Europe is going to be?

Sure. Well, some of it is directly attributable to client wins like Volkswagen and brands Fiat in addition to the Volkswagen media. So there was a great deal of effort and a great deal of revenue associated with those taking over that account. Otherwise, in the U.K., we have some of the most excellent brands in the world -- in the U.K., and we’ve been taking a little -- we’ve been taking share that’s contributing to the growth and it depends on the month you go there. From a business confidence point of view even as they muddle through Brexit, the Europeans are more positive about their governments and what their future is, then I'm hearing in the United States I tried not to focus on the United States in my prepared remarks, but all the nonsense that’s been gridlocked that goes on in Washington does cause CEOs in the U.S to cut back on investments that they make. So Europe has been very strong for a few quarters for us and so we don't see that changing near-term.

Just to try and touch on your earlier question, Alexi, we don't really do a pro forma of what are our organic growth would have been, had we not done the dispositions were, what the impact would have been otherwise. I’m not sure if that answers your question, but …

I guess so. Without giving us the number, what you have said the dispositions helped organic growth or hurt organic growth in the quarter?

I think they might have been neutral to help slightly had we not done those dispositions, yes.

Okay. That’s helpful. Thank you very much.

Our next question is from the of Peter Stabler with Wells Fargo Securities. Please go ahead.

Good morning. Thank you. Kind of a high-level question for John. You know we’ve long believed that creating assets for digital campaigns and spending digital media dollars has been more labor-intensive and thus kind of generally accretive to the agency model, really the complexity is our friend argument. Do you think that these inefficiencies have been running out of the system at this point and kind of move the digital now be looked at as a way to not just be more effective, but also a way to save money for clients? It seems that some large CPG companies are telling their investors that digital marketing is a path to cost savings? Then I got a quick follow-up for Phil. Thanks.

I -- my guess would be theoretically at some point in the future, there will be truth to that. I don't think it's the immediate situation. There is still a lot of controversy going on around brand safety where your message is going to appear where it’s running on the YouTube or somewhere else. And the testing that we've done and marketers have done indicates that there are still challenges there, and we believe that those challenges will get resolved over a period of time, but they’re not -- we’re not finished with all that at this point. Automation AI, all that as you go into the future is going to change the cost equation and better targeting as it happens allows you to do different things. But we're still in the very, very early stages of gaining nirvana.

And then, Phil, is it possible to estimate what percent of total company revenues are project-based and not tied to AOR contracts or regular recurring fees?

I imagine it's possible. We just don't collect the data in that fashion. And when you get down to individual client contracts, individual change orders, individual projects, it's pretty challenging to cut it that way and we’re not focused on it at that level of detail to kind of say X percent of the business is project-based. I think certainly some of the businesses we have are much more project-based than others. So we've pretty good sense of that. We don't have those -- I don’t have those numbers off top of my head though, but we don’t exactly cut it up that way.

Thanks very much.

Our next question comes from the line of Craig Huber with Huber Research Partners. Please go ahead.

Good morning. Thanks. A few questions. I guess, first your sense John on the U.S economy here, is that a drag on your business right now or do you play nearly a 100% of it, with flat growth in the U.S and branding shoppers and then the PR businesses? I asked that just given the slow, I guess, 0.7% real GDP growth in the first quarter we will see here shortly, what happened in the second quarter, but it is the U.S economy slowing at all versus given what you’re seeing from the clients?

It certainly feels that way, but I don't have the empirical data to confirm it for you. There was, I guess, the Trump bump and that has waned a little bit as that old gridlock that you had in the capital and the simple thing is that they said they were going to focus on -- and the difficult things they said they were going to focus on haven't really materialized. And I think depending on the industry that you’re in, you’re seeing different challenges. If you’re in the retail industry, you’re seeing a set of challenges, because you’re getting disrupted by new competitors. If you're in food and beverage business, there are different challenges. All these without clarity on regulation and where the governments moving cause people just to not invest more than they know that they can get an immediate return on. There is nobody who can look out two or three years at this point, they would certainly that they’re going to know what tax policy is, but healthcare costs are going to be. And so, I think it causes many companies to cause in terms of the investments that they're trying to make, and advertising and marketing is part of what suffers along with other businesses as that occurs. Now in our particular case, I can claim that that influenced some of why we didn't perform to the level we wanted to, but it won't be so bold, I will take it on us, because these are things that we can remedy. We’ve identified where the issues are, but we didn’t identify them soon enough from my perspective, but we're working on them now. So the combination of all that, but I am optimistic we will crack this and crack them pretty soon.

This might be tough to answer, but in the U.S your branding shopper and PR businesses, what is your sense on when that shortfall in the operations there sort of annualized? I mean, what is your best sense when your North American operations may pick up here?

I’m very hopeful that they start to pick up certainly by the fourth quarter and hopefully in the third. You know in branding I’m fairly confident with new leadership. There is a period of time that you go through to get the projects and the assignments, but we’ve people working on that. In case of shopper marketing, half of the setback was because just one client didn't want to be in the same family after we won the AT&T and supposedly AT&T Time Warner business, because they felt uncomfortable not because of anything AT&T said to us. We will cycle through that. And in PR what we're doing is adjusting some of the leadership we -- typically you can take our people and you see that we have hunters and farmers, sometimes we get too many farmers in a place. We got to grab a few new hunters to start the place up. So these are all actionable areas. I can't promise you the day or the week that it's going to get fixed, but it's been identified and there are people working on it currently.

Certainly though -- overall our expectations for the year haven't changed. We still expect growth to be in the range of 3%, 3.5%. And as we sit here today and we look out they pass the third quarter into the fourth quarter, we got the typical amount of -- we had a little bit of lack of visibility into the fourth quarter as we always do. But in terms of the overall expectations they haven't changed.

But we’re drilling down into regions and its very important to us, but I would remind you that the way Omnicom is built, it was built with the services, diverse number of services across its many geographies so that as a result of what you see this quarter when one region isn't performing we’ve been able to compensate it with growth that we've seen in other regions with the intention in the design of the company and the constant revisions that we make in the company. So -- yes, what I feel better if I had 2% growth in North America which yielded 3.5%, 3.7% growth overall, I think everybody would be relaxed that’s on this call. But because of the way it is -- but the system was designed to generate consistent growth and we're pointing out some of the [technical difficulty].

Great. Thank you, Phil, John.

Okay.

And next we will go to line of Tim Nollen representing Macquarie. Please go ahead.

Well, thanks. If we look at your first half performance, I think the organic growth was around about 4% and I think you're saying -- you said early this year expect something like 3% organic for full-year. There is quite a disparity between the U.S kind of 0 to 1 and the rest of the world very high single digits. I heard your comments have hopefully U.S in those specific areas improving by Q4, and I think you said Europe remains quite strong. So are you remaining somewhat conservative on the overall 3% figure for the year or is there some kind of a rebalancing with maybe U.S picking up offset by maybe Europe and Asia-Pacific slowing in the second half. How should we think about the breakout between the two for the end of the year?

I think you should just think that we remain cautiously optimistic, but conservative. And our internal targets probably exceed with our overall public confidence.

We will take the growth wherever we can get it.

Okay. Thanks. Can I ask one more question, a broader question on the U.S media market. In general, it looks like we had quite a strong TV upfront or maybe bit stronger than some people were expecting. It also seems like digital growth if you look at Facebook, YouTube etcetera, etcetera, there are revenues seem to be still quite strong. Is there decent hope for maybe some second half being a bit better overall, give that back drop because the two by far dominant media looked to be doing quite well and why shouldn't we look to a better growth rate in the second half in the U.S?

You know what in speaking to our media people, so this isn't as far all the response as you want to that question. We saw the forecasts for the upfront budgets go up somewhere between 3% to 5%, but it's a -- what it is when compared to the prior year is they pulled forward out of last year's -- last year they were lower and went into the scatter market. They were kind of disappointed with the inventory that was there. So this year, they went into the upfront wanting to lock in the programming that they saw. So that that's our sense. So it's more of a movement of upfront and probably a weaker scatter market in the back half of this year. In terms of some other things I think because of the brand safety and some of the other issues, money that would have been diverted and gone into video, many large advertisers held back a bit in their commitments in that area. And then when you look at the pricing, the audience continues to erode and pricing has stayed high and that's why you’re seeing higher pricing. So you should see mid to high single-digit increases as this rolls out, I would say.

Okay. But the things I’m talking about --- I hear what you’re saying on some of the brand safety issues and I guess probably some measurement issues for digital media is well, but I'm guessing when we numbers from Google etcetera, this season, they will be looking pretty good. So the thing to say, I guess, digital remain quite strong, right? So it's a decent set up it looks like in terms of U.S media for the second half. I hear what you’re thinking in the upfront not being blow out, but on balance it seems kind of okay, no?

It would be hard to -- I can't bet how Google and Facebook nor Amazon or so I agree with you in that respect.

Okay, thanks.

I think we’ve time for just one more call operator before the markets open.

Okay. Our final question today will come from the line of Ben Swinburne with Morgan Stanley. Please go ahead.

Thanks. Good morning. Thanks for squeezing me in. John, could you talk a little bit about shopper marketing's role long-term and just generally how you’re thinking about sort of what Amazon is doing in the retail landscape to a lot of your clients and there has been some debate I think between yourselves and other holding companies about sort of how relevant and important those kinds of marketing services are long-term and just thinking about how you position your portfolio? And then, Phil, I’m just wondering if you could come back to capital allocation. You guys had a pretty big buyback number in the quarter, nice first half just sticking should we be sort of taking about the second half buyback level similar to the first half and then I think John intimated that there is a dividend discussion coming up at the Board meeting. So maybe you just round that out, it sounds like we may be getting some nice return of capital numbers this year. Just any comments on that would be great?

First Amazon, it's an incredible company. And I think it's changing the attitudes of how retail is done and they’re also fearless in their exploration of doing retail in different ways. I think it changes the landscape considerably from just a few years ago in terms of taxes, thoughts, services, and the -- that the shopper marketing companies that we have will provide. A lot of what shopper marketing for us is sitting in strategically planning with major advertisers, how they’re going to go to market and how they’re going to attract consumer either by someone putting in a basket for Amazon or Walmart's online services and different approaches in need. So it's gone from a business that a few years ago had probably an equal number of thinkers to doers to primarily thinkers who are sitting down and strategically planning with their clients how they’re going to move their products. So the business has changed, but the business and the expertise is still terribly important.

Thank you.

On the capital allocation front, I think you see a little bit of an increase in buybacks certainly year-over-year. Our acquisition spending during that same period, first six months of '17 versus '16 is down as well. The mix of the two are not as different as just looking at the buyback number this year versus last year. I think you can expect to see us be consistent in terms of our approach in our policy. John did refer to dividend being on Board's agenda at its next meeting. And as soon as that happens we will certainly let everybody know. Of course buybacks in the second half I think depending on what acquisitions we're able to close, that’s largely going to drive whether there is an increase in the second half versus last year second half.

Thank you, both.

Sure. Thank you all for joining the call.

Thank you.

Ladies and gentlemen that does conclude our conference for today. We thank you for your participation and using the AT&T Executive Teleconference. You may now disconnect.