Good morning ladies and gentlemen and welcome to the Omnicom Third Quarter 2019 Earnings Release conference call. At this time, all participants are in a 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 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, Shub Mukherjee. Please go ahead.

Good morning. Thank you for taking the time to listen to our third quarter 2019 earnings call. On the call with me today is John Wren, Chairman 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 to 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 website. Before we start, I’ve been asked to remind everyone to read the forward-looking statement and other information that we have included at the end of our 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 would 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 can find a 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 review our financial results for the quarter, and then we will open the lines for your questions.

Thank you, Shub. Good morning. I’m pleased to speak to you this morning about our third quarter results. Organic 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. I’ll provide more color on this in just a few moments. As a reminder, in the third quarter of 2018, we recorded a net gain from the sale of Sellbytel, offset by charges related to several dispositions and repositioning actions as 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%, an increase of 40 basis points versus the prior year, which was a bit better than our expectations, and EPS for the quarter was up 6.5% 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%. Our 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 has some of the top agencies in the world serving the healthcare and pharmaceutical industries, and the group is very well positioned for continued growth. CRM 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-digital growth in the quarter. This…

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 were a number of items that impacted our prior year third quarter 2018 results. They included a pre-tax gain of $178 million on the disposition of Sellbytel, our European-based sales support business, along with a number of other small transactions; a 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 for 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 $0.08; therefore, we will present our 2019 results in comparison to 2018 both with and without these items. The non-GAAP adjusted amounts on Slides 5 through 8 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 is a meaning presentation for investors and is consistent with how management analyzes 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…

[Operator instructions] 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 maybe for John, any color you can give us on how the advertisers you are always dealing sort of are 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 the tone of business would be great.

I’d suggest that it’s business as usual. There are always macro concerns and they change from quarter to quarter or period to period, but there’s always something out there. Our folks are focused on our clients’ needs, and we don’t see any significant change for them.

Then on the CRM execution business, it sounds like it’s remaining weak in the U.S., and I think also you mentioned in the U.K. Is that a business that you should ultimately see turning or improving, or is it maybe something that you’re still assessing for potentially picking up more potential divestitures?

We’re constantly--that’s the one sector we’ve been focused on over the course, really over the last two and a half years, and we continue to evaluate properties in that particular sector. Many of the companies there are affected by changes in technology, and that has an impact on the growth that we experienced, so that’s something – having said that, we continue to look at the entire portfolio, but--

Yes, there’s certainly some good businesses in the portfolio and several categories that we think are promising. They may not be on the top of our list of categories that we’re going to actively pursue acquisitions in, 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 that are doing just fine.

I guess just lastly, just overall in the U.K. with just a little bit of a softening of the otherwise good growth you’ve seen, are you thinking anything sort of Brexit-related or is it just more kind of normal course of business?

This quarter, I couldn’t attribute it to Brexit. It’s just some of the events businesses and some things that--projects and timing was off in terms of when they hit.

Yes, we really haven’t seen any negative impacts of Brexit in our businesses at this point. We still certainly with our management teams keep a close eye on what the impacts might be, but nobody knows really when or if, never mind what the impact is going to be on our agencies themselves. But overall, we have a great portfolio of companies in the U.K. and they’ve been doing a great job for quite a while.

All right, 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 for Phil. John, are you seeing any slowing in media like Publicis, or was it specific to them because that’s one of the three reasons they said that their organic was poor in Q3, that media was starting to slow? That’s my first question. The second one is Q4, in the past you’ve always talked about it as an adjustment quarter. How do you see the adjustment this year - again, business as usual, or will macro make advertisers more nervous? That’s the second one. Then for Phil, just a housekeeping question on the Accuen impact, and then on the net interest guidance, you said $9 million savings, did you mean quarter on quarter or year on year? Thank you.

I haven’t read the Publicis transcript, but our media business continues to perform very well as reflected in our numbers. It’s a very vibrant business and we continue to win our fair share, 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 22 or 23 years of fourth quarters, and that is there’s always unidentified projects in the fourth quarter. They generally in our case start off looking like they’re $200 million around the end of September, and I think all but one of the years, with [indiscernible] with Great Recession, we’ve been able to fill those gaps in through projects and budget releases from clients who might have been holding back as of September 30. So, we’re cautiously optimistic as usual, and our people are very focused on gleaning that revenue.

On your last question, Julien, on net interest expense, the reference was quarter on quarter for Q4. We anticipate savings in 2020 as well, but I think that might vary a little bit for each of the quarters in 2020, based on how much of the benefit we had already achieved. So as we get closer to starting to plan for 2020, we’ll be a little more definitive on what those numbers are as far as an expectation in 2020.

And Accuen?

Oh, Accuen is just about flat. I think the number overall was down about $4 million.

Okay, fantastic. Thank you very much.

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

[Indiscernible] question. John, what’s your updated thought right now on the U.S. economy as [indiscernible]?

I don’t know if it’s a cell phone. You’re breaking up a little bit. Can you please repeat it?

Yes, it is a cell phone, I’ll speak a little slower, maybe. What’s your thought, John, on the U.S. economy? Do you feel like that’s holding you back on your organic revenue in the U.S.?

I think the U.S. economy is strong. I think, as I said in my remarks, when we look at our core businesses, the ones that we anticipate growth from, they grew very well, mid-single digits. They were dragged down by events and some projects which did not come through in the quarter, and there 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. Then as Phil was mentioning before in an earlier question, some of the CRM execution businesses were a bit challenged, and as I mentioned in the call, our PR business was challenged this quarter. If that had simply been flat, our reported organic growth would have been a lot higher, so you can do the math simply by looking at our presentation and we’re working on that.

Also John, could I ask [indiscernible].

I’m sorry, Craig--

Yes, we’re having trouble hearing you, Craig.

I’m not sure what’s going on. Is there much difference in each of the three months for your organic growth in the third quarter versus that 2.2% overall?

I think I heard that. I think the question was, was there much of a difference month by month in our organic growth?

Yes.

I think the answer is we don’t really look at it that way. Each month, we don’t do a hard close like we do each quarter and at year-end, so while directionally we certainly are focused on the monthly results that our agencies submit, we’re also looking at their forecasts for full quarter and the year as we review the results with the companies, because the timing might vary month by month of when a project was completed or how the month played out versus last year, so we’re really focused on the quarterly results and the full year. I don’t think I would say there was anything significantly different month by month or year on year relative to each month in terms of how we look at the business.

But another question, if you can hear me, for the consumer packaged goods clients -CPG, are you seeing any stabilization there with the revenues?

I think in our case, CPG relative to some of our competitors is not as large a component of our portfolio of clients, and I think our results are probably mixed with our CPG clients. Some of them have in fact--some of our revenues have in fact come down, and some of our revenues on other clients in the CPG space have gone up a bit, so I think it’s probably a mixed performance for us as opposed to one overall trend for all of our clients in that space.

The only thing I would add to that, Craig, is we’ve been fortunate to be winning business in that category. As I mentioned in my comments, Unilever signed two of its previous brands to us just recently, so net-net-net, we’re okay.

Thanks Craig.

Your next question comes from the line of Tim Nollen from Macquarie. Please go ahead.

Hi, thanks. A couple things, please. First off, can you remind us, maybe Phil, what the timing is on rolling off of the effect of the dispositions? It looks like the effect is slowing into Q4 with less of a negative impact. Do you cycle through that as of Q1? Relatedly, is there any impact on the organic growth that you could call out as it refers to that, i.e. has them coming off this year helped raise your organic growth a little bit this year? Secondly and more broadly strategically on the data driven businesses, the digital transformation businesses you talked about, you’ve mostly built these and you’ve talked about these quite a bit the last few quarters. You’ve now referred to a couple of acquisitions, I guess they’re relatively small. I just wonder if there’s any shift in strategy towards more acquisitions in this space and if you could comment, maybe, on where you see this line of business going. You’re talking a bit more about IT, a bit more about consulting. What kind of work may be emerging in this area? Thanks.

Sure. I’ll start with the dispositions and then I’ll pass your second question onto John. As far as the impact in 2020 and 4Q19, 4Q19 I think in our prepared remarks, we said we expect 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’ve completed to date and in the past, the first quarter we expect probably is going to be somewhere around negative 0.5% and after that, it kind of flattens out. Our expectation is similar to our strategy that we’ve been pursuing pretty consistently, we’re going to continue to try and find accretive acquisitions and as many as we can find that are in line with our criteria in terms of it being a good fit with our existing portfolio of businesses and/or clients, it’s on strategy, and the pricing is fairly reasonable. We’re going to pursue those acquisitions and if we can do more, we want to do more. The expectation, though, is--or the number is just based on what we’ve completed to date. Our expectation is we’re going to continue to pursue those acquisitions 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 our 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.

In terms of our focus, I’ll refer you back to my prepared remarks where I said that our primary focus in pursuing acquisitions is in the area of data analytics, digital transformation and precision marketing across most of our practice areas. But to echo Phil’s point, we won’t throw reckless money at things we’re capable of building, so we’re very disciplined about the acquisitions we make.

Just one last point. I think in terms of some of the deals we completed recently, Credera, which has been with us for a little while now, has really worked out well. It’s been integrated into our precision marketing group and has grown quite nicely. To the extent that, as John said, we can find more deals in the areas that we’re particularly interested in, we’re going to pursue them.

Your next question comes from the line of Ben Swinburne from Morgan Stanley. Please go ahead.

Thank you, good morning. Two questions. One, I was curious--John, I know you mentioned you didn’t read or listen to the Publicis call, and I feel bad asking you about someone else’s comments, but one of the things they’ve talked about for a long time has been the impact of attrition in the U.S., sort of in-housing or in-sourcing particularly around media. 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 offsetting that, or maybe you just don’t see it as much of a factor in the business as they do. Then I just wanted to ask about the Disney win. I know you guys don’t like to talk about specific account wins and losses too much, but that’s a sizeable 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.

Again, I haven’t studied Publicis’ media business. I was a little bit shocked to see it was in decline because earlier in the year, they won a couple of very large accounts. 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 Publicis with any accuracy, so you have to take that comment with a grain of salt. The Disney win is very important, but part of that win was business we already had, so it was incremental business that we received but we were able to defend our business very well. We’re very pleased with our relationship there and look forward to it growing as we go forward.

As far as when the transition exactly is going to benefit us, I’m not sure that it’s going to be any different than any other client situation. There will be a transition period and I think our intention will be to help transition what we don’t have as quickly as we can. A lot of that is based on how quickly the client wants the change to occur.

Maybe just John, as a follow-up, is bringing more and more media in-house a CPG specific trend in your mind, or do you think it’s broader? You mentioned that piece of the puzzle before.

I haven’t truly studied it that closely. I mean, technology changes what comes in house and what stays out at an agency. Oftentimes somebody was doing something with us and they decide to in-house, we follow them in-house to help them set up and grow, and that just enhances the relationship. But I think the most dramatic changes that we’ve noticed on in-housing has really been in the CPG area. Others do it, but they do it for a while, some of them do it for a while and then decide that they can’t do it and come back to us. It’s just a constant--

Yes, I mean, clients have been experimenting with in-housing for years. We expect they’ll continue to do so. With your question specifically geared toward media, there are some significant investments required and we made them and we’ve been making them over the last 10-plus years, and they’re not easy to duplicate. In our business, we’ve been looking to do more outsourcing to specialists who can do some of the functions that we’ve been performing internally more efficiently and effectively, so we don’t see this trend as much different than ultimately clients eventually going back to the specialists and the people that have made the necessary investments and that can get the scale and the skills to help them achieve what they’re trying to achieve. I think given the timing and the market is about to open, we have time for one more call.

That question comes from the line of Michael Nathanson from MoffettNathanson. Please go ahead.

Thanks, appreciate it. I’ll be quick. One for John, one for John and Phil. So John, given the problems that these European competitors of yours have in North America, it’s pretty obvious they’re 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 y9ou see happening in the marketplace due to their weakness?

Not that I could call out individually. We have always--in terms of talent, we’re always in search--we think we have the best talent in the industry and we’re always in an effort to acquire more of that better talent. In that regard, there’s a lot of recruiting that goes on within the industry. I don’t know if that quite fully answers your question, but--.

Yes, I don’t think we’ve seen dramatic changes in terms of deal terms, and it certainly hasn’t eased if--you know, as a result of our competitors maybe being less active on the acquisition front.

Okay, and then let me ask you both, on dividends versus buybacks, you’ve called out where you’ve financed your long-term paper at - it’s incredibly cheap how low rates are. Is there any internal thinking about maybe positioning more of your capital returns to dividends versus buybacks as time goes on, I guess to make the stock more attractive? Is that a conversation that you guys have entered into at all?

Dividends are a matter that our board considers on a periodic basis, and it’s something that we certainly discuss a few times a year. The board looks at it very seriously. We certainly want to be as consistent as we can in terms of our dividend policy and our capital allocation policy, and I think we think we’ve certainly done that. I don’t think we have any intentions of changing it in any significant way, but it is more of a board decision.

Okay, thank you.

Thank you all for taking the time to join us on the call.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.