宏盟集團 (OMC) 2006 Q3 法說會逐字稿

Ladies and gentlemen, good morning. Thank you and welcome to the Omnicom third quarter, 2006, earnings release conference call. [OPERATOR INSTRUCTIONS]

At this time I'd like to now introduce you to today's host, Executive Vice President, Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead.

Good morning. Thank you all for taking the time to listen to our third quarter 2006 earnings call. We hope everyone has had a chance to review our earnings release. We've also posted to our website both the press release and a presentation covering the information that we'll present this morning. This call is also being simulcast and will be archived on our website.

I've also been asked to remind everyone to read the forward looking statements and other information that's included on page one of our investor presentation, and to point out that certain of the statements discussed today may constitute forward looking statements, and that these statements are our present expectations and actual events or results may differ materially. We're going to begin the call with some brief remarks from John Wren. Following John's remarks, we will review the financial performance for the quarter and the nine-month period in more detail and then both John and I will be happy to take questions.

Good morning. And thank you all for joining the call today. We are exceptionally pleased with the Company's performance for the third quarter and for the nine months. Revenue for the quarter continued to be strong across the board. The notable performance was in the major markets, namely North America, Europe, which was really led by Germany, the U.K. and France. And in China where our strategic investments are beginning to yield pretty incredible results.

Randy is going to take you later on through the details but it's worth noting that we are very pleased with the performance also cross each of our service disciplines. They are all performing well. More specifically our PR business are now performing at a level that we've been expecting for quite awhile and this is reflective of both the quality of these firms and the quality of their work. Net new business wins continue to be very strong even with the tough loss during the quarter and we were able to balance it off to achieve our targets. And I'm bullish on the future in terms of business becoming available on a global basis.

Operationally our strategic goals and objectives are moving along nicely and they continue to yield very positive results. From an operating margin point of view which Randy will cover in a minute, we continue to make significant progress while meeting our increasing investment objectives. These objectives include, and I've said this before quite often, expanding our training and development of our staff in market related investments, such as China and India we made selective acquisitions during the quarter, we continue to look at opportunities in those regions and that's a focus for now and for I think the foreseeable future. I'll now ask Randy to take you through our results in a lot more detail. Thanks, Randy.

As John noted we are very pleased with the strong performance of our agencies. Revenue growth in the third quarter increased 251 million to 2.77 billion. That was an increase of 10%. For the nine months revenue increased 8.2% to 8.16 billion. Operating income for the quarter was 307.4 million, up 12%, that's an operating margin of about 11.1% which was up about 20 basis points from last year. For the nine months, operating income increased 10.5% to just over 1 billion, and the operating margin was 12.4% which was up about 30 basis points from last year.

There are a couple of anomalies in our numbers this quarter, worth noting that impact operating income, taxes and net income. I'll try to cover all three of those topics now. First during the quarter we disposed of the U.S. based healthcare business and several small businesses. With respect to the healthcare business, after deducting goodwill, the transaction resulted in a small pretax loss. However, for tax purposes the pretax gain cannot be reduced by the goodwill amount. Because the goodwill deductive for book purposes cannot be deducted on the tax return we were required to record tax expense for book purposes resulting in the high book tax rate for this transaction.

The second event in the quarter was the favorable resolution of uncertainties related to changes in certain foreign tax laws that occurred last year. As a result in the quarter there was a one time true up tax benefit. In the aggregate the impact of these items in the quarter was a decrease in profit before tax of $0.5 million and a decrease in tax expense or a tax benefit of $1.8 million resulting in an increase in net income of 1.3 million. Adjusting for these items our year-over-year operating income in the quarter increased 12.2% and our operating margin increased from 10.9% to 11.1% or about 20 basis points.

Moving down the P&L, net interest expense for the quarter was $26.7 million. That was an increase of 10.4 million versus Q3 last year and for the nine months net interest was 67.4 million, up 24.7 million compared to last year. The year-over-year increase is due primarily to our issuance of a 10 year fixed rate note at the end of Q1. If you recall that was a $1 billion issue with an annual interest rate of about 6.1% or about $15 million a quarter. This increase in interest was somewhat offset by a reduction in other debt as we used some of the proceeds of that financing to pay down our outstanding bank lines and part of the converts.

On the tax front our reported tax rate was 33.1%. After adjusting for the unique items that I mentioned earlier our operating tax rate for the quarter and for the nine months were pretty much unchanged at 33.7%. Net income for the quarter increased 9.5% to 177.1 million, bringing the year-to-date net income to 586.8 million. That was an increase of 9.1%.

Fully diluted earnings per share for the quarter increased 15.6% to $1.04 per share. Again, adjusting for the net impact of the unique items I mentioned EPS was $1.03, or about a 14.4% increase. For the nine months, diluted EPS increased 14.6% to $3.38 per share.

Analyzing our revenue performance, FX was positive 1.9% or 47.9 million in the quarter. However, year-to-date it remained marginally negative at 2/10 of 1% or about $13.4 million. If you recall in Q1 FX was negative about 2%. In Q2 it was neutral and now in Q3 it's a positive 1.9%. If rates stay where they are FX should be positive about 1.5% in Q4.

Acquisition growth net of dispositions was marginally negative in the quarter, reducing revenue by $4.4 million or about 1/10 of 1%. This decrease is primarily the result of the disposition of the previously mentioned healthcare business. For the year however acquisitions have added about 29.2 million, or 4/10 of a point to our revenue. And organic growth, again, was very strong this quarter accelerating to 8.2% and accounting for about 207.9 million of our revenue growth. For the nine months organic growth was increased 8%, adding about 603.2 million to our revenue.

As for our mix of business in the quarter traditional media advertising accounted for 41.4% of our revenue, and marketing services 58.6%. For the first nine months, the ratios were 42.6 and 57.4 for marketing services. As for their respective growth rates, advertising grew 6.5% in the quarter and 5.8% year-to-date. And marketing services, which has been driven by the continuing strong performance of our CRM business and now a resurgence in the PR sector grew 12.6% in the quarter bringing the nine-month growth rate up to 10.1.

Breaking down our marketing services revenue for the quarter, CRM was approximately 36.9%, PR 10.5%, and specialty communications 11.2%. As for their respective total growth rates, CRM accelerated to 16.7% in the quarter, public relations as I mentioned picked up significantly, growing 13.1%. And specialty communications, which was adversely impacted by the healthcare business disposition we discussed, increased 4/10 of 1%. Adjusting for the sale that I mentioned specialty communications would have grown about 7%.

Our geographic mix of business in the quarter was 55.5% U.S., 45.5% international. In the U.S. total revenue growth for the quarter was 111.9 million, or 7.8%. Acquisitions were effectively neutral. I think they ended up as a net negative $100,000 in the quarter. Organic growth remained strong and steady at about 7.8% adding about $112 million to our revenue.

The international front, revenue increased 139.5 million, or 12.7%. Acquisition growth was a net negative 4.3 million. FX had a positive impact of 47.9 million. And organic growth due largely to strong performances in the U.K., Germany, France and China was 95.5 million, or about 8.8%.

Cash flow in the quarter and year-to-date has been very strong and our cash management programs have continued to perform very well. As we believe everyone already knows our primary source of cash flow is net income, adjusting for basic noncash charges which for us are primarily stock-based compensation charges and the related tax benefits as well as depreciation and amortization.

As for our primary uses of cash there are four: dividends which are currently running at $0.25 per share per quarter have totaled $133.1 million yar-to-date. Capital expenditures, totaled approximately 119.5 million. Acquisitions net of dispositions and asset sales, including earn out payments on prior acquisitions, have totaled approximately 178 million. And share repurchases, which in the quarter totaled 123.5 million, bringing our year-to-date total to about 1.1 billion. We've also received $167 million of proceeds from option exercises and stocks sold under our employee stock purchase program resulting in net repurchases year-to-date of 916 million.

As a result of our net repurchase activity year-to-date our diluted share count for the quarter was about 170.9 million shares and for the nine months 173.8 million. As a result of the strong cash management performance this year we finished the quarter with a net debt position of approximately $2.2 billion. That's roughly flat year-over-year. And we had available liquidity of about 3.3 billion. Now I'll ask the operator to open the call for questions.

Thank you very much. [OPERATOR INSTRUCTIONS] And our first question this morning comes from the line of Troy Mastin with William Blair & Co. Please go ahead.

Good morning, a couple quick questions. First you'd mentioned China is beginning to yield incredible results. I wonder if you could maybe quantify that a little bit more for us in terms of size and growth rate and maybe any other anecdotes you might be willing to share.

As we've said in the past, China, India are great geographic opportunities for us. Total revenue growth in China was--

About $10 million in the quarter.

And so--

That's organic growth.

That's organic growth. And then we-- that's without the acquisitions that we've made. In our venture that we recently signed with, in the last quarter, that's starting to take effect now. It didn't contribute really anything yet but it shall. And we've been winning business. And I think the whole perception of Omnicom as a group has improved significantly. So we are very bullish about that.

Also during the quarter we hired a very significant Executive, is the nonexecutive Chairman of India, and India has become a focus for us as well and we expect great things. So we know that we have a lot of room to grow and we know that we have a lot of work to do, but we have been investing for now almost two years in the teams that are-- and they're yielding results.

In terms of the nature of the wins in those markets are they principally domestic companies or are they international marketers that you have an existing relationship with or a combination?

It's a combination. The focus, if I had to prioritize it, is first servicing our international clients and getting back some of the opportunities where we have preexisting relationships and expanding those. The next thing that we're focusing on is significant Chinese companies that will become exporters, or they are currently exporters, because we think that we can service them only-- not only in China but service them in other places around the world. And the third part which has not really kicked in, but eventually will, will be local Chinese domestic companies. That hasn't been, those are kind of the priorities of our focus and we're executing. We have the right people in place at this point and we're doing all the things that we've traditionally done in other markets to make ourselves successful.

And then if I could secondarily, how is your visibility trended through the quarter in terms of the spending of your clients, has it changed appreciably over the past couple of quarters, and is there any discernable trend to your visibility on spend? Thanks.

We have 5,000 clients so our visibility really hasn't changed one way or the other from any time in the past. It's a--a lot of it comes down to market share gains and performance. Our clients are in fact focusing on their brands, so I don't see any shift in the normal process of how our people become aware of what's going on --or spending or not spending.

Okay thank you.

Thank you.

Thanks and we have a question now from the line of Lauren Fine with Merrill Lynch. Please go ahead.

Great. Thank you. It looked like a really strong quarter. I guess just a couple of small questions, on new business could you actually quantify what the net new business in the quarter? And I presume the loss you're referring to was J.C. Penney, if you could highlight some of the wins. And then I'll give you my follow-ups when you answer that.

Before Randy does that I don't believe we, irrespective of the headlines, lost all of JC Penney. We still do quite a bit of work for them. It's just we lost the creative services for that account, but it won't have any impact on our financial results in this current year. Randy, if you want to--

Net new business in the quarter was just under $1 billion in JC-- I mean JC Penney was I'll say the big negative, Safeway was the big positive, not quite as big, not as big as JC Penney.

Okay. And then could you, what was the number of shares actually repurchased this quarter and year-to-date?

That one's going to take time.

We're searching Lauren.

Okay you can come back to that. I guess the last question I have is, I guess I've been surprised that the acquisition activity has been relatively modest, maybe more from a dollar point of view not strategically. I'm curious what the pipeline looks like and if you would expect any pick up in activity?

The pipeline is strong, I think my focus has been really Asia. Other people have focused on other markets around the world. We buy things when they fit, and when they make sense, and in some cases we've been outbid by equity investor -- just nonstrategic investors who have bought companies. But eventually they'll have to do something with those purchases. So the activities there, we're just-- we're just very disciplined about what we do. And the primary focus has been organic growth. Randy might have more detailed information which he sees quite a bit more of what the opportunities are that we don't do.

I think the acquisition pipeline's actually fairly full. We certainly have a number of potential transactions that we're always in the process of reviewing. I think the numbers-- I think the results have gotten a little bit skewed. I mean we've completed four acquisitions in the quarter. I think we've done 11 or 12, or 10 or 12, or something year-to-date. So the tracks not bad. We've also go through a process of making sure that everything in our portfolio is what we want it to be.

We mentioned this quarter the sale of the healthcare business. That healthcare business had fairly substantial revenues, although less than spectacular earnings. So it tends to skew a little bit the net acquisition results, maybe disproportionately. As far as share activity in the quarter, we purchased 1.392 million shares and that brings the year-to-date grocery purchases to about 12.3 million.

And one final note on acquisitions--

That's gross. Obviously we issue shares under our employee stock purchase plan under our option exercises as well.

The acquisitions are there, they-- the pipeline also takes a little longer now because we want to make sure that potential targets are Sarb-Ox compliant or can be integrated and maybe Sarb-Ox compliant. That's a process we've been going through for a year. So it takes a bit longer to actually execute on some of those than maybe it did in the past. But it's all a matter of focus and we're only doing things -- we've never strayed from our internal disciplines about this. We figure the marketplace over the long haul comes to us and our focus has been new areas and our focus has been, as I said Asia, where we have work to do but it's truly a glass half full because we now know we can really add to our organic growth and our acquisition growth in those markets.

Thank you.

Thank you Lauren.

Thanks and we have a question now from the line of Craig Huber with Lehman Brothers. Please go ahead.

Good morning. Thank you. My first two nit pick questions, what were the shares at the end of the quarter and also what was the growth rate for revenues in China, the percent change there and a couple of follow-ups? Thanks.

I don't have the answer to either one off the top of my head.

Okay. We can do it off-line later perhaps.

Yes, I'm sorry.

And then also, from I guess you're folks that are in the trenches, I've been curious on what your thoughts on just 2007 advertising, your expectations overall in the U.S. for the entire market. What is your sense from talking to your 5,000 or so clients, obviously to roughly half in the U.S., what your sense is on advertising trends as we go into 2007, what should investors sort of expect on that front? Thank you.

Without being client specific, generally if you follow the cycle, and I think some of our competitors have spoken more fully about this. Generally when you get into the third year of Presidential cycle performance is generally very good, and also when you get into 2008 because of the Olympics, and people getting ready for the Olympics ahead of it, and just the general cycle is normally strong. We haven't done our plans, they're just actually being prepared now at the Company level, and we won't see those actually until late November, December, in terms of what clients expenditures are going to be. So the cycle says we should be good. I mean that things should be strong. And putting aside geo-political concerns, we have no reason to believe that this cycle is going to be different than any other. I don't know how helpful that is, but people have to market and they have to get out and promote their brands no matter what the medium is they choose to do it to. We should help them to--

And there's a thoughts that you generally still peg your organic revenue growth, in your various markets, at roughly 2 percentage points above local nominal GDP, is that a fair statement?

I'll leave that to Randy.

We think on a long-term basis we ought to be 2 to 300 basis points ahead of say nominal GDP. I think we're probably tracking that, and that's probably more of a global statement rather than specifics by market. Obviously clients-- in generally we would believe that clients will increase their marketing spend along with their revenues. We win off of that from consolidation from larger clients performing better. We also pick up more of their overall spend as they shift their spending maybe from traditional advertising towards other forms of marketing. All of those things help us leverage that number a bit. But clients do shift spending from one country to another country depending upon what they're trying to accomplish at a point in time. So trying to look at individual markets is sometimes misleading if you're trying to fine tune it.

And on a granular basis my attitude which is, we don't own 100% market share in any one of our subsidiaries anywhere, so there's always room for expansion in that area.

Great thank you.

Thank you.

Thanks and we have a question now from the line of Jason Helfstein with CIBC World Markets. Please go ahead.

Thank you. Maybe talk about your digital capability. So on a scale from 1 to 10, and I will try to keep this open you can answer how you want. So on a scale from 1 to 10, if you were thinking about your domestic capabilities on the digital side, how would you rate where you are and what would it take to get to a 10, and what do you think the upside would be if you got to a 10 over time? Well thanks.

Well, without being cute, if we ever get to a 10, you won't need me, so a 10 is kind of a moving target. I know that each one of our traditional businesses, as now has an integrated strategy which they're deploying which includes the use of digital as well as other traditional medias. And I know in some of our stand alone businesses ones which are more specialty and dedicated to primarily digital, that in quite a number of cases we're turning down pitches on-- because we're staffing up.

And so I think, and I've said this for the last 10 years, 10 years ago or eight years ago I said in 10 years everything will be digital. I might be off a couple of years, but I'm not off in the concept. Everything has a digital component to it at this point. Every campaign, the creative people, the people working in our Company which tend to be very young, are very-- unlike five years ago when you had a bunch of old people like me who used technologies as a tool, the average population, the age population both in clients and within our employee are younger folks who this is just an integrated part of the way that they enjoy media. And there's a lot of self selection going on which is a sweet spot for us because the marketplace becomes a little bit more fragmented and the marketplace becomes a little bit more complex.

And so that's why I think you see over time a shift in our overall revenue do more targeted parts of our portfolio. So it's all upside as a service provider, sort of [inaudible] to the media it's all upside.

So you don't want, you don't to rate yourselves right now?

Ratings are all relative. I think we, I think we leave the competitors both in the breath and depth of what we have on the digital front. The digital market is changing at a very rapid pace. Advancing people are figuring out new ways of using digital communications, new methods to market. We have to continue to push forward, which I think John pointed out, everyone of our agencies is doing that and they are working with the specific-- trying to serve the specific needs of their clients, while keeping pace with changing technology and developing their own capabilities and understandings. We need obviously to continue to stay ahead of the competition and to continue to expand so on a relative to the market perspective we're in very good shape. Relative to where we want to be we are obviously going to continue to improve.

And by the time, and this is a very serious comment, I think by the time that we could actually sit down or even focus on it kind of in that kind of a scale, it'll be so fully and totally integrated, that that's how we'll be referring to our business as opposed to distinguishing it in any other way. So it's a, journey that we're well positioned for. We're always looking at those acquisition canadites that we're looking at currently capabilities, we're looking at currently. And it also changes market-by-market. If you go to Korea or you go to China the use of mobile marketing, texting, and other things is I think is advanced beyond what it is here in the United States.

So there's a moment here where if you look at our business in the-- some of the traditional terms that it's referred to and you went back 10 years, most innovation, most things came out of either the United States or parts of western Europe. Now today it can come from anywhere in the world. And especially emerging technologies which kind of are leap frogging because they are not protecting old industries. So it's a pretty exciting place and it's a very dynamic environment.

To just-- one quick follow up on that. So if ultimately though client budgets really aren't expanding to accommodate digital, do you think the money's coming more from the money they would spend coming up, with let's say creative and campaigns on the traditional side, or it's money that they would have spent buying media on the traditional side?

Well no.

Or a little of both?

I haven't analyzed in that term. Creative becomes more important because creative is different. And content, this sounds like-- it is a cliche, but content is king and being able to innovate and to change, what's happened is the pace has changed, the pace and the need for creative has increased because peoples attention spans have changed in the way that they digest media. You-- it's very rare now to just make a commercial for TV. That almost doesn't exist. The campaign is fully integrated, looks at digital uses and the campaigns for significant brands are always being tested and evolving. And it's a lot easier and quite frankly cheaper, for the client to venture into some of these other medias and it will even get cheaper over time I think as the more established companies that are out there have to compete with each other.

So I'd rather be in my business than in some old fixed media unless-- because the growth rates should be greater because the challenges are greater to reach the audiences. But I haven't sat down and tried to predict anybody else's industry. And as I said we're agnostic, we don't call if we're on U Tube or NBC or CBS. We want to reach the consumers the clients are interested in and need to reach.

I think the innovation is where the lines blur, it takes-- you can go campaign-by-campaign with examples. The new Nissan Sentra work that's being done by TBWA I think is a good example. You can certainly see the TV work. There's I think print work attached. You can follow the campaign on the Internet. Everything is coming up with multiple executions behind each idea.

If you read or look at some of the trade magazines, Goodby Silverstein, which has always been famous for doing very effective, regular TV, print, that type of advertising was named digital agency of the year this past week. So that's also a demonstration of just how we've evolved.

Okay thank you very much.

Thank you Jason.

Thanks and we have a question now from the line of Alexia Quadrani with Bear, Stearns. Please go ahead.

Thank you. A couple of questions. First, it looks like the growth in U.K. was very strong in the quarter despite a generally lackluster economic backdrop. Should we assume that the-- it was mostly share gains or is the advertising environment there getting a bit better?

And then my second question is, just a general question on the new business outlook. If you taken a look at the competitive environment right now and maybe your current customer base and potential client conflicts, do you still feel you have a lot of opportunity ahead to pull the new business from either existing clients or new clients going forward?

Well the second part first. I think the new business opportunities are endless, both geographically and even domestically. And that's a quality question. And I'm very, very comfortable with the quality of our assets and the quality of our portfolio. And you've seen us over the course of the last year when we find something that isn't hitting our standards, we're very open to divesting ourselves of it, either because we've looked out and we've said, return today for selling it to somebody's whose very interested in the space, exceeds what we think the value of that asset might be two, three years down the road. So we've done some trimming and we continue to.

New business opportunities I think exist everywhere. And your first question in the U.K., I think, Randy correct me, I think it's coming not only from traditional advertising, but it's coming from a lot of the other portfolio assets that we have which are dedicated to CRM and some of these other areas. That's where I think-- and the advertisers are doing well but you have the numbers.

Yes, I think it's both. U.K. organic growth was very strong. I think an awful lot of it is the execution of our agencies in that market. But some of it seems like it must be a resurgence in the economy a little bit. We've been talking about that for a couple of quarters now where our organic growth has accelerated a bit. We first started seeing a pick up in the U.K. this quarter we've had it in the U.K., Germany and France, and it's been that way now for a couple of quarters.

And do you find that the, with the good organic growth in Germany and France as well do you find that the ad markets there might just be getting a bit more stable and a bit healthier in general as well?

The marketing markets or the ad markets?

I guess marketing, the full picture.

I think in the full picture we're seeing first the markets firmed up and now we're seeing growth. I wouldn't want to parse it in terms of what's traditionally referred to as advertising although we continue to gain market share I think in those places.

It seems to me and again not trying to be the economist, but the economies there are stabilizing, it looks like the performance of our business, penetrating accounts, new business activity, etcetera, is certainly helping us on the organic growth front. I don't believe the economies are doing as well as our organic growth is.

So there's no reason we should see sort of similar levels of growth in the fourth quarter, I mean there is nothing that is expected to change those trends?

No, we don't-- we try not to provide that kind of a forecast. We think our business is very strong and healthy right now. Domestically we talked about the pick up that's been going on for now a few quarters in those markets, in very strong growth although off relatively small basis in China and India.

Just in, and this is not to be negative at all, but it doesn't take much revenue movement in a quarter to move some of the percentages that we refer to and that are referred to about us. But the health of the business I believe is absolutely there and I think we're very well positioned versus our-- the people we compete with on a regular basis.

Thank you.

Thank you, Alexia.

Thanks and we have a question now from the line of Paul Ginocchio with Deutsche Bank. Please go ahead.

Thanks a couple maybe for Randy, one of them, acquired revenues in the fourth quarter, any idea what it's going to look like based on the deals you've done? And second on CRM can you give us some color as to why it was so strong in the third quarter? And finally the do changes in rules around U.K. transfer of employees, does that cause you any problems as you grow their business or lose business there? Thanks.

I don't think that's been past, has it?

I don't think so, I guess what would happen if it was?

God knows. I mean some of the things that I've read on that subject are beyond my belief. So for instance, you have to not only take the employees but if one of those employees sexually harassed somebody else you'd have to take that responsibility as well as it's currently being drafted. I can't imagine that that kind of protectiveness will actually go into place. But--

Who knows.

Who knows.

We'll deal with it like everyone else deals with it.

Right, deals with it, right.

And we've had a pretty good track record of being able to--

Adjust.

Work with local country rules and adjust and everyone's business will obviously have to adjust to it. It'll certainly be a bit of a change and probably change hiring and staffing practices and other things and maybe even assignment practices. There's something in those rules that says a person has to be predominantly assigned to an account and then they transfer. If they are not predominantly assigned to an account, I'm not sure those rules attach. So I don't--

Right. The one good part about it is if they go through, as I looked at them and I've only glanced at them, being one of the market leaders is probably a pretty good place to be if those rules go in place, because it should slow down new business activity in that market. So I'd rather be at the top of the list with those rules in place than anywhere lower on the list. So I can always make lemonade out of lemons, and in this case if that goes through we will.

We're probably jump around your questions. I remember the CRM question. CRM has been very strong across the board. That's obviously one of our sweet spots. It's a place where we have very significant share. We have, I believe, the leading companies in most major markets and it's a place where we focus for a number of years on trying to further expand our relationships with clients and that traction's been there for quite awhile. I don't recall your first question, I apologize.

Okay it was just about, based on the acquisitions you've already complete what kind of acquired revenues will look like, what will acquired revenues look like in the fourth quarter?

I think right now it's basically flat. Let me check one second.

And would you expected CRM to continue-- I mean at 16% I think was what it grew in the quarter, 17% it seems even high relative to historic patterns, was there anything in there in particular or was it just strong growth?

I think it was basically just strong growth. Our, some of the acquisitions activity was in that category. Those are the total growth numbers that we're giving you but obviously -- and the acquisition activity in that category was a little bit stronger because we had the negative acquisition, the big negative acquisition was in specialty communications. The positive acquisition activity was probably at least half of it in the CRM base. I--looking at the numbers here I think based on acquisitions to date, acquisition growth would be about 2/10 of a point in the fourth quarter if we didn't complete anything else.

Thanks very much.

Thank you.

Thank you and we do have a question then from the line of William Bird with Citigroup. Please go ahead.

Gentlemen, are you concerned at all about the potential for slowing growth given moderate net new business in the quarter? And just the lapping of some big year ago account wins? Thanks.

No. I don't mean to be cute by that but we're invited to new business pitches and we can always -- we're not-- we can't create them. So it's a belief that when we get up to the plate we bat very well. But we can't predict quarter-by-quarter what the opportunities are going to be. I can tell you that I spend a good part of my time with existing clients and what their growth is, and with potential clients that haven't necessarily made any shifts yet, or formal announcements about making any shifts. And blue chip, real blue chip Fortune 50, Fortune 100 companies, typically take their time and go through a lot of deliberations before they actually-- and do a lot of due diligence before they put an account or an assignment into review, especially when you look at how the marketplace is consolidated and the number of possible competitors there are today versus years back.

So I don't see quarter-to-quarter analysis of that being very important. But I do see annual trends being important and there's a lot of conversations which are nonpublic which are going on right now.

There's a couple other trends worth noting in that we've about-- we've done a little bit over 3.3 billion I think year-to-date in net new business wins. That really tells us that the net new business engine is performing very well. Last year obviously in Q3 we had a tough comp, but when you look at year-over-year you can look at sort of three large accounts, be of a Lowe's and this year JC Penney, that are kind of the swings. The--each quarter there's hundreds of net new business wins that's really the engine doing its job and while those big wins are exciting and receive lots of press, it's really the breath and depth of those smaller wins that continues to drive the consistency in our business, and shows the strong health of those agencies on a global basis. And I think that is very strong, just as strong as it was last year, maybe even improving.

But we like the headlines, too.

Thank you.

Thank you.

Thanks and we have a question then from the line of Steven Barlow with Prudential. Please go ahead.

Given where we're at, we should probably have this be our last question.

Okay. Randy, on dividends and share repurchases, dividends you kept at the rate the same the last four quarters, it took you seven quarters. At the previous rate is it time to raise the dividend to share repurchases only about 125 million or so, you got obviously very strong balance sheet. What is your authorization left to go on that in [thoughts]?

And then lastly big account out there is Wal-Mart. Are you fearful that one of the competitors in particular is going to low ball the price in order to make good headlines?

Let me deal with one or two of those questions even though you addressed them to Randy. The dividend is really a Board matter and it is discussed periodically with the Board. And we're committed to periodically raising the dividend, at least the Board is committed to periodically-- we and the Board, pardon me, are committed to periodically raising the dividend and I'm sure that'll be a topic over the next six months.

In terms of Wal-Mart, the--we're in a competitive bid and we love Wal-Mart and GSD&M, which is the agency on Wal-Mart has been with them since the beginning. We're hopefully that we'll be successful in defending the account. Some of the headline numbers that have been reported, really I see that it's $570 million, that has a lot to do with a nonOmnicom company, called Bernstein, which had been their media company for the last-- since Sam Walton started the company. So our exposure at Wal-Mart is more emotional than financial. So--but we continue to do everything that we possibly can to talk to them to make sure that they believe that the incumbent, and it's always hard when you are the incumbent, could be successful. So, but the headline numbers that you see is really not Omnicom's part of that. All we do there is creative services and some promotional work which is not in review which I have every reason to believe will continue.

You asked about share repurchases as well, we bought $124 million roughly of stock in last quarter. We bought a lot in year-to-date. We talked about that when we did the fixed rate note that that was going to be an acceleration of stock repurchases. I don't believe we're, I mean it's really a Board matter, but I don't believe we're looking to increase the leverage on the Company on any significant basis on a, certainly on some long-term basis, obviously quarter-to-quarter it can go up or down a little bit.

And basically as we've said in the past we take our free cash flow, which is quite substantial, we pay a dividend, we have some CapEx, we would prefer to do acquisitions as long as they're done on the basis that we want to do acquisitions and the acquisitions are strategic. And then with the balance of the cash we're looking to do share repurchases. I would think that given the acquisition outlook that the share repurchases for the near foreseeable future would be in line with what we've done in the past absent that one time sort of accelerated stock repurchase.

Right and I think if you look back to our comments when we changed the capital structure and put it into long-term debt back earlier in the year all our behavior has been 100% consistent with that and it's very reflective of what Randy has said.

Thanks very much.

Thank you. And thank you all for taking the time for our earnings call. We will talk again in the new year. Bye bye.

Thank you. And ladies and gentlemen, that does conclude our conference for today.