宏盟集團 (OMC) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Omnicom second-quarter 2010 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 would now like to introduce you to today's conference call host, Executive Vice President, Chief Financial Officer of Omnicom Group, Mr. Randall Weisenburger. Please go ahead.

Thank you. Good morning, and thank you, all, for taking the time to listen to our second-quarter 2010 earnings call. We hope everyone has had a chance to review our earnings release.

We've posted to our website both the press release and a presentation covering the information that we're going to present 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 statements and other information that's included on page one of the 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 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 then both John and I will be happy to take questions.

Good morning. Thanks, Randy.

We are pleased to announce strong quarterly results for the second quarter. Results showed improvement over last year and over the prior quarter. Overall, these results demonstrate continued improvement in our business.

There are several key trends that I would like to highlight. First, from an overall point of view, economic growth is improving, although slowly. Second, an increasing number of our clients are now focused on growth, and we are starting to see increases in the scope of services they require. Third, driven by the need for disciplined innovation during the recession, our agencies are extremely well-positioned to compete and win, driving both industry recognition and importantly, some significant new business wins.

On the economy, the picture is generally improving with the exception of several smaller European countries that have been at the center of the recent crisis. We continue to see evidence of a recovery in the US, and saw fairly strong revenue growth during the last quarter. As a result, we're optimistic about the next few quarters but we still remain cautious until the unemployment picture here markedly starts to improve. Regarding Asia and Latin America, growth in these markets continue to be strong with a positive outlook for the next several quarters.

Going back to Europe, the picture is decidedly mixed. There are clearly some markets that have been and will continue to be affected by the current debt crisis. And in other markets, such as the UK, France, and even Germany, we are hopeful that we are at the bottom or near the bottom of any economic impact.

Let me take a second and touch on what we are hearing from clients. In one of the more positive outcomes of the recession, I believe that many of our client relationships are getting stronger. Last year, when clients hit difficult times, we reduced the scope of our work. As the focus now returns to growth, many of our larger clients are bringing us in closer than they ever had into the strategic decision-making process so we can help drive their results. While I won't get into specific clients or industries, generally speaking, the shift that is occurring is very positive.

Once again, last year, the focus was survival. Today it's growth. And that growth should drive new and expanded engagements across all of our networks.

The third trend I mentioned is our internal performance -- costs. As we've talked over the past few quarters, our agencies work quick to adjust where they could when we hit the financial crisis. Now the challenge is to manage costs very thoughtfully as we start to reinvest in the growth of our business.

From a margin point of view, and Randy will cover this a little bit more, some of the transition costs -- fixed debt costs, severance and real estate reductions -- are still running through our system. But as we forecasted earlier this year, those costs had a minor impact on our margins in this quarter. And at this point, unless there's a double-dip recession, we are near the end of the process, and we expect to see margins level off in the second half and then start to improve next year.

On the revenue side, we continue to see growth by discipline and geography, and we saw robust growth in our new business during the quarter, which should help drive our revenue in future quarters.

From a discipline point of view, our specialty businesses, with the exception of recruitment advertising, generated double-digit growth in the quarter. And as we discussed, these businesses were hit particularly hard last year, but at this point, aided by some easier year-over-year comps, we expect these businesses will continue to grow.

PR also showed fairly strong growth in the quarter, and we're happy with the trends we're seeing in both advertising and the CRM disciplines.

From a geographic point of view, the story in the developing markets continues to be a good one. good one and following up on that strong first quarter in the US, we're happy to see that growth continue. Organic growth in the US was 8.2%, even after the loss of the Chrysler business.

This leaves Europe. And as I previously mentioned, we were presently surprised by the performances we saw in the UK, and to a lesser degree, in France and Germany, but the picture in the rest of Europe is still somewhat unclear to us.

Turning to new business, we believe that the strategies we pursued during the downturn are paying off. Our agencies have redefined their value proposition and developed innovative services and are becoming more flexible on how we service our clients. They've also continued to make significant investments in digital capabilities, build the internal skill sets, and that's resulting in stronger integrated offerings.

Our creative has also remained extremely strong, and we recently returned from KIN with Network of the Year honors for BBDO, and I think that was the fourth year in a row. DDB captured number two, and TBWA came in number six.

Together with the innovation and creative excellence, we are being rewarded with new business, making this a particularly strong quarter with new business I believe -- and Randy will cover it -- in access of $1.5 billion.

Acquisitions, which we've talked about in the past, the story of the second quarter is one of organic growth. And as you can see, we've not really deployed any meaningful capital for acquisitions. As we've said in the past, we expect to see more activity going forward, especially in markets like Asia. To help in this effort, we've recently restructured our Asian operations. And earlier this month, we brought back Dara Akbarian, who had previously been with Omnicom, and he will now spearhead our M&A efforts in the Asian area.

The balance sheet -- it's another area where our discipline has worked to our advantage. During the second quarter, we've further improved our position by completing our transition away from short-term debt to medium- and long-term maturities. And we now sit in a very strong position, which will make achieving any of our strategic priorities much easier.

So as we look to the second half of the year and beyond, we believe we are very, very well positioned. We will continue to focus on expanding our digital capabilities, as well as our footprint in developing markets. And in all cases, we're going to do this in a very conscientious way. There are still risks out there in the global economy, and we will continue to rely on the strength of our management teams and the talented professionals we have around the world.

With that, I will now turn the call back to Randy, who will take you through the second quarter.

Thanks, John. In short, the second quarter was outstanding and better than we had anticipated. Driven by our strong new business performance over the past several quarters, as well as stabilizing to improving economic conditions around the world, we continued to experience sequential improvements from Q1 across almost every industry segment and every geography. Even in geographies where we are still facing year-over-year declines, the declines were lower in Q2 versus Q1. As a result, year-over-year revenue increased 5.9% to just over $3 billion. Operating income increased 4.3% to $415 million, and that resulted in operating income or EBIT margins of 13.7%. That was down about 20 basis points. And an EBITDA margin of 15.7%, also down about 20 basis points.

Overall, our agencies have done a great job over the past 18 months at adjusting salary and service costs to align with client revenue. We're also beginning to make good progress at bringing our occupancy and other infrastructure costs into alignment. And most importantly, the agencies have been able to make this progress while maintaining the client service levels, as well as continuing to invest significantly behind the development of new and expanded capabilities to support future growth.

Net interest expense for the quarter was $23.7 million. That's up $1.8 million from Q2 of last year and down about $400,000 from Q1. The increase versus Q2 '09 was primarily the result of our issuance of $500 million of ten-year senior notes last July. That increase was largely offset by a decrease in borrowing levels, as well as lower rates on short-term borrowings.

On the tax front, our reported tax rate for the quarter was about 34%, down slightly from the 34.5% we hit in Q2 of last year. That results in net income for the quarter, an increase of 4.2%, to $243.3 million; and diluted earnings per share on the quarter increased $0.04 or 5.3% to $0.79. The diluted share count for the quarter was about 307 million shares.

Analyzing our revenue performance a little further, on a year-over-year basis, the dollar was mixed versus our major currencies, resulting in a negative FX impact for the quarter of about $5.1 million, or about 0.2%. Assuming rates remain at their current levels, FX will be increasingly negative for the balance of the year, with an impact of around minus 2.5% in Q3 and minus 3.5% in Q4. And at current rates, FX will be negative about 0.5% for the full year.

Revenue growth from acquisitions, net of dispositions, increased revenue by $2.3 million in the quarter or about 0.1%. We're finally cycling on the disposition of the directory advertising business that we completed in the second quarter of 2009. That disposition has been bringing down our acquisition revenue by about 0.5% each quarter.

Driven by both the success of our new business efforts, the stabilizing to improving economic environment and easier year-over-year comparisons, organic revenue was a very strong 6%, increasing our revenue by $173 million.

A few areas worthy of note, as I mentioned earlier, we experienced increased revenue across almost every industry sector. The exception was auto, which was down about 1%. However, excluding the loss of Chrysler, the auto category was up over 15%.

Events and sports marketing had another excellent quarter, up over 15% this quarter, benefiting somewhat from the FIFA World Cup, and then field marketing continues to perform well, up almost 15%. On the negative side, our recruitment marketing business has not yet turned the corner, although it's improving with revenue down only 11% in the quarter.

As for our mix of business, brand advertising accounted for 45% of our revenue and marketing services 55%. As for their respective growth rates, brand advertising increased 4.6% in the quarter, 3.4% being organic. And marketing services increased 7.1% in total, organic being up 8.2% or about $129 million.

Within marketing services, CRM was up 5.9% with organic growth of 6.9%. Within this sector, a couple businesses had better than expected quarter, particularly our events and sports marketing and field marketing businesses that I mentioned earlier.

As John said, public relations was up 7.1% in the quarter with organic growth of 5.8% and specialty communications was up 11.4%, with organic growth of 15.7%.

Healthcare, which is the largest area within specialty communications, continued to drive the performance in the category. And as I mentioned, recruit marketing, although beginning to cycle on easier comparisons, was still negative in the quarter.

I also want to point out that in the quarter, we've adjusted the discipline definitions for several of our operations. As more of our business is being performed on an integrated basis, several of our digital operations and CRM operations are now integrated together into brand advertising.

To make prior-period amounts more comparable, we've adjusted prior-year revenue by disciplined groupings, as well as the current years. The changes didn't have a meaningful impact on any of the organic growth rates for any of the disciplines.

Our geographic mix of business in the quarter was 53.8% US and 46.2% international. In the US, revenue increased $112 million or 7.4%. Dispositions, net of acquisitions, reduced revenue by $12.2 million or about 0.8%. And organic growth was extremely strong at 8.2%, adding $124.6 million.

International revenue increased $58 million or about 4.3%. FX decreased revenue by $5.1 million. Acquisitions added $14.5 million or about 1.1%, and organic growth was positive at 3.6%.

Internationally, again, driven by improving economic conditions and very successful new business efforts, in the Middle East, Africa, Latin America, and the Asia regions, we achieved double-digit organic growth in the quarter. In Europe, results continue to be mixed with strong performances in the UK, France, the Netherlands, Belgium and Russia. And other markets like Greece, Ireland, Spain, Portugal, Poland, and the Czech Republic continuing to struggle.

However, we experienced sequential improvement from Q1 to Q2 in almost every country, so even in places where the year-over-year growth was negative, it was less negative than in Q1. Or in short, we are experiencing increasing stability and improvement across all markets.

Moving to cash flow, our operating cash flow through June, excluding working capital, was strong, and our working capital performance continued to be very good. Our primary sources of cash, that is net income plus stock-based compensation, and then depreciation and amortization, totaled about $580 million year to date. And our primary uses of cash, year to date, have been dividends, which totaled $108 million; CapEx totaled $63 million; and acquisitions, including earnout payments, totaled $76 million. And then share repurchases totaled approximately $472 million net of proceeds we received from the various stock plans.

As the current credit picture chart shows, including changes in working capital, our year-over-year net debt position improved by about $400 million to $1.66 billion. And as a result of the reduction in our outstanding debt balances, our total debt to EBITDA ratio improved to 1.3 times, and our interest coverage ratio remained very strong at 12.9 times.

During the quarter, the holders of our 2038 notes have the ability of putting the notes back to us for repurchase. We were able to keep $407 million of the $467 million of the notes outstanding by paying a $50 per bond supplemental interest payment to bondholders. That amounts to about 1.6% annual interest on those notes, and now the next put date for those notes is going to be June of 2013.

And finally, from a liquidity perspective, we finished the quarter in a very strong position with cash and undrawn committed credit facilities totaling about $3 billion, and we had an additional uncommitted group of facilities available totaling $395 million.

And with that, I'm going to now ask the operator to open the call for questions.

(Operator Instructions). Brian Shipman, Jefferies.

Thanks. Good morning. Your business clearly accelerated in the second quarter. Could you give a little color, please, on a month-to-month performance? And given recent consumer sentiment surveys showing recent weakness, can you provide some color on what you're hearing from clients about the second half of the year? Thank you.

I'm not sure that I know the growth rates.

(inaudible). I think the growth by month was probably fairly comparable month to month. I don't know they necessarily accelerated very much as the months went on. It maybe improved a little bit in some spots in Europe, and some of the new business wins started to kick in probably a little bit later in the quarter.

In terms of the second half, our conversations with our clients are all focused on their top-line growth in revenue, and that's leading to different strategies, different plans, and really an increase in the scope of the services that we can provide.

Having said that, domestically, if that's what you're focused on, we will remain somewhat cautious with unemployment as high as it is, and act accordingly. But clients are, I guess after having been forced to focus, as we were, on costs for about 18 months, are now turning towards the top line, and increasingly trying to drive growth, so --.

Yes, I mean the only thing I could add is qualitatively, it's not specific to discussions, there's far fewer discussions about cost containment and cost-cutting and more about strategic growth initiatives and trying to take advantage of opportunities that are in the marketplace.

Okay, thank you very much.

Alexia Quadrani, JPMorgan.

It's actually Monica DiCenso for Alexia. Just a couple quick questions. We were just wondering, on the expense side, you mentioned flattening out in the second half, so given where we were for the first half, that would imply margins flat to slightly down for 2010. Is that -- I just want to make sure I'm getting that right, given that revenues were coming in a bit better than we thought.

And then I was just wondering, you said clients are looking to use your services more. Does that mean you're getting any leverage in your fee negotiation and maybe things are picking up a little bit from when you last spoke about it last quarter? Thanks.

I think we're in the same place we were. I think we're expecting margins for the year to be flattish. We thought they would be down a little bit in the beginning of the year, and I think for the full year they should be pretty close to flat.

And in terms of be negotiations, there's still pressure to be extremely productive and efficient for clients. So, there is an expansion in the scope of the work more than in our ability to increase price, I would think.

Yes, I think our leverage comes from basically levering the infrastructure costs that we have in place than the overhead costs that we have in place. I don't think there's any reduction in clients' demand for high-quality, efficiently delivered services.

Thanks.

Thank you.

Craig Huber, Access 342.

Yes, good morning. First, just a housekeeping question. What was the total number of employees at your Company at quarter end? And what was it at the end of the first quarter? And I have a follow-up.

While we're looking for the number, why don't you do your follow-up, and we will say (multiple speakers)

Okay. And then, if we could just -- over in Europe, would you mind isolating for us, just given that the crisis on the debt side, over in Europe what the organic revenue percent change was in the UK versus your euro-based markets in the quarter?

Wow. You are making us look stuff up. Hold on. UK organic growth was 6.7%. And the euro markets in aggregate was minus 1.1%.

And then, Randy, what would you say those smaller markets that are really getting hit by this debt crisis over in Europe -- Greece, Portugal, etc. -- of the ones you highlighted, as a percentage of your total euro exposure, what percent of revenues would you say that is?

As a percentage of our euro exposure, let's see. Which ones do you want to isolated? Greece, Ireland --?

Yes, Ireland, Portugal -- all the ones that are having major debt crisis over there. I assume it's not much more than 5%, 8%, right?

No, it's about 12% of the euro.

Of the euro. But no -- are you talking about our overall --?

Yes, that's fine. So 12% of euro.

Yes. It's about -- just under 12% of total euro. Which --

Hold on a second.

And total euro to total is about 28%, 27%.

So in terms of the overall Company, it's not that significant.

Yes, those markets are about 3% of our revenue. Now the thing to keep in mind when we talk about all these growth rates, what happens in our numbers, especially as you get down to these small markets, new business, or the individual performance of our agencies, with respect to growing their businesses, the economy is an important factor, but so is their performance within that economy. So in some of these markets, like in particular, you take Italy, we had positive organic growth in Italy. So, they obviously are businesses in that country and our clients in that country were doing quite well relative to the marketplace. So there are multiple things going on in our revenues. It's not just economic-based.

Okay, and if I could just squeeze another one here while -- you mentioned the $1.5 billion net new billing winnings I guess in the quarter, which is meaningfully above the $1 billion goal you guys have every quarter. Can you just highlight, of the ones you can talk about, what a client wins are in that mix there; and I guess the account losses too, the major ones?

While Randy is looking it up, General Motors, Humana.

Yes, General Motors, Humana, Kraft, Merck, Porsche, Virgin Media; we lost Aspen Dental. That was probably one of the bigger losses in this quarter.

Okay, thank you.

Very positive on the upside and not a lot of losses this quarter. Frankly, the best way to get great net new business is not having a lot of net.

Right. Thank you.

William Bird, Bank of America Merrill Lynch.

Thanks. I was just wondering, is there any reason to think Q3 organic growth shouldn't at least match Q2?

Whatever -- we probably don't want to be that -- the second-quarter organic growth was very strong. It was well ahead of what we had expected it to be. Until we have a little bit more time to analyze exactly what happened in the quarter, I probably wouldn't want to go quite that far. We've always said sort of plus or minus 1% or 2% in a given quarter is a bit of noise.

We are extremely pleased -- we think the quarter was extremely good. To me, the best part was the breadth of the performance. It was really across the industries and across countries we had improvement. That breadth to me, is very important.

Before, in some of the down quarters, we had some isolated areas that were hit very hard that actually pulled the numbers down sort of abnormally. This quarter, we're back to broad-based, good solid performance. So I think next quarter is going to be a very good quarter. Whether it's going to be 6% growth or 5% growth is probably not that meaningful.

As a follow-on, could you talk about anything in particular that might have driven the increased working capital usage? And then just philosophically, I'm just wondering what the Company's point of view is right now on borrowing to buy back stock?

Well, first of all, working capital, working capital can bounce around. You're seeing a quarter-end number. Daily average working quarter capital in the quarter was extremely good. So, you know, what happens on a quarter end can be a literally a couple hundred million dollars is a day's payables and receivables. So I think the performance was -- in the quarter, throughout the quarter, was in line with the first quarter and in line with last year's performance.

Right. And just -- this is a general comment. Use of our cash is a board participatory conversation. And the point of view that we've taken with our board is that we will use our free cash flow to pay dividends, to do acquisitions, and to buy back shares. Periodically, we talked about that, but there aren't any conversations at the moment that would expand that dialogue. So, everything we've done is kind of consistent with the direction and the agreement of our board. And it would take a board action to do a borrowing for the purpose of buying back shares.

And going back to Craig's question earlier, he asked about headcount. At year end, the headcount was about 63,000. And it's up 1,000 or so employees year to date. And that's global. So, again, when you deal with aggregate Omnicom numbers, we're getting -- obviously we are expanding our headcount as necessary to serve our clients' needs, and that can vary from market to market, with some of those markets still being down.

Meggan Friedman, William Blair & Company.

Thanks for taking my question. Just a couple of questions here. The first is, can you talk a little about the outlook for performance in the UK, specifically related to the new coalition government, and how you expect the austerity measures there to affect spending and specifically, government-related marketing spend?

I can make some general comments. I fully expect that the number of the government-sponsored advertising type of programs, which the industry benefited from under the previous government, will be curtailed as part of the already announced austerity measures that the government is taking. We were not -- we've benefited a little bit from that in the past, but it wasn't a big part of our UK business, so that won't have much of an impact on us.

The increase in that, which is supposed to take place January 1 from 17.5% to 20%, will, in all likelihood, have some impact, and I would imagine it will have an impact on large purchases, so; and this is me guessing more than anything else, but somebody who's planning to buy a car in the next five months will probably buy it before year end as opposed to in January because of those kinds of increases.

In terms of packaged goods and normal products that people use every day, it's everybody is tightening their belt, but it's too early to see what the impact is going to be from the changes that they made. And like most governments, there are announcements of what's going to go on. And then there's implementation of those announcements. And until they've been implemented, one doesn't know.

What's really driven our UK operations this year has been the strong operating performance of the agencies. We had strong organic growth this quarter. We had positive organic growth last quarter. We were, I think, just over flat in the fourth quarter, if I remember right. That wasn't necessarily because the economy was very different in the UK versus some of the other parts of Europe.

Frankly, I think what really drove it was very strong new business and operating performance of the individual agencies that we have in the marketplace. And frankly, that strong operating performance certainly is a good offset to economic conditions. It's obviously a lot easier on everybody if the economies are strong, but the agencies going out and winning new business and expanding their relationships, they can certainly buck that economic trend.

Okay, that's helpful. And a question on auto. Did we see GM contribute in Q2? And if not, when should we be thinking about GM starting to contribute both top line and bottom line?

There wasn't really much of a contribution because we won it late in the quarter. And, generally, when you're ramping up for any new account, the costs are typically pretty high in the first couple of months in which you win an account. So, I would expect to see some contribution starting in the third quarter, and then by the fourth quarter, we will start to see the full impact of the win coming into our business at that point and things should normalize.

But in the beginning, you have recruitment costs; you have location costs; you have all sorts of things which go on, so oddly enough, in this business, when you win something big, in the very beginning of it, the margins are the smallest. And sometimes when you lose a piece of business, for those last couple of months, the margins on the business are the highest. It's just an anomaly of the industry.

Okay, thank you. And then just a couple of quick housekeeping questions then I'll turn it over. And forgive me if I've missed these, but could you provide net severance in the quarter, and also the ending share count for Q1?

What's net severance?

Sorry, versus last year.

Oh, let's see, severance was, I think about $21 million, down from about $30 million last year. So that was an improvement, just to show how the business works. Recruitment cost was up about $6 million this year versus last year, as well. So it kind of goes to John's point. Recruitment costs around new business activity also picks up.

And right now, part of the reason this year's management of margins is probably more difficult than other times is you have that double trend. We still have elevated severance in some spots while agencies are fine-tuning their cost structures in places like Europe. But on the other side, where we are getting expansion, we're getting that increase in personnel recruitment costs as well.

And, let's see, share count -- we ended June with about 303 million.

Okay, great. Thank you, and congratulations on the strong quarter.

Ben Swinburne, Morgan Stanley.

Thanks. Good morning, guys. And glad to hear you I guess bullish would be one way to describe it. But John, I wanted to ask you about the back half and into next year. And I know it's probably impossible to generalize, but what do you think your big multinationals are assuming in terms of an economy? From my perspective, I keep getting calls about double dips as now sort of the base case. But your numbers and your body language on the call certainly suggest that your clients are operating in an offensive mode. I don't know if that's a good description, but just curious if you could give us a little bit of color, since you have had what looks like a first-half well ahead of your own expectations, it seems like clients are coming in with scope of work increases fairly suddenly. So I'm trying to reconcile what we read in the paper with your business.

Sure. And my education is daily so it changes, as everyone else's. So, it's just three generalizations; I would say that there are three speeds going on the world, Asia and Middle East, Latin America. It's in the go speed; it's going forward. I don't see any real disruptions in those markets in terms of our overall growth in the economies that are there.

Europe, we remain very cautious about, focusing on new business wins in smaller markets. Efficiencies, making certain that we innovate quickly in those markets to expand what relationships we do have.

And the US is the place where it's moving forward. We've had a very good experience in the first six months of the year. Some of it we've been aided by easier comps. Some of it has been a real expansion on the part of our clients. And, we remain optimistic, but cautious because we read the same things you do.

Our clients are looking to grow their businesses. So, they're more focused this year on the top line than probably in the past where they had to immediately turn most of their focus to cost reduction, and we're working very closely with them on that.

So, but, I probably won't feel as good about the US as I do about some of the emerging and developing markets until we start to see some improvement in unemployment. And as a personal wish, I wish Congress would go on recess and stop doing things because I think we would all benefit from a quiet period in the United States. But, that's a personal wish.

So, but clients are truly focused on product innovation for their own products, and growth. And that goes across the board in terms of the ones that I'm in contact with and talking to all the time.

That's helpful. And if I can just add a couple of follow-ups, Randy, I don't know if you have a currency number for the third quarter and the rest of the year as to where rates are today. And then I have one more.

Yes. Let's see, currency for Q2, if the rates stay where they were at yesterday, is about minus 2.5%.

Q3?

That's Q3. And Q4 is about minus 3.5%. That will make the full year minus about 0.5%.

Okay.

And going back -- let me just interrupt for a second. I need to correct the fully diluted share count will be about 304.5 million at the end of June. So I said 303 million; it's about 304.5 million.

And then if I could just have one more, Randy. You had commented here over the last couple of quarters about incentive compensation and that people at Omnicom have put up with a lot of -- made a lot of sacrifices over the last 18 months and you were trying to right-size that. Any comment as to where we are in that process as of the end of Q2?

I think we're certainly making progress towards the goal. We've got to see how the rest of the year works out. Right now, we're at a spot where costs are coming into line, which is very helpful. It should put us in a pretty good position to continue to accrue incentive compensation aggressively over the balance of the year and still make the financial results that we want or we think we should be delivering to shareholders.

Sure. Thanks, guys.

James Dix, Wedbush.

Good morning, gentlemen. Just two questions. I guess, first, just drilling down a little bit on auto category, do you have a sense that the industry I guess in particular in the US, is seeing enough demand so that they're now going to be out there spending more aggressively for market share as opposed to being a little bit more in a cautious mode?

And then I guess, just looking at growth going forward, you've talked about kind of the second quarter of last year being kind of the reset base when we kind of hit the bottom in the recession. Is your thinking now that the growth going forward is at least for the next couple quarters should be in the range that you've seen this quarter off that reset base, allowing for the noise that you talked about, Randy, of a point or 2? Or do you have some reason to think it's going to be materially differ from that one way or the other? And that's it.

I'll do the auto for a second. First of all, we saw about a 30% decline in auto last year. So, absent Chrysler, we're seeing a 15% increase this year. When you just do that math, that's still down 20% from say 2007-ish levels. And with -- so I think auto spending, frankly, even last year when it was down 30% at least in the US, was fairly rational to its unit sales. Now, with the increase, I guess that's probably also fairly rational with the unit sales. So the unit sales are up, but they're not back to the $16 million unit level that they were at say in the 2007 timeframe.

So the auto category seems to be fairly rational in its spending, at least as it relates to our revenues. And then obviously, we've got to deal with performance within it. So we lost Chrysler. We won Chevy. Chevy doesn't replace the Chrysler loss; Chrysler was a very large, integrated account. We won a piece of the Chevy business, which was obviously a great win, but wasn't what a 25- or 50-year relationship with Chrysler had built up to. So we're happy with where we're at and the progress that we've made in the auto sector. What was the second question again?

The second question is really just talk about growth off the recent base, because I just want to make sure I'm clear on how you are viewing the growth off the reset base that you saw in the second quarter of last year; because I think, John, earlier, you mentioned it was maybe in the US it was a little bit of an easy comp issue in the second-quarter growth this year. But if I'm looking at the second quarter is kind of the reset base; it's not so much of a comp I'm thinking about. It's just going to like -- okay, there's a set level and now you're kind of -- the second quarter is your first year -- first chance to see what your growth was going to be off that level. And is the second quarter indicative of your general expectation as to how things are going to progress for the next few quarters, allowing for some noise, as we've talked about.

In the US, I think the second quarter last year probably was a low. We have Chrysler to sort of contend with. We have some positives I think this quarter with FIFA World Cup, so I think that certainly helps the numbers a little bit. And those revenues for us really come through the US, because that's where the Company that does -- the primary company that does that work is at.

I think probably overall, maybe some work moves around things like FIFA that probably doesn't necessarily impact the full-year numbers, but may move a little of revenue into the second quarter. That's hard to determine.

I think in the fourth quarter, we actually started having an uplift, so it's not quite such an easy comp in the US for the fourth quarter.

When we get to Europe, we actually had a second step down last year at the end of the third quarter and the fourth quarter, so we haven't yet cycled on the easiest comps there. And I'm not sure we really had a lot of blip, a lot of year-over-year differences or economic changes in places like the Middle East, Latin America, Africa and Asia. So, there's probably not a lot of easy comp analysis to be done there.

Okay, great. Thanks very much.

Tim Nollen, Macquarie.

And I think this probably needs to be our last question as well. I think we're getting pretty close to market open.

All right, very good.

Great. I squeezed in. Thanks. Most of my questions have been answered. I just have one further question, which is about these reports I've been reading about an alliance between Omnicom and Google. Could you speak about that if there's anything to be said? If so, how is it similar to or different from what some of your peers have done, and if it's a meaningful arrangement for Omnicom?

The Google arrangement is a very positive one. It should benefit our clients as we move forward in terms of pricing and access to content. And I believe it's not more favorable than, nor is it less favorable, than what our competitors have. But, overall, I view it as a very solid, positive move.

I also expect that what you will be hearing in the coming months is -- with some other technology companies and other providers in the space, other arrangements which are currently being discussed but haven't been finalized. This is all very consistent with the increased importance of social media, the increased importance of different types of digital advertising and marketing, and so this is part of just a journey that we are on. So yes, it's all very positive, and our clients will be the beneficiary, and our companies will be the beneficiary.

So does it more formalize the relationships you have in place and put together more of a technology platform? Is that really the idea behind it? Is it really extending what you've already been doing with them?

It extends -- we've already been -- it formalizes a lot of work that was already -- was happening in the background and was already occurring, and dialogues between the companies in terms of how we can better service clients and better deliver messaging to the clients in the markets and the demographics that we need to. So, they're all very positive steps and they're behind an enormous internal investment on the part of Omnicom to transform what were some traditional services into a digital environment. And that increases every day, and it's only going to increase going forward.

So, but, Google is only one of many suppliers of -- or medias or whatever you would like -- however you would like to refer to them -- in this area. And we have elected, rather than to compete with them in certain technology areas, even though we have a lot of people who are very technologically savvy, we've elected to find alliances which will benefit our clients and move forward with that.

Okay, thanks.

Thank you, and thank you all for taking the time to listen to our call. We will do it again next quarter. Bye bye.

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T's Executive Teleconference. You may now disconnect.