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Top Line Growth, Tax Cuts to Aid Omnicom’s (OMC) Q2 Earnings


Omnicom Group Inc. OMC is scheduled to report second-quarter 2018 results on Jul 17, before the opening bell.

While we expect the company’s top line to do well on the back of revenue growth across most of the regions, lower U.S tax rates are likely to have a positive impact on Omnicom’s earnings.

We observe that shares of Omnicom have gained 5.2% year to date compared with the Zacks S&P 500 Composite’s gain of 4.0%.

Top Line to Improve Year Over Year

The Zacks Consensus Estimate for revenues in the to-be-reported quarter is pegged at $3.92 billion, indicating year-over-year increase of 3.4%. We expect the company to witness top-line growth across most of the regions.

Region-wise, the consensus estimate for North America revenues indicates an improvement of 4.1% year over year to $2.27 billion. The same for Latin America is expected to rise 2.5% year over year to $124 million, 3.1% year over year to $361 million for U.K., 3.9% year over year to $421 million for Asia Pacific and 17.5% year over year to $778 million for Euro & Other Europe. Middle East and Africa are expected to remain stable at around $73 million.

In first-quarter 2018, the company’s revenues increased 1.2% year over year. Organic growth was 2.4% in the quarter.

Across regional markets, revenues from Latin America increased 1.7% year over year to $108.4 million. Asia Pacific recorded a 4.5% increase in revenues to $392 million, Euro & Other Europe improved 23.1% to $712.1 million and the U.K. recorded a 15.8% improvement to $358 million. However, revenues from North America reduced 7.2% year over year to $1,985.7 million and the same from the Middle East and Africa were down 7% to $73.4 million.

Earnings Likely to Grow on Tax Reform

The Tax Cuts and Jobs Act, which reduced corporate tax rates significantly from 35% to 21%, will benefit Omnicom’s earnings in the to-be-reported quarter. Notably, the consensus estimate for earnings per share (EPS) is pegged at $1.55, indicating year-over-year growth of 10.7%.

In first-quarter 2018, earnings increased 11.8% year over year. The company also enjoyed a lower income tax rate of 24.3% and a $13 million reduction in income tax expense (due to successful resolution of foreign tax claims) in the first quarter.

For full year 2018, the company anticipates an effective tax rate of 28.1% (excluding any potential tax benefit from share-based compensation).

Our Model Doesn’t Suggest a Beat

Please note that according to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Stocks with a Zacks Rank #4 or 5 (Sell-rated) are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Omnicom has a Zacks Rank #4 and an Earnings ESP of -0.81%.

Stocks to Consider

Here are a few stocks from the broader Business Services sector that investors may consider, as our model shows that these have the right combination of elements to beat on earnings in second-quarter 2018:

Aptiv PLC APTV has an Earnings ESP of +0.49% and a Zacks Rank #2. The company is slated to report quarterly numbers on Jul 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

IQVIA Holdings Inc. IQV has an Earnings ESP of +0.25% and a Zacks Rank #2. The company is slated to report quarterly results on Jul 24.

Avis Budget Group, Inc. CAR has an Earnings ESP of +5.17% and a Zacks Rank #1. The company is expected to report quarterly numbers on Aug 7.

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