Philip J. Angelastro
Executive Vice President and Chief Financial Officer at Omnicom Group
Thanks, John. As you've just heard from John, our third quarter results were solid, reflecting growth across all our disciplines. While the rate of growth as expected is below our first half results, we feel very good about the competitive position of our company, leading us to raise our guidance for full year 2022 organic growth, and we have a positive outlook for 2023 and beyond. Further down the income statement, our cost management has resulted in strong operating performance and operating profit margins. And our disciplined approach to capital allocation and investment has led to both improved service offerings and increased shareholder returns through dividends and buybacks, all while maintaining an excellent credit and liquidity position.
Let's go into the financial details of the quarter, beginning on Slide 3. Reported total revenue in the third quarter was flat year-over-year at $3.4 billion. Organic growth was 7.5% for the quarter. However, as I'm sure you're aware, the U.S. dollar has strengthened significantly and almost half of our revenue is outside the U.S. In dollar terms for the third quarter, this drove the largest negative quarterly impact from foreign currency translation so far this year, a $216.6 million or 6.3% reduction of revenue.
With most of our expenses incurred in the local markets where our revenue is earned, foreign currency translation impacted our profits as well. Reported operating profit for the third quarter increased around 1%, while on a constant currency basis, it increased 6%. Below line, higher interest income helped lower our net interest expense, and we benefited a bit from the translation impact of our euro and British Pound-denominated debt. Overall, our net income rose 2.5% on a reported basis. Combined with a 4% reduction in shares year-over-year, diluted EPS rose 7.3% after a negative 5% headwind from foreign currency translation.
On a year-to-date basis, it's helpful to turn to Slide 4, where we show adjustments to make the current and prior year-to-date periods more comparable. None of these adjustments are new this quarter. They were discussed earlier this year and last year. The year-to-date 2022 period operating expenses and income taxes were impacted by charges in the first quarter arising from the effects of the war in Ukraine. For the year-to-date 2021 period, operating expenses benefited from a gain on sale of the subsidiary, and both interest expense and income tax expense reflect the impact from the early extinguishment of debt. Similar to the quarterly results we just discussed, the strength in the dollar this year also impacted our year-to-date results. Foreign currency translation reduced revenues by 4.5%. Operating profit on a non-GAAP adjusted basis was up 1.9%, and on a constant currency basis, was up 6.1%.
For a more detailed look at our results, let's now turn to Slide 5, and begin with an analysis of the changes in our revenue. As discussed, the quarterly impact from foreign currency translation was negative 6.3%. The impact of acquisition and disposition revenue was negative 1%, primarily reflecting the disposition of our businesses in Russia during the first quarter. Organic growth was 7.5% for the quarter and 10.3% year-to-date. Looking forward, if FX rates stay where they were as of October 12th, we estimate that the impact of foreign exchange rates will reduce our revenue by approximately 6.5% in the fourth quarter. Based on deals completed to date, we expect the impact from net acquisitions and dispositions will result in a reduction of our revenue of approximately 1.4% in the fourth quarter, primarily resulting from the disposition of our businesses in Russia.
Turning to Slide 6. For the quarter, we once again showed growth across all of our disciplines with double-digit growth in three of them. Advertising & Media, our largest category, posted 6% organic growth in the quarter, led by strong media results. Precision Marketing continued its strong performance with 16% organic growth as clients turned to us for digital transformation, digital customer experience and data and analytics services. Commerce & Brand Consulting was again up 11% organically on the strength of our branding and design agencies. Experiential organic growth slowed to 2% as we continued to experience declines in China. As expected, growth in this discipline will remain choppy. Execution & Support, which we also expected would grow slower in the second half, had organic growth of 4%. Public Relations grew a strong 13% organically, reflecting client demand across many industries and geographies. And lastly, Healthcare delivered solid organic growth of 5%.
Turning to Slide 7 for organic growth rates by region. It's clear that growth was solid overall, but varied widely by region and as expected, each region grew a bit less than they did in the second quarter. Both in the U.S. and internationally, in Q3, organic growth was primarily driven by revenue growth in Advertising & Media, Precision Marketing, Commerce & Consulting and Public Relations. Organic growth in the U.S. was strong at 7.6%. And outside the U.S., the organic increase in revenue was led by the U.K. at 11.5% and Europe at 6%.
Looking at revenue by industry sector on Slide 8, relative to the third quarter of 2022, the broad distribution of our clients remained very stable.
Let's now turn to Slide 9 and look at our operating expenses for the quarter. For your reference, a slide in the appendix also presents this on a constant currency basis. Our total expenses exclusive of depreciation and amortization were flat at $2.8 billion, down 10 basis points as a percentage of revenue. Salary and related service costs were fairly constant at 50.8% of revenue compared to 50.4% last year. The slight increase was due primarily to the increase in organic revenue, an increase in headcount and a return to more normal business conditions. Third-party service costs were flat at 21% of revenue. Occupancy and other costs were also flat at 8.2% of revenue, a decrease due to lower rents and other occupancy costs, partially offset by an increase in office expense and other costs resulting from the return of our workforce to the office. SG&A expenses were down year-over-year as a percentage of revenue, due primarily to decreases in professional fees and third-party marketing costs.
Turning to Slide 10. Our third quarter operating profit was $546 million, a 1% increase from last year, net of a reduction of 5.2% due to the impact of foreign currency translation. Our operating profit margin of 15.9% on total revenue was 10 basis points above last year's result.
Please turn now to Slide 11 for our cash flow performance. We define free cash flow as net cash provided by operating activities excluding changes in working capital, which are generally positive for us on an annual basis. Free cash flow for the first nine months of 2022 was $1.23 billion compared to $1.25 billion for the first nine months of last year, a small reduction year-over-year. However, as a reminder, we note that $48 million of the charges we recorded in the first quarter of 2022 for the effects of the war in Ukraine were cash related. Regarding our uses of cash, we used $438 million of cash to pay dividends to common shareholders and another $63 million for dividends to non-controlling interest shareholders. Our capital expenditures of $66 million were at normal levels. Acquisition spend, net of dispositions and other items was $330 million. And lastly, our net stock repurchases during the third quarter were $486 million. We continue to expect total repurchases for the year at our historical annual range of around $500 million to $600 million.
Slide 12 is an overview of our credit, liquidity and debt maturities. During the quarter, the impact of foreign exchange rates on our euro and sterling denominated debt caused the book value of our outstanding debt to decrease to $5.5 billion from $5.7 billion as of December 31, 2021. There were no changes in outstanding balances during the quarter, and our $2.5 billion revolving credit facility, which backstops our $2 billion U.S. commercial paper program, remains undrawn. Our cash and equivalents were $3.3 billion, flat with our balance at June 30, 2022, reflecting an increase in net free cash flow during the quarter, which was offset by the negative impact of foreign currency translation.
Turning to Slide 13. Our operating capital discipline consistently drives above-average returns on both invested capital and equity. For the 12 months ended September 30, 2022, we generated a solid return on invested capital of 25% and a strong return on equity of 43%. We're confident that the outlook for our business growth and our prudent process for capital allocation will lead to increasing returns as they have historically.
Operator, please open the lines up for questions and answers. Thank you.
