Philip J. Angelastro
Executive Vice President & Chief Financial Officer at Omnicom Group
Thanks, John. As you just heard, we had a solid quarter and first half of the year, and we are on track with our expectations for both revenue growth and operating margin. Let's now go into some more detail on our results.
Starting with the summary income statement for the second quarter on Slide 3; reported revenue increased by 1.5% and by 3.4% organically. Reported operating income increased by 1.7%, and operating margin was 15.3%. Reported net income in Q2 increased by 5.1%, and our Q2 diluted earnings per share was up 8.3% on a reported basis.
During the quarter, we recognized a gain of approximately $79 million on the disposition of our research businesses, which were included in our Execution & Support discipline. And we also incurred repositioning costs of approximately $72.5 million related to severance. We have also included Slide 9 in the deck which summarizes our reported results alongside our non-GAAP adjusted results, which exclude the net impact of $6.5 million pretax from these two items. We'll review that analysis in a few minutes.
Let's now turn to revenues on Slide 4. Organic growth in the second quarter was 3.4%, which brings our year-to-date organic growth rate to 4.3%. The impact from foreign currency translation only reduced reported revenue by 0.7% compared to a reduction of over 3% in Q1, 2023. And if rates stay where they are currently, we estimate the impact of foreign currency translation will be a benefit of approximately 1.5% for Q3 and Q4 and close to flat for the year.
The impact of acquisition and disposition revenue was negative 1.5%, primarily reflecting the sale in Q2 of our research businesses. We expect a similar reduction of 1.5% for the balance of the year, although acquisitions we've recently completed will moderate this somewhat.
Now let's turn to Slide 5 to review our organic revenue growth by discipline. During the second quarter, Advertising & Media, similar to Q1 of '23, posted 5.1% growth driven by strength in our media business. Precision Marketing grew 2.3%. Certainly, clients, especially those in the tech and telecom industries have become more cautious with their spending as reflected in our tech consulting and transformation agencies. This also reflects in part the business coming off a strong 21% growth comp last year. We expect our investments in generative AI will naturally benefit this discipline, and we expect growth in this discipline to accelerate in the future.
Commerce & Brand Consulting grew by 2.4%, driven primarily by our branding and design consulting agencies. Experiential growth was 9.2%, driven by strong results in Europe, France in particular, as well as China from clients in the automotive and luxury categories. Execution & Support revenue fell 3.8% due primarily to declines in our merchandising and fuel marketing agencies. Public Relations was flat in Q2, coming off a 16% growth comp last year, which reflected the benefit of some revenue from the U.S. election cycle that wasn't present this year. Finally, Healthcare performance was solid at 3%, and our outlook for this discipline remains very good over time.
Turning to Slide 6, we, once again, grew organically in every region globally. Notably, there was strong growth in Asia Pacific led by China, which had the benefit of easier comps due to the lockdowns in Q2 of 2022.
Looking at the revenue by industry sector on Slide 7. Compared to the second quarter of 2022, we had higher relative weights in Food & Beverage, Pharma & Health, and Automotive, offset by lower relative weights in Technology and Telecom. Other categories were relatively stable.
Turning to Slide 8, which is our operating expense detail. You can see a more granular view of our operating expense levels. Slide 16 in the appendix also shows these expenses on a constant dollar basis. Salary and related service costs were again down as a percentage of revenues year-over-year. We saw reductions driven by some of our repositioning actions and through changes in our global employee mix.
Third-party service costs increased due to an increase in organic revenue, particularly in proprietary media and events. These costs include third-party supplier costs when we act as principal in providing services to our clients. They are an integral part of our service offering to our clients, and we generated profit on them.
Third-party incidental costs, which we began breaking out separately last quarter, decreased a bit compared to the prior year. These costs primarily consist of client-related travel and incidental out-of-pocket costs that we bill back to clients directly at our cost, at no profit. Occupancy and other costs were up slightly in dollar terms but flat as a percentage of revenue.
As discussed last quarter, we saw increased occupancy costs associated with higher levels of in-office work, offset by lower rent from the reductions in our real estate portfolio in the first quarter of 2023. SG&A expenses decreased in both dollar terms and as a percentage of revenue due primarily to lower professional fees.
Now let's turn to Slide 9. As I mentioned earlier, this is a clear presentation which summarizes our reported and non-GAAP adjusted results for both the three and six months ended June 30. As a reminder, the non-GAAP adjusted amounts in the second quarter of 2023 include a gain of approximately $79 million on the disposition of our research businesses, as well as repositioning costs of approximately $72.5 million related to severance for a net impact of $6.5 million pretax.
Operating income was up 1.7% on a reported basis and up 50 basis points on a non-GAAP adjusted basis. The related operating income margins were 15.3% and 15.1%, respectively, both of which were close to flat with the operating income margin of 15.2% from the second quarter of 2022. For the full year, we're comfortable with the expected range of our operating income margin of between 15% and 15.4%.
Net interest expense was $27.4 million for the quarter, a reduction of $12.7 million primarily from higher levels of interest income compared to Q2 of 2022, given comparable higher short-term investing rates were in place in the second half of 2022. In second half of 2023, we expect that net interest expense will be flat to up slightly relative to the second half of 2022.
Our reported income tax rate was 27%. The non-GAAP adjusted tax rate excluding the gains, the repositioning costs, and the related taxes was 26.3%. We still expect a rate of 27% for the balance of the year. Reported net income in Q2 increased by 5.1% and non-GAAP adjusted net income increased by 4.7%. Our diluted earnings per share was up 8.3% on a reported basis and up 7.7% on a non-GAAP adjusted basis. Year-to-date reported diluted EPS is up 16.3% and up 9.4% on a non-GAAP adjusted basis. This diluted EPS growth was also driven by lower shares outstanding resulting from share repurchases.
Slide 10 shows our cash flow performance so far this year. We define free cash flow as net cash provided by operating activities, excluding changes in operating capital, which historically we expect to be neutral for the year. Free cash flow for the second quarter of 2023 was $880 million, an increase of 14.7% from last year.
Regarding our uses of cash, we used $285 million of cash to pay dividends to common shareholders and another $32 million for dividends to non-controlling interest shareholders. Our capital expenditures were $40 million. Acquisition payments were $55 million excluding net proceeds from dispositions of approximately $180 million. Our stock repurchase activity, net of proceeds from stock plans, continued in the second quarter, bringing our year-to-date amount to $506 million.
Slide 11 is a summary of our credit, liquidity and debt maturities. At the end of the second quarter of 2023, the book value of our outstanding debt was $5.6 billion. There were no changes in outstanding balances during the quarter other than foreign exchange translations. Our $2.5 billion revolving credit facility, which backstops our $2 billion U.S. Commercial Paper Program, remains undrawn, and our cash equivalents and short-term investments were $2.8 billion. Our next debt maturity is not until November of 2024.
Slide 12 presents our historical returns on two key metrics for the 12 months ended June 30, 2023. We generated a return on invested capital of 22% and a return on equity of 46%. These metrics are a strong reflection of the strength of our business and our conservative capital structure.
Slide 13 is the summary of all our recent technology partnership announcements. As a reminder, our historical development of Omni and our current investments in technology and services that prepare our business for the future, are largely reflected in our operating income. We expect to continue to grow our revenues, improve our operations, return cash to shareholders through dividends and share repurchases, while we manage through the current economic environment, and as John discussed, continue to prepare for a dynamic future.
Operator, please open the lines up for question-and-answers. Thank you.
