CRA International Inc. (CRAI) reported pro forma earnings of $3.2 million or 30 cents per share for the third quarter of 2010 ended September 3, 2010. The results were in line with the Zacks Consensus Estimate, but inched up slightly from the earnings of $3.1 million or 29 cents per share reported in the year-ago quarter. The third quarter results were driven by its cost-containment initiatives resulting in margin improvement.
On a GAAP basis, net earnings were $2.1 million or 19 cents per share, lower than $2.6 million or 24 cents per share recorded in the third quarter of 2009. The decline in earnings was due to CRA International’s restructuring activities, tax benefit and NeuCo-related activities.
Total revenue, excluding NeuCo revenues, declined 4.5% to $82.4 million on a year-over-year basis and was also below the Zacks Consensus Estimate of $84.0 million. This was the result of a decline in demand noticed in litigation businesses.
Including NeuCo, revenues fell 5.3% year over year to $84.6 million.
During the reported quarter, CRA International’s results were largely impacted by an improving utilization rate on the back of successful restructuring initiatives. The utilization rate upped 300 basis points sequentially to 68%, showing signs of a recovery in consumer spending, although less than management’s target level of low 70’s.
CRA International saw year-over-year improvements of 120 basis points (bps) in gross margin to 34.1% and 80 bps in operating margin to 8.0%, based on its efficient restructuring activities. Despite lower revenues, both gross and operating margins increased sequentially by 330 bps and 150 bps, respectively.
Financial Position
At the end of September 3, 2010, the cash and cash equivalents and short-term investments were $86.6 million compared with $106.5 million at the end of November 28, 2009. During the quarter, the cash flow from operation was $12 million and the company spent 4 million on stock buyback.
Outlook
Although litigation and management consulting related areas will remain reasonably active in the fourth quarter of 2010, CRA International expects to face a relatively challenging environment in the coming quarter, owing to clients’ improved, but cautious aggregate spending. The company has also taken cost-containment initiatives from the past two years to cut down its expenses, but will now primarily focus on strengthening its relationship with clients and generate profit in the coming quarters.
While overall visibility remains misty, given the current market volatility, we believe the company’s growth initiatives, new business wins and healthy cash balance will help generate positive results in the long term. Nevertheless, the near-term outlook continues to remain cautious.
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