A leading global consulting firm, CRA International Inc. (CRAI) reported first quarter 2011 pro forma earnings of 40 cents per share, comprehensively beating the Zacks Consensus Estimate of 21 cents and the year-ago quarter earnings of 4 cents per share.

On a GAAP basis, net earnings for the first quarter were 41 cents compared with 2 cents reported in the year-ago quarter.

The blockbuster results were aided by an active pipeline for both litigation and management consulting businesses and cost-containment initiatives, which led to a double-digit growth in operating margin for the first time in two years.

Total revenue grew 33.2% on a year-over-year basis to $77.0 million and surpassed the Zacks Consensus Estimate of $71.0 million. The upside in revenue was driven by higher demand for all services. 

Quarter Performance 

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 expanded 200 basis points (bps) sequentially to 75%, reflecting signs of a recovery in consumer spending. This marks the highest utilization rate achieved by the Boston, Massachusetts-based company in more than three years.

CRA International witnessed a year-over-year increase of 290 bps in gross margin to 33.5% and a 680-bp surge in operating margin to 10.0%, based on its efficient restructuring activities.

Financial Position

As of April 2, 2011, cash and cash equivalents and short-term investments were $81.9 million compared with $87.5 million as of January 1, 2011. Shareholders’ equity at the end of first quarter was $263.3 million compared with $255.4 million in the year- ago quarter.

Although CRA International is cautious about client spending, the company remains positive on its solid reputation and quality of work, healthy cash flow and balance sheet position, improving business conditions and cost-containment initiatives for 2011.

Moreover, the company is undertaking various initiatives including expansion of client base to ensure new business lead flow and recruiting efficient people to provide better services to its clients.

Our Take

Litigation and management consulting related areas continue to remain active in the first quarter of 2011 and we believe the company’s growth initiatives, new business wins and healthy cash balance will help generate positive results in the long term. Moreover, we expect the estimates to go up based on better-than-expected quarterly results and management’s expectation of a significant upside going forward.

The Zacks Consensus EPS estimates for 2011 and 2012 are pegged at $1.28 and $1.48, respectively.

One of CRA International’s prime competitors, FTI Consulting Inc (FCN), is expected to release its first quarter earnings on May 4, 2011.

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