FTI Consulting Inc.’s (FCN) fourth quarter 2010 earnings of 56 cents per share beat the Zacks Consensus Estimate by 2 cents but deteriorated from the year-ago performance of 71 cents. On a GAAP basis, earnings were 23 cents per share compared with 71 cents in the year-ago period. For full fiscal 2010, earnings per share were $1.51 versus $2.70 on a GAAP basis.
FTI Consulting’s total revenue increased 3.4% year over year to $356.2 million, which also came ahead of the Zacks Consensus Estimate of $347.0 million. For full fiscal 2010, total revenue climbed 11.4% year over year to $1.4 billion. The increase in revenue was driven by improvements in forensic and litigation consulting, technology and strategic communications businesses, partially offset by a decrease in revenues at corporate finance/restructuring segment.
Segment Details
Corporate Finance/Restructuring revenues fell 9.4% year over year to $113.2 million in the fourth quarter due to the decline in health care and transaction advisory services as well as sluggish demand for restructuring activities, which also led to lower volumes in new assignments. However, the segment benefited from the acquisition of FS Asia Advisory Limited in August and stellar performance in Europe.
Forensic and Litigation Consulting quarterly revenues leaped 14.2% year over year to $81.0 million. This upside in revenues was driven by growth in litigation and services, notably health care as well as in its Asian business.
Quarterly revenues in the Technology segment jumped 23.6% year over year to $47.7 million. The upside was primarily attributable to benefits from higher litigation activity and growth in investigation matters.
Economic Consulting revenues inched up 1.9% year over year to $64.4 million in the quarter aided by strong demand for financial economics and international arbitration practices. The segment’s merger and acquisition (M&A) activities also strengthened in the quarter.
Strategic Communications revenues improved 10.2% year over year to $49.9 million in the quarter. Geographically, the Americas and Asia-Pacific contributed to the growth, offset somewhat by a minimal decline in the UK. Momentum in anti-trust and strategic M&A seen in September drove the quarterly growth.
Guidance
FTI Consulting expects total revenue for 2011 to range between $1.43 billion and $1.49 billion. Diluted earnings per share are expected to remain within the range of $2.00 and $2.20. The guidance was shy of the Zacks Consensus Estimate of $2.54 per share.
Financials
At the end of December 31, 2010, FTI Consulting’s cash and cash equivalents (excluding restricted cash) totaled $384.6 million, compared with $118.9 million on December 31, 2009. Shareholders’ equity totaled $1,167.3 million as of December 31, 2010, compared with $1,104.2 million on December 31, 2009.
During the fourth quarter of 2010, the company repurchased 416,000 shares at a price of $14.5 million.
Our Take
FTI Consulting has acquired more than 25 companies over the past five years. In January, the company announced plans to bring all its acquired firms under one brand i.e. FTI Consulting, while retaining their key professionals and brand equity, hopefully by November 2011. The strategy would help gain traction in new markets. International growth and litigation business will give impetus to its growth.
We believe, although the above initiatives place FTI Consulting on a strong footing for the longer term, lingering concerns remain in the near term. The company’s organic revenue growth is expected to be muted as weak trends of the last several quarters are expected to continue.
Margins are also expected to be lower due to the previously announced costs associated with brand conversion, increased investments in international markets, higher compensation expense, and increased interest costs associated with the cash raised in October through a bond offering.
Moreover, management expects bankruptcy and restructuring activities to remain subdued owing to easy accessibility to the debt market in an improving economy, which in turn reduced default rates. However, this factor will serve as a tailwind for the company’s M&A activities.
Moreover, the company provided a weaker guidance for 2011 as compared with the analysts’ opinion. FTI Consulting currently retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. We are also maintaining our long-term “Neutral” recommendation on the stock.
One of the company’s peers, CRA International Inc. (CRAI), reported fourth quarter 2010 pro forma earnings of 35 cents per share, which outperformed the Zacks Consensus Estimate by 4 cents and improved from 32 cents reported in the year-ago quarter.
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