Navigant Consulting Inc. (NCI) reported its third quarter 2010 adjusted earnings per share of 16 cents, which came below the Zacks Consensus Estimate of 22 cents.

Adjusted earnings per share fell short of both last quarter and year-earlier quarter’s earnings of 17 cents and 20 cents, respectively. Adjusted earnings excluded the office consolidation, severance expense and non-recurring foreign tax elections.

GAAP net income was $9.2 million or 18 cents per share, compared with $7.8 million or 16 cents in second quarter 2010and $8.3 million or 17 cents per share in the year-ago quarter.

Navigant’s total revenue declined 1.4% year over year, but upped 1.5% sequentially to $174.8 million. Quarterly revenues also fell short of the Zacks Consensus Estimate of $179.0 million.

Revenues before reimbursements slipped 3.8% year over year and 1.3% sequentially to $153.0 million. However, consultant utilization rate remained stable sequentially at 73% but fell 3.9% on a year-over-year basis. Average bill rate rose 4.7% year over year and 0.4% sequentially to $267.

Positive effects of realigning cost structure, increase in average bill rates and modest utilization growth were the positive factors during the quarter. However, these were partially offset by lower-than-expected top-line growth.
 

Inside The Headline Numbers

Segment-wise, Dispute and Investigative Services revenues declined 6.2% year over year to $71.3 million. International Consulting revenues fell 22.7% year over year to $16.4 million. Weaker international construction practice and limited new assignment led to the decline in International Consulting revenues.

However, revenues from Business Consulting Services registered a modest 5.3% year-over-year growth to $68.9 million, aided by the healthcare and energy teams’ strong performances.

Economic Consulting revenues also grew 24.7% year over year to $18.2 million in the reported quarter. The recent senior hires in the field of intellectual property disputes, pharmaceuticals, telecommunications and technology and solid activity in the antitrust marketplace drove the segment’s revenues.

Sequentially, Dispute and Investigative Services upped 11.6%, benefiting from the acquisition of Daylight Forensic & Advisory. However, all the other three segments’ — Business Consulting Services, International Consulting and Economic Consulting — revenues dropped 4%, 9% and 2.1%, respectively.

Navigant’s total cost of services spiked up 4.4% from the prior-year quarter to $124 million. However, general and administrative expenses declined 5.3% year over year to $30.8 million and depreciation and amortization expense dropped 9.6% to $6.7 million, as a result of the cost structure realignment.

Navigant’s average billable full-time equivalent (FTE) headcount was 1,655, down 4.6% year over year, reflecting actions taken to realign staffing levels with reduced demand as a result of the recessionary environment.
 

Financials

At quarter-end, Navigant’s cash and equivalents decreased to $5.4 million from $13.3 million recorded in third quarter 2009 and $49.1 million at December 31, 2009. As of the end of September, total non-current liabilities declined to $244.6 million from $271.0 million in the comparable quarter last year and $268.0 million at December 31, 2009.
 

Outlook

The company projects fourth quarter 2010 revenues in the range of $180 million to $190 million, benefiting from the recent acquisition of EthosPartners. The adjusted EPS is expected to be in a range of 14 cents to 19 cents. The Zacks Consensus Estimate for earnings is 24 cents and is $187 million for revenues.

Management reiterated its 2010 total revenue outlook and continues to expect it in the range of $700–$750 million. Operating earnings per share guidance for 2010 has been reduced to 60–65 cents from its previous guidance of 75–85 cents.The Zacks Consensus Estimate for earnings is 76 cents and is $711 million for revenues.

Management has identified economics, healthcare and energy as key areas for long-term growth and subsequently sharpened its investment focus on these areas.

Our Take

The third quarter results were below expectations, but the company is experiencing an increase in demand and has recently acquired EthosPartners, which will enhance its healthcare consulting practice. However, estimates will most likely be going down in the coming days, based on disappointing third quarter results and reduced fiscal 2010 earnings outlook.

 
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