Hewitt Beats, Ups Guidance

Hewitt Associates (HEW) reported strong second-quarter earnings of $0.71 per share, above the Zacks Consensus Estimate of $0.60 and up 34% year over year.  
 
Net revenues (before reimbursements) decreased 6.3% year over year to $729.0 million due to declines in two of the three operating segments. Benefits Outsourcing segment grew marginally by 0.7%, while both HR BPO and Consulting declined 11.7% and 13.8% respectively. In addition, unfavorable currency translation also negatively impacted the top-line.
 
The Benefits Outsourcing segment grew modestly by 0.7% benefited by the mid-market client growth. The decline in revenues in the HR BPO segment was due to adjusted losses and liquidations, which were partially offset by contractual adjustments and the impact of new clients going live with contract services over the last 12 months.
 
Revenues in the Consulting division declined, due to revenue decreases related to Talent and Organizational Consulting services across all regions, and Communication services in North America. This was partially offset by modest revenue growth related to Retirement and Financial Management services.
 
Year-to-date cash flow from operating activities increased 136% year over year to $192.3 million. The increase is attributable to improved receivables, lower tax related payments, which was partially offset by a legal settlement payment. 
 
During the quarter, the company also acquired the remaining interest in the former German consulting RFM joint venture. Through this acquisition, Hewitt gains a stronger presence in one of Europe's largest pension markets. 

Concurrent with the earnings release, management raised guidance for fiscal 2009. Annual earnings are now expected in the range of $2.55 to $2.65 per share. Previous guidance was $2.45 to $2.55 per share

However, management continues to expect a low to mid single-digit decline in net revenues. This decline comprises of a high single-digit decline in Consulting segment, approximately flat performance in Benefit Outsourcing segment, and a high single-digit decline in HR BPO segment.

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