Earnings Scorecard: CRA International

Boston, Massachusetts-based CRA International, Inc. (CRAI - Analyst Report), a leading global consulting firm reported fourth quarter pro forma earnings of 35 cents per share, which outperformed the Zacks Consensus Estimate by 4 cents and also earnings of 32 cents reported in the year-ago quarter.

The company’s full-year adjusted earnings per share were 87 cents versus $1.07 per share in full fiscal 2009.

The improvement in results was aided by an active pipeline for both litigation and management consulting businesses and cost-containment initiatives resulting in margin enhancement.

Recap of Last Earnings

During the fourth quarter, CRA International's total revenue grew 2.3% on a year-over-year basis and 20% sequentially to $74.5 million due to a demand uptake for consulting services. Revenues were $281.0 million in full fiscal 2010, representing a year-over-year drop of 4.0%.

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 500 basis points sequentially to 73%, showing signs of a recovery in consumer spending. This marks the highest utilization rate achieved by the Boston, Massachusetts-based company in more than two years, surpassing management’s target of 70% per quarter.

CRA International saw year-over-year improvements of 130 basis points (bps) in gross margin to 33.4% and 60 bps in operating margin to 9.5%, based on its efficient restructuring activities.

(Read our full coverage on this earnings report: CRA International Beats)

Earnings Estimate Revisions: Overview

Estimates have moved up for CRA International since the earnings release, with analysts being optimistic about the long-term performance of the company. The earnings estimate details are discussed below.

Agreement of Estimate Revisions

For the first quarter of 2011, 1 of 3 analysts covering the stock raised their expectations, while 1 slashed estimates during the last 30 days, thus providing no clear direction.

For both fiscal 2011 and 2012, 2 out of 3 analysts have raised their estimates. None of the analysts have lowered expectations. Thus, revision trends in the last 30 days drifted toward the positive side.

Positive revisions by analysts are based on quarter results, who expect the top line and profit margins to grow further driven by improvement in demand environment and higher utilization rate. Moreover, the company is taking initiatives like broadening its alliances across practices to encourage cross selling, expansion of client base to ensure new business lead flow and recruiting efficient people to ensure quality services to clients.

Magnitude of Estimate Revisions

In the last 30 days, the Zacks Consensus Estimate spiked up by 1 cent, 4 cents and 12 cents to 18 cents, $1.28 and $1.48 for the first quarter of 2011, fiscal years 2011 and 2012, respectively. The magnitude of estimate revisions indicates that analysts are optimistic regarding the fundamentals of CRA International and its growth prospects.
 
Following the end of fiscal 2010, the company instituted a change in its fiscal year to more closely resemble the calendar year. The estimates mentioned above reflect the company's new fiscal calendar.

Our Recommendation

CRA International’s fourth quarter earnings surpassed the Zacks Consensus Estimate, primarily owing to margin improvement, demand growth on the management and litigation consultant side of the business and higher utilization rate.

Although, visibility remains low and CRA International expects to face a cautious aggregate spending, we believe that the company’s growth initiatives, new business wins and healthy cash balance will help generate positive results in the long term.

Moreover, the company’s senior employee consultants are competent and given the company’s solid reputation and quality of work, the company attempts to generate a high level of repeat business from its existing relationships. CRA International also continues to invest in business development and client-facing activities and we expect the company to eventually benefit from these investments.

Accordingly, we have a Zacks #3 Rank (short-term Hold recommendation) on the stock. Our long-term recommendation for the stock also remains Neutral.

Apart from CRA International, another stock that promises long-term growth is Huron Consulting Group Inc (HURN - Snapshot Report), which currently has a Zacks #1 Rank (short-term Strong Buy recommendation). The company is expected to release its fourth quarter earnings on February 21, 2011.

Read the full analyst report on CRAI

Read the full analyst report on HURN