CRA International Disappoints

Boston, Massachusetts-based CRA International Inc. (CRAI - Analyst Report) reported pro forma earnings of 31 cents per share in the third quarter of 2011, missing both the Zacks Consensus Estimate of 41 cents per share and the year-ago quarter earnings of 48 cents per share.

Net earnings per share on a GAAP basis fell from the year-ago earnings of 40 cents to 34 cents in the reported quarter.

The lower-than-expected results were due to a decline in revenue resulting from the slowdown in project completion and lack of accretive offerings in management consulting businesses.

Total revenue dropped 15.8% on a year-over-year basis to $69.4 million and lagged the Zacks Consensus Estimate of $77.0 million.

Quarter Performance 

CRA International generated 24% of the total revenue from the international market, which was below the prior-quarter and year-ago quarter levels of 29% and 28%, respectively.

During the reported quarter, CRA International achieved a utilization rate of 73% based on solid performance of its litigation business, which accounts for two-thirds of the total revenue of the company. The growth in litigation business was primarily driven by solid performance of Competition and Finance practices.

CRA International witnessed a year-over-year plunge of 80 bps in gross margin to 33.3%, but a 30-bp upsurge in operating margin to 8.3%, based on its efficient restructuring activities.

Selling, general and administrative expenses, as a percentage of revenue, decreased 70 bps to 23.3% during the quarter.

Financial Position

As of October 1, 2011, cash and cash equivalents and short-term investments were $54.3 million compared with $87.5 million as of January 1, 2011. Shareholders' equity at the end of the third quarter was $266.3 million compared with $255.4 million in the year-ago quarter.

CRA International recently expanded its share repurchase program to $7.5 million in a bid to optimize shareholders’ return.

Outlook

Going forward, management expects significant upside based on continued growth in the litigation business driven by strong lead flow, steady conversion rates and stable industry demand. CRA International also remains optimistic regarding the Management Consulting business.

Our Take

The company has reported results below expectations due to a sluggish management consulting business, but we believe the company’s growth initiatives, litigation and management consulting business and healthy cash balance will help drive positive results in the long term. However, estimates have not budged in the last 30 days, implying that the analysts do not see any near-term catalysts.

The Zacks Consensus EPS estimates for 2011 and 2012 are pegged at $1.68 and $1.86, respectively.

One of CRA International’s prime competitors, FTI Consulting Inc (FCN - Analyst Report) will release its third quarter earnings on November 2, 2011.

Read the full analyst report on FCN