FTI Consulting Lags Estimates in 1Q

FTI Consulting Inc.’s (FCN - Analyst Report) first quarter 2012 earnings of 43 cents per share considerably lagged the Zacks Consensus Estimate of 61 cents, but were a penny ahead of the year-ago quarter level. The lower-than-expected earnings was mainly attributable to increased cost incurred on benefits and payroll taxes and additional higher expense burden from the first quarter onwards related to equity bonus compensation.

Total revenue in the reported quarter jumped 9.2% year over year to $395.2 million. The upside in revenue was driven by strong performance of Economics. The Corporate Finance/Restructuring segment as well as Forensic and Litigation Consulting also recorded upside, partially offset by weak performance of the Technology and Strategic Communications segment. Geographically, the company witnessed solid results in Latin America (up 100%) and EMEA (up 42%). However, Asia-Pacific revenues slipped in the quarter on the back of growing concern about China.

Adjusted EBITDA during the quarter was up 13.7% to $54.0 million from $56.6 million in the year-ago quarter.

Segment Details

Economic Consulting segment reported strong results with revenues surged 34.7% year over year to $100 million in the quarter. The upside was aided by strong demand for financial economics and growth in its antitrust and M&A practice.The segment also gained from the Euro zone debacle and the acquisition of LECG practices.

After experiencing a decline in the last quarter, Corporate Finance/Restructuring segment revenue improved 5.8% year over year to $113.5 million in the first quarter, due to increased demand for European restructuring and U.S. healthcare consulting practices as well as contributions from the acquisition of LECG practices.

Forensic and Litigation Consulting revenue climbed 5.0% year over year to $87.0 million, despite pricing pressure in North America. This upside in revenue was attributable to increased demand for global risk and investigation practice in Latin America as well as higher sales in Asia Pacific from construction solutions, forensic accounting and litigation support practices. Growth in data analytics practice and the acquisition of LECG practices in the first quarter of 2011 also drove revenue.

Technology segment revenues fell 2.7% year over year to $49.7 million, due to unfavorable revenue mix and slowdown in the execution of large assignments.

Strategic Communications revenues dipped 2.9% year over year to $45.0 million in the quarter, due to lower M&A-related projects in Asia Pacific and continued softness in Europe, partially offset by increased activity in Latin America.

Financials

For the first quarter of 2012, FTI Consulting’s cash and cash equivalents (excluding restricted cash) totaled $182.4 million, compared with $264.4 million as of December 31, 2010. Shareholders’ equity totaled $1,149.6 million as of March 31, 2012, compared with $1,106.2 million as of December 31, 2011.

Our Take

We expect estimates to move down in the coming days based on disappointing first quarter results, lack of clarity and poor performance in the Asia Pacific region as well as in the Technology segment. However, stabilization in the company’s restructuring business was encouraging. The Zacks Consensus Estimates for 2012 and 2013 are pegged at $2.88 and $3.25, respectively.

FTI Consulting competes mainly with CRA International Inc. (CRAI - Analyst Report) and Navigant Consulting Inc. (NCI - Analyst Report). 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.