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After two consecutive quarters of miss, CRA International Inc. (CRAI - Analyst Report) recently reported third quarter 2012 adjusted earnings of 27 cents per share, which topped the Zacks Consensus Estimates by a penny. However, the reported earnings fell short of the year-ago quarter earnings of 31 cents per share.

However, on a GAAP basis, the company recorded net loss of 7 cents per share, significantly lower than the year-ago earnings of 34 cents per share.

Quarter Highlights

Adjusted total revenue tumbled 7.0% on a year-over-year basis to $64.7 million. During the quarter, utilization rate was 67%, down from 70% in the last quarter.

The company’s core business, Litigation and Regulatory business, despite the general industry set-backs, continues to deliver better results backed by solid performance of Intellectual Property, Competition and Labor & Employment practices. Additionally, demand for Management Consulting businesses is also improving driven by the Marakon practice.

CRA International witnessed an expansion of 110 basis points (bps) in adjusted gross margin to 34.4% due to the closing of two underperforming businesses and restructuring of certain underperforming practice areas as well. Moreover, adjusted operating margin also enhanced 220 bps sequentially to 8.1%, benefiting from the continuous trimming of SG&A expenses.

Financial Position

As of September 29, 2012, cash and cash equivalents and short-term investments were $42.3 million compared with $76.1 million as of December 31, 2011. Shareholders' equity at the end of the quarter was $265.5 million compared with $268.4 million in 2011.

Outlook

CRA International estimates an annualized cost of service savings of approximately $17 million from consulting staff reductions and a decrease of $8 to $10 million on an annual basis in net revenue. Additionally, the company remains on track to curtail its SG&A expenses and generate annualized savings of approximately $8 million.

Based on its restructuring initiatives, CRA International remains on track to achieve double-digit growth in adjusted operating margin in the fourth quarter of 2012. Additionally, the company anticipates its profitability to improve $15 to $17 million on an annualized basis, once activities like consulting staff reductions, repositioning of select underperforming practices and lowering of SG&A costs are fully executed.

Our Take

The company reported better-than-expected third quarter results and also completed the majority of its planned restructuring activities in the quarter. The consulting firm is also undertaking additional restructuring initiatives which will further boost its profitability and performance in the next quarter as well as in the next year. Thus, overall management outlook for the coming period remains optimistic. Hence, we expect estimates to go up in the coming days. The Zacks Consensus Estimates for 2012 and 2013 are pegged at 86 cents and $1.43, respectively.

One of CRA International’s prime competitors, FTI Consulting Inc. (FCN - Analyst Report) will release its third quarter earnings on November 8, 2012.
 

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