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CRA International Misses Again

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CRA International Inc. (CRAI - Free Report) continued its bad run with its second quarter 2012 also falling way below the estimates. The company reported adjusted earnings of 20 cents per share in the second quarter of 2012, notably lower than the Zacks Consensus Estimate of  31 cents per share and the year-ago quarter earnings of 48 cents per share.

Net earnings per share on a GAAP basis were 7 cents, significantly lower than the year-ago level of 40 cents per share. The results were lower-than-expected due to poor performance of management consulting business.

Quarter Highlights

Adjusted total revenue fell 19.2% on a year-over-year basis to $67.8 million. The lackluster top-line results were attributed to discouraging performance of Management Consulting businesses. As a result of soft management consulting business, utilization rate plunged to 70% from 74% in the second quarter of 2011, but were up sequentially from 68%.

However, the company’s core business, Litigation and Regulatory business, continues to remain firm based on strong lead flow and steady start-ups of new projects. Performance in the International market also improved with revenue contribution for the quarter increasing to 25% from 20% in the last quarter.

CRA International witnessed a drop of 100 basis points (bps) in adjusted gross margin to 32.0%, while adjusted operating margin contracted 470 bps to 5.9%, based on higher expenses and slower revenue growth.

Financial Position

As of June 30, 2012, cash and cash equivalents and short-term investments were $41.8 million compared with $76.1 million as of December 31, 2011. Shareholders' equity at the end of the quarter was $266.6 million compared with $268.4 million in the year-ago quarter.


To boost its performance and improve profitability, the company is undertaking restructuring actions. Presently, the company is closing its two underperforming businesses and plans to reposition other underperforming practice areas as well. CRA International estimates an annualized cost savings of approximately $17 million from these restructuring actions. Additionally, the company remains on track to curtail its SG&A expenses and generate annualized savings of approximately $8 million.

Based on restructuring initiatives, CRA International anticipates to achieve double-digit growth in adjusted operating margin by the fourth quarter of 2012.

Our Take

Though the company is undertaking restructuring initiatives and Litigation consulting related business continues to perform remarkably, we expect the estimates to go down based on poor quarterly results, weak management consulting business and the ongoing economic uncertainty in Europe. The Zacks Consensus Estimates for 2012 and 2013 are pegged at $1.30 and $1.65, respectively.

One of CRA International’s prime competitors, FTI Consulting Inc (FCN - Free Report) will release its second quarter earnings on August 1, 2012.

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