Boston, Massachusetts-based CRA International Inc. (CRAI), formerly Charles River Associates, is slated to release its fourth quarter and fiscal 2010 results on Thursday, January 13. The current Zacks Consensus Estimate for the quarter is 31 cents per share (reflecting an annualized decline of 12.4%) and 83 cents per share for 2010 (reflecting a year-over-year decline of 28.8%).
With respect to earnings surprises over the trailing four quarters, CRA International has oscillated from negative 85.2% to positive 26.7%. The average earnings surprise was a negative 15.2%. This implies that the company has fallen short of the Zacks Consensus Estimate by the same magnitude over the last four quarters.
Third Quarter Recap
CRA International, a leading global consulting firm, reported third quarter earnings of 30 cents per share, in line with the Zacks Consensus Estimate, and a penny more than the year-ago quarter. The reported quarter’s earnings benefited from margin improvement but the litigation business remained sluggish.
During the third quarter, CRA International’s total revenue, excluding NeuCo revenues, fell 4.5% year over year to $82.4 million due to a decline in demand for the litigation business.
During the reported quarter, the utilization rate shot up 300 basis points sequentially to 68%, showing signs of a recovery in consumer spending, although less than management’s target in the low 70’s.
Estimates Revisions Trend
Estimates have not budged in the last 30 days, implying that the analysts do not see any meaningful catalyst for the time being. The current Zacks Consensus Estimate is $1.24 per share for 2011 (reflecting a year-over-year growth of 48.8%).
Agreement of Estimate Revisions
There has been no movement in the analysts’ estimates for CRA International’s earnings over the last 30 days, given the absence of any meaningful catalyst to drive the estimates.
Magnitude of Estimate Revisions
There has been no change in the last 90 days in the earnings estimates of 31 cents, 83 cents and $1.24 for the fourth quarter, fiscal 2010 and fiscal 2011, respectively. Therefore, the analysts expect the company to report in line.
Currently, we expect CRA International to post fourth quarter results in line with estimates. We anticipate a sustained improvement in utilization and successful restructuring activities will be the key catalysts for the company’s growth.
The company should also benefit from improving business conditions with healthy new business lead flow, improved conversion rate and active pipeline of both litigation and management consulting businesses. Moreover, a healthy cash balance, new business wins and international expansion should also help to generate positive results in the long term.
CRA International is also changing its accounting year ending November 30 to December 31, effective 2011.
However, we still remain cautious on the stock as the positive impacts will likely be marred by clients hesitant to spend aggressively on major consulting projects. Although demand remains solid within the majority of the company’s business practices, it has been slow in improving profitability.
Hence, the company has a Zacks #3 Rank (short-term Hold recommendation) on the shares. We also reiterate our long-term Neutral rating.
One of Its prime competitors FTI Consulting Inc (FCN) is expected to release its fourth quarter earnings on February 21, 2010 and Navigant Consulting Inc (NCI) is expected to report its fourth quarter earnings on February 14, 2010.