FTI Consulting Misses Estimate - Analyst Blog

FTI Consulting Inc.'s (FCN) third quarter 2010 operating earnings of 54 cents per share were below the Zacks Consensus Estimate of 61 cents and the year-ago performance of 70 cents. Operating net income fell 33.0% year over year to $25.2 million.

Adjusted EBITDA was $65.0 million or 18.8% of revenues, compared with $77.9 million or 22.3% of revenues in the prior-year quarter.

FTI Consulting's total revenue declined 0.7% year over year to $346.1 million. The revenue decline was due to a decrease in revenues at corporate finance/restructuring segment, partially offset by rise in its three segments -- forensic and litigation consulting, technology and strategic communications businesses. Total revenue-generating headcount spiked up to 2,658 from 2,631 in the year-ago quarter.

Segment Details

Corporate Finance/Restructuring revenues fell 14.1% to $109.7 million from $127.8 million in the prior-year quarter due to the sluggishness in demand for restructuring activities, which also led to lower volumes in new assignments. However, the segment benefited from the acquisition of FS Asia Advisory Limitedin August, growth in commercial real estate consulting and new operations in Germany and Spain. Although utilization rates witnessed growth, average billable rates declined.

Forensic and Litigation Consulting revenues increased 11.9% to $84.0 million, compared with $75.1 million in the prior-year quarter. This upside in revenues was due to growth in litigation and corporate investigations practices and services, notably healthcare and pharmaceuticals.

Technology revenues jumped 10.4% to $42.7 million, compared with $38.7 million in the prior-year quarter. The upside was primarily attributed to benefits from higher litigation activity and growth in investigation matters. The segment also benefited from a higher demand in U.K. and Australia.

Economic Consulting revenues slipped 0.3% to $59.4 million from $59.6 million in the prior-year quarter. The increased demand for financial economics and a continued growth in the segment's European operations were partially offset by a lower demand for strategic M&A and antitrust activity.

Strategic Communications revenues improved 5.8% to $50.2 million, compared with $47.5 million in the prior-year quarter. The segment experienced growth in project-based work despite the continuing negative impact of the global recession on fees from retained clients.

Financials
 
At the end of September 30, 2010, FTI Consulting's cash and equivalents totaled $331.2 million, compared with $118.9 million on December 31, 2009. Shareholder's equity totaled $1,168.3 million as of September 30, 2010, compared with $1,104.2 million on December 31, 2009.

Total diluted weighted shares outstanding decreased to 46.8 million compared with 53.9 million shares. During the third quarter of 2010, the company repurchased 0.8 million shares at a price of $26.1 million.

During the quarter, FTI obtained a $250 million, five-year credit facility to replace its $175 million revolving credit line and borrowed $400 million by issuing new bonds due in 2020. The company also bought back $185 million of senior notes due in 2013, and redeemed $15 million in November 1, 2010.

Our Take

The performance of the Corporate Finance and Restructuring segment is in line with the projected decelerating trend through the remainder of 2010. However, the company is expected to benefit from the higher litigation and investing activities.