CRA International Lags Estimates

Zacks Investment Research
updated | Zacks.com

On Thursday, CRA International Inc. (NASDAQ:CRAI) reported operating earnings of $0.5 million or 4 cents per share for the fiscal first quarter of 2010 ended Feb 19, 2010, which substantially fell short of the Zacks Consensus Estimate of 27 cents and from 18 cents reported in the year-ago period.
 
GAAP net income, including NeuCo-related activity, was $0.3 million or 2 cents per share compared to $0.5 million or 5 cents in the first quarter of fiscal 2008. 

Total revenues, excluding NeuCo revenues, decreased 10.1% to $57.8 million from $64.3 million in the year-ago quarter. Including NeuCo revenues, revenues fell by 10.6% to $58.8 million from $65.8 million in the year-ago period.
 
During the reported quarter, CRA International’s revenues were substantially impacted by the sluggish performance of its global business consulting practice that resulted in achieving a utilization rate of merely 60%.
 
However, CRA International’s efforts to marginalize its cost structure are producing results. During the reported quarter, cost of services declined 6.0% year-over-year to $40.5 million, while SG&A expenses dipped 8.7% year-over-year to $15.8 million. Besides, depreciation and amortization expenses decreased 34.2% year-over-year to $1.3 million. 

At Feb 19, 2010, the cash and cash equivalents and short-term investments were at $113.3 million as compared to $106.5 million at the end of Nov 28, 2009. 

As a result of the challenging unanticipated slowdowns, CRA International is in the process of closing its Houston office, restructuring selected practice areas and better aligning staffing levels with its revenue growth. Going ahead, the company anticipates total headcount reduction of 47 positions, including 36 from consulting operations. These actions are expected to result in a restructuring charge of $4.9-$5.5 million and approximately $8.9 million in annualized savings in the second quarter of fiscal 2010.
 
Although reasonable activity has been witnessed in litigation, regulatory and financial consulting related areas, these are yet to convert into any accretion in top-and bottom-line results. However, CRA International continues to gain leverage through a healthy operating cash flow and a strong balance sheet with considerable cash resources that can help the company shore up its growth initiatives. While overall visibility remains misty, given the current volatile market trends, we believe the company’s initiatives will help in generating positive results in the long term although the near-term outlook remains cautious. 

On Thursday, the shares of CRA International closed at $22.57, down 19.5%, on the New York Stock Exchange.

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