Evan Vitale Consulting: FTI Consulting (FCN) Q3 Earnings Fall Y/Y, Shares Plummet

FTI Consulting, Inc. (FCN – Analyst Report) reported third-quarter 2015 adjusted earnings of 53 cents per share, beating the Zacks Consensus Estimate of 52 cents. However, adjusted earnings compared unfavourably with the prior-year figure of 63 cents, reflecting a decrease of 15.9% year over year.

Investors were sorely disappointed with the company’s results, as shares plunged 23% in the trading session following the earnings release.

Adjusted net income came in at $22.2 million, down 13.6% year over year, hampered by top-line weakness in Technology and Economic Consulting segments. Adverse foreign currency translation impact further weighed on the company’s results.

Revenues for the quarter inched up 1% year over year to $455.5 million, and lagged the Zacks Consensus Estimate of $458 million. Notable growth in Corporate Finance/Restructuring and Strategic Communications practices was more than somewhat offset by top-line weakness in Technology and Economic Consulting segments.

Adjusted EBITDA for the quarter came in at $56.1 million, down 11.5% from $63.4 million in the prior-year quarter.

Segment Details

Corporate Finance/Restructuring segment revenues showed significant growth at $113.5 million, rising 13.4% year over year despite a 4.3% negative impact due to foreign currency translation. Enhanced demand for the distressed service offerings in North America. Adjusted EBITDA for the segment was $26.7 million, up 72.3% from the year-ago quarter.

Economic Consulting revenues continued to show sustained weak performance, falling 4.9% year over year to $114.5 million. Weakness in demand for the segment’s non-mergers and acquisitions (“M&A”) related financial economics and antitrust services and negative impact of foreign currency translation contributed to the feeble performance of the segment. Adjusted EBITDA came in at $16.7 million versus $18.4 million in the prior-year quarter, dragged down by lower utilization in the non-M&A related antitrust and financial economics practices.

Forensic and Litigation Consulting segment revenues fell 4.6% year over year to $116.2 million, dragged down by unfavourable FX translation effect. Revenue growth was hurt by soft demand in the global disputes and investigations practice, partially offset by strength in the financial and enterprise data analytics practice and success fees in the health solutions practice. Adjusted EBITDA for the segment plummeted 39.9% year over year to $13.4 million in the reported quarter, dragged down by the ramp up of hiring in certain core practices, weaker demand in the global disputes and investigations practices, and higher bad debt expenses compared to recoveries in the comparable period last year.

Technology segment moved toward weakness again after a feeble attempt at growth last quarter. Revenues declined 10.9% year over year to $55.6 million. The weak performance was led by a decline in consulting, while other services related to financial services and cross-border investigations also contributed to the contraction. Higher M&A-related “second request” work partially offset the decline. Adjusted EBITDA came in at $10.8 million, down from $17.8 million in the prior-year period. Lower utilization and realized pricing related to client mix and reduced licensing revenues led to the significant year-over-year decline in adjusted EBITDA.

Strategic Communications segment rebounded strongly after a dismal performance in the last quarter, as revenues increased 19.7% year over year to $55.7 million in the quarter, despite a 7% negative impact of foreign currency translation. Higher pass-through revenue and organic growth driven largely by higher M&A and public affairs project-based revenue in EMEA and North America were the primary drivers of the impressive growth. Also, an increase in higher priced project revenues, combined with improved staff leverage, led to a 31.8% year-over-year increase in adjusted EBITDA to $8.7 million.

Other Financial Aspects

At quarter-end, FTI Consulting had cash and cash equivalents of $105 million versus $178.8 million on Sep 30, 2014. Long-term debt (net of current portion) stood at $520 million, compared to $700 million as at Dec 31, 2015. Net cash provided by operating activities for the quarter amounted to $74 million, compared with $97.6 million in the prior year.

Guidance

The company revised its guidance for 2015 downward once again, and now expects adjusted earnings per share to lie in the range of $1.80–$1.95, compared with previous expectations of a range of $1.95–$2.15. Also, FTI Consulting expects its revenues for the year to lie between $1.74 billion and $1.78 billion, down from previous expectations of $1.75 billion to $1.85 billion.

FTI Consulting currently sports a Zacks Rank #2 (Buy). Other stocks in the consulting industry that are worth considering include CBIZ, Inc (CBZ – Snapshot Report) and Navigant Consulting Inc (NCI – Analyst Report), both sporting a Zacks Rank #1 (Strong Buy), along with Exponent Inc (EXPO – Snapshot Report), carrying a Zacks Rank #2.

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