We are maintaining our long-term Neutral recommendation on
CRA International Inc.
), a provider of legal, regulatory, business consulting and other
expert services through its specialized consultants across the
After two consecutive quarters of missing, CRA International's
third quarter 2012 adjusted earnings of 27 cents per share beat
the Zacks Consensus Estimates by a penny. The results were aided
by the improved performance of the management consulting business
and the completion of a majority of the planned restructuring
Despite a slow start in the beginning of 2012, the demand for the
company's management consulting segment improved in the third
quarter of 2012, driven by the Marakon practice, which returned
to positive year-over-year growth. Management noted that although
economic uncertainty has generally left clients cautious about
starting large consulting engagements, nonetheless the company
won some new engagements.
Going forward, the performance of the segment should improve
further with the closing of the chemicals practice and the Middle
East operations, which have been struggling quite a bit lately.
The company also completed a majority of its planned
restructuring initiatives in the third quarter of 2012. CRA
International eliminated two underperforming management
consulting businesses, one Chemical practice and one Middle East
operation. CRAI repositioned a few selected underperforming
practices as well.
These restructuring actions resulted in the reduction of more
than 60 consulting positions. CRA International estimates an
annualized cost saving of approximately $17 million from these
Additionally, the company remains on track to curtail its
SG&A expenses by reducing its administrative staff,
eliminating excess office space capacity, better rationalizing
the remaining office space and lowering its administrative
spending, particularly related to outside contractors and
The majority of these actions are expected to be executed by
the end of fiscal 2012 and is estimated to generate annualized
savings of approximately $8 million. Based on restructuring
initiatives, CRA International expects to achieve double-digit
growth in adjusted operating margin by the fourth quarter of
Additionally, the company anticipates its profitability to
improve $15 to $17 million on an annualized basis, once
activities like consulting staff reductions, repositioning of
select underperforming practices and lowering of SG&A costs
are fully executed. The company's balance sheet continues to
remain strong with no long-term debt.
Moreover, the company's litigation business remains firm based on
strong lead flow, an improved conversion rate and project
start-ups. Its growth initiatives and healthy cash balance with
no long-term debt augur well.
However, we remain concerned about the ongoing economic
uncertainty in Europe, as clients, particularly of the overseas
markets remain uncertain. We expect the overall performance,
particularly in the international market to continue to be weak
in 2012, until conditions in Europe improve.
Moreover, the market for economic, litigation support and
management consulting services is intensely competitive, highly
fragmented, and subject to rapid changes. Since an entry into
this market is relatively easy, the company has to compete with
the new entrants. Additionally, lower spending by clients and
currency fluctuations make us skeptical.
CRA INTL INC (CRAI): Free Stock Analysis
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Agreement of Estimate Revisions
In the last 30 days, the estimates have not budged, implying that
the analysts reaffirm their view on the stock.
Magnitude of Estimate Revisions
Over the last 30 days, earnings estimates remained unchanged at
36 cents and 91 cents for the fourth quarter and 2012,