In order to restructure its business in the wake of a sluggish
business environment and macro uncertainty,
FTI Consulting Inc.
) recently opted for a slew of initiatives that include downsizing
and curtailment of excess real estate capacity.
Last week, the Baltimore, Maryland based company divulged its
intention to lay off about 3% of its more than 3,800 employees and
merge its leased office spaces in six other locations. Most of the
terminated employees were from the business segments that were hit
hard by the ongoing economic turmoil.
That's not all. FTI Consulting also intends to deploy several other
cost cutting measures during the third quarter of fiscal 2012
through office consolidations. While the company already mentioned
that the layoffs in the second quarter will incur a pre-tax charge
of around $28.0 million, the total charges for third-quarter
capacity reduction is yet to be disclosed.
FTI Consulting has been struggling on the margin front. In the
first quarter of 2012, its adjusted EBITDA margin declined 190
basis points year over year to 13.7%. The margins were negatively
impacted by higher benefits and payroll taxes (about 150-200 basis
points), disproportionate non-cash bonus expense (about 100 basis
points), and higher nonrecurring expenses and investments (about 65
basis points). Margins were especially weak in Forensic and
Litigation Consulting segment (down 540 bps), Technology segment
(down 950 bps) and Strategic Communications (down 150 bps).
Moreover, decreased utilization and bill rate for Forensic and
Litigation Consulting was another discouraging factor in the first
quarter. We believe, all these prompted the company to realign its
business and safeguard margins. Management now expects all actions
taken over the last 100 days to bring about operational savings of
approximately $14 million over the rest of 2012.
However, the news of job cuts raised doubts among analysts about
FTI Consulting's present financial health. Analysts slashed their
estimates by 4 cents to 60 cents for the upcoming second quarter,
slated to be released on August 2.
FTI Consulting which competes with the likes of
CRA International Inc.
) currently retains a Zacks #4 Rank that translates into a
short-term Sell rating. We are maintaining a long-term Underperform
recommendation on the stock.
CRA INTL INC (CRAI): Free Stock Analysis Report
FTI CONSULTING (FCN): Free Stock Analysis
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