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FTI Consulting Q4 Earnings Miss Estimates by a Huge Margin - Analyst Blog

FTI Consulting, Inc. ( FCN ) missed fourth-quarter earnings estimates by a huge margin, breaking its streak of beating earnings estimates. Adjusted earnings for the business advisory firm came in at just 4 cents per share, lagging the Zacks Consensus Estimate of 34 cents by a whopping 88.2% on the back of soft revenues in the Economic Consulting and Strategic Communications segment, increased investments and tax adjustments.

FTI Consulting Inc. - Earnings Surprise | FindTheBest

Adjusted earnings for the quarter also compare unfavourably with the prior-year figure of 39 cents. The disappointing quarter for the consulting firm follows five successive quarters of comfortably beating earnings estimates.

For full year 2014, the company reported adjusted net income of $1.64 per share, down 21.5% year over year. The adjusted earnings fell short of the Zacks Consensus Estimate of $1.92.

Revenues for the quarter increased 2.2% year over year to $425.2 million, but fell 5.8% sequentially. Revenues also lagged the Zacks Consensus Estimate of $429 million, hurt by soft growth in Economic Consulting and Strategic Communications segments.

Adjusted EBITDA for the quarter came in at $36.1 million, down 24.3% year over year. Adjusted EBITDA for full year 2014 also declined around 14.3% over the previous year, coming in at $210.6 million.

Segment Details

Corporate Finance/Restructuring segment revenues showed marginal improvement year over year at $93.1 million, but declined 6.9% sequentially. Transaction advisory and tax practices in the Europe, Middle East and Africa ("EMEA") region and strength in the Non-distressed engagements in North America buoyed revenues. However, the effect was partially offset by weakness in the Asia Pacific and North America bankruptcy and restructuring business. Adjusted EBITDA for the segment was $9.9 million, down 9.2% from the year-ago quarter.

Economic Consulting revenues fell 1.5% year over year to $106.5 million. Weakness in demand for the segment's antitrust practice and negative impact of foreign currency translation contributed to the feeble performance of the segment. Adjusted EBITDA came in at $9.8 million versus $22 million in the prior-year quarter, dragged down by higher compensation expense from employment contract extensions, rise in state income tax equalization obligation and higher bad debt expense.

Forensic and Litigation Consulting segment revenues continued to show strength, rising 5.6% year over year to $121.1 million. The primarily drivers of growth for the segment were robust demand in North America and EMEA investigations as well as North America and Latin America construction solutions practices. Lower success fees and weaker demand in the health solutions practice somewhat restricted the segment's performance. Adjusted EBITDA for the segment was $19.4 million in the reported quarter, up 10.2% compared with the prior-year quarter.

Technology segment revenues also witnessed robust growth, and were up 8.6% year over year to $58.2 million. Higher services revenue generated from large-scale complex global investigations contributed to the increase in revenues. Adjusted EBITDA came in at $13.3 million, down 9.5% over the prior-year period. Lower margin services and higher research and development expenses led to year-over-year decrease in adjusted EBITDA despite strong revenue growth.

Strategic Communications segment revenues decreased 1.2% year over year to $46.3 million in the quarter, driven by unfavorable foreign currency translation effect. Despite the weak revenue growth, higher project income and successful cost saving initiatives led to a 25.4% year-over-year increase in adjusted EBITDA, which came in at $7.4 million for the quarter.

Other Financial Aspects

At year-end 2014, FTI Consulting had cash and cash equivalents of $283.7 million versus $205.8 million in Dec 31, 2013. Long-term debt (net of current portion) stood at $700 million, compared with $711 million at year-end 2013. Net cash provided by operating activities for the full year 2014 amounted to $135.4 million, compared with $193.3 million in the prior year.

Guidance

The company outlined the guidance for 2015 and anticipates revenues to lie between $1.8 billion and $1.9 billion. Adjusted earnings per share are expected to lie in a range of 1.95 and $2.20. The guidance incorporates significant investments that the company plans to make in the technology business in tune with its multi-year business plans.

FTI Consulting expects the momentum in its tax and advisory business to continue going into 2015 and also expects growth in the corporate finance segment. FTI Consulting also reiterated its medium-term growth targets of adjusted earnings per share exceeding $2.50 for 2016.

FTI Consulting currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the consulting industry include Corporate Executive Board Co. ( CEB ), CBIZ, Inc. ( CBZ ) and Exponent Inc. ( EXPO ). While Corporate Executive Board and CBIZ sport a Zacks Rank #1 (Strong Buy), Exponent holds a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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