The company reported revenue of $111.2 million and earnings per share of 39 cents. Analysts were expecting 88 cents per share on revenue of $124 million. The utilization rate, an important company measure, was at 71% in the quarter. The company blamed the earnings shortfall on a slowdown in its U.S. finance litigation business. (Interested in becoming an analyst? Check out Becoming A Financial Analyst.)
In its news release, CRA International did not mention which areas of “finance litigation” were slowing down, and it only reports in one segment, making it difficult to know which specific areas are declining.
During the fiscal Q1 conference call, the company said that increased business from litigation related to the credit crunch was expanding. Investors may have been hoping this would offset declines in other areas.
“We are also working on litigation-related engagements dealing with government investigations and inquiries as well as a significant number of lawsuits," said Jim Burrows, president and chief executive officer of CRA International. "We believe that subprime and overall credit crunch consulting and litigation demand continues to grow, and we are expanding our toolkit in this area.”
No Surprise
The miss should not have been much of a surprise to the Street. The company received 26% of its revenue in fiscal 2007 from what the company calls “antitrust and mergers and acquisitions practice areas.” This source of business has slowed as the current financial crisis has ended easy credit in the marketplace to fund transactions.
The company has had volatile earnings releases in the past. On March 7, after it released preliminary fiscal Q1 results that were below Street estimates, the stock dropped about 40%. The company pointed to a decline in its international business for the poor results.
“By far the most significant factor in the disappointing results in Q1 was a substantial decline in the revenues of our chemical and petroleum practice, particularly in the Middle East,” Burrows said.
Research In Motion (Nasdaq:RIMM) is another company adversely affected by investors' perceptions of having a significant portion of business from financial-sector customers. Other consulting firms have been reporting a business slowdown in the last few months. LECG Corporation (Nasdaq:XPRT) CEO Michael J. Jeffery said in the company's last earnings release that “same-expert revenues were down 3.7%.” FTI Consulting (NYSE:FCN) recently backed its guidance for the year but said costs would take their toll in Q3. However, Navigant Consulting (NYSE:NCI) Chairman and CEO William M. Goodyear reported "record revenues and continued improved margins" at the end of July. (Speaking of margins, be sure to check out The Bottom Line On Margins.)
Bottom Line
CRA International's earnings miss and sharp drop in price makes the company the latest victim among those with exposure to the financial sector.
