FTI Consulting to Rightsize Biz


In order to restructure its business in the wake of a sluggish business environment and macro uncertainty, FTI Consulting Inc. (FCN) 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. (CRAI) 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.

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