It has been about a month since the last earnings report for FTI Consulting (FCN). Shares have lost about 5.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is FTI Consulting due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
FTI Consulting Q1 Earnings Miss Estimates
FTI Consulting delivered lower-than-expected first-quarter 2020 results, with earnings missing the Zacks Consensus Estimate but revenues beating the same.
Quarterly adjusted EPS of $1.53 missed the Zacks Consensus Estimate by 4.4% and decreased 6.1% on a year-over-year basis. The bottom line was negatively impacted by an 18.5% increase in billable headcount, higher variable compensation, and elevated selling, general and administrative expenses, partially offset by increase in revenues, foreign-currency translation ("FX") remeasurement gains and a lower effective tax rate.
Total revenues of $604.6 million missed the consensus mark by 1.4%. However, the revenue figure increased 9.7% year over year. This increase was driven by higher demand in the Corporate Finance & Restructuring, Forensic and Litigation Consulting, and Technology business segments, partially muted by a demand decline in the Economic Consulting business segment.
Revenues by Segment
Corporate Finance & Restructuring’s revenues jumped 29.1% year over year to $207.7 million. The upside was driven by solid demand for restructuring, and business transformation and transaction services. The segment contributed 34% to total revenues.
Forensic and Litigation Consulting’s revenues increased 6.2% year over year to $147.6 million. The improvement came on the back of higher demand for data & analytics, disputes and investigations services. The segment contributed 24% to total revenues.
Strategic Communications’ revenues inched up 1.2% year over year to $58.4 million. This upside was fueld by an increase in demand for public affairs services. The segment contributed 10% to total revenues.
Technology’s revenues were up 14.4% year over year to $58.7 million. The upswing resulted from strong demand for global cross-border investigation, and merger and acquisition-related services. The segment contributed 10% to total revenues.
Economic Consulting’s revenues decreased 7.1% year over year to $132.1 million. The decline was due to lower demand for non-merger and acquisition-related antitrust, and financial economics services as well as lower realized rates for international arbitration services. The segment contributed 22% to total revenues.
Adjusted EBITDA was $83.2 million, down 13.4% on a year-over-year basis. Adjusted EBITDA margin contracted 360 basis points (bps) year over year to 13.8%.
Balance Sheet and Cash Flow
FTI Consulting exited the first quarter with cash and cash equivalents of $223.1 million compared with the prior quarter’s $369.4 million. Long-term debt was $328.2 million compared with $275.6 million witnessed at the end of the previous quarter. The company used $123.6 million of net cash in operating activities and CapEx was $8.2 million in the March-end quarter. It spent $50.3 million to repurchase 450,198 shares during this period.
How Have Estimates Been Moving Since Then?
Estimates review followed a downward path over the past two months. The consensus estimate has shifted -29.86% due to these changes.
At this time, FTI Consulting has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
FTI Consulting has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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