Hewitt Associates, Inc. (HEW), a provider of human resource benefits, outsourcing, and consulting services, Tuesday reported a sharp rise in its fourth-quarter profit on lower operating costs, despite a decline in net revenues. The company also provided an underlying earnings per share outlook for fiscal 2010.
The company's fourth-quarter net income was $64.42 million, or $0.68 per share, compared with $31.55 million, or $0.32 per share in the prior-year quarter.
Underlying net income for the prior-year quarter was $48.3 million, or $0.49 per share, adjusting for unusual items.
The company also reported operating income growth of 95% to $105.8 million from $54.3 million in the prior-year quarter. Underlying operating income grew 23% after adjusting for prior-period unusual items.
The company's net revenues declined 6% in the fourth quarter to $757.74 million from $806.69 million in the prior-year quarter. Total revenues were $774.04 million, compared with $824.53 million last year.
Net revenues declined 4% after adjusting for foreign currency translation, acquisitions and divestitures, and third-party revenues in both periods, the company noted.
On average, analysts polled by Thomson Reuters expected a profit of $0.63 per share on revenues of $754 million for the company. Analysts' estimates typically exclude one-time items.
In the preceding third quarter, the company's net income was $68.40 million or $0.71 per share on net revenues of $729 million.
Commenting on the results, Russ Fradin, chairman and chief executive officer of Hewitt Associates stated, "Revenues were resilient, and our focus on productivity over the past two years produced record operating profit, operating margin and earnings per share. We also delivered strong sales, improved client satisfaction and generated strong free cash flow."
Based on business segments, Benefits Outsourcing's revenues were $388.7 million compared with $387.9 million in the prior-year quarter. Revenues increased 1% after adjusting for $2.3 million of unfavorable foreign currency translation, driven by growth in large market and mid-market clients, partially offset by lower project revenue.
Human Resources Business Process Outsourcing, or HR BPO, segment revenues declined 16% to $113.9 million from $135.1 million last year. Revenues decreased 10% after excluding third-party supplier revenues in both periods and adjusting for items.
Consulting segment revenues were down 10% to $265.2 million from $295.8 million in the prior-year quarter. After adjusting for $12.3 million of unfavorable foreign currency translation and a $6.8 million contribution from an acquisition, consulting revenues decreased 9%. This decline was due to lower revenues related to Talent and Organizational Consulting services across all regions and Communication and Health Management services in North America. This was partially offset by growth in Retirement and Financial Management services in North America and Europe, the company noted.
Total operating expenses declined 13.2% to $668.21 million from $770.26 million in the previous year.
For fiscal 2009, the company's reported net income was $265.1 million, or $2.78 per share, compared with $188.1 million, or $1.85 per share in the prior year. Underlying net income increased to $254.6 million or $2.67 per share from $202.3 million or $1.98 per share in the previous year, when adjusting for unusual items in both years.
Reported net revenues declined 5% to $3 billion from $3.15 billion a year ago. Total revenues were $3.07 billion, down 4.8% from $3.23 billion in the previous year.
Full-year net revenues were flat after adjusting for foreign currency translation, acquisitions and divestitures, HR BPO contract restructurings in the prior year, and third-party revenues in both years, Hewitt Associates noted.
Among others in the sector, Accenture plc (ACN) had reported lower profit for the fourth quarter, hurt by the negative impact of unfavorable foreign-exchange rates. The Hamilton, Bermuda-based company reported net income of $254.7 million, compared with $434.8 million in the prior year quarter. Net income including minority interests in Accenture SCA and Accenture Canada Holdings Inc. was $301.4 million or $0.39 per share, down from $543.1 million or $0.67 per share in the previous year. Revenues decreased to $5.51 billion from $6.56 billion in the year-ago quarter.
Another peer T. Rowe Price Group Inc. (TROW) has reported a lower third-quarter profit, hurt by declines in investment advisory and administrative fees. Net income available to common stockholders was $132.4 million or $0.50 per share, compared with $152.4 million or $0.56 per share last year. Net revenues declined to $498.1 million from $554.8 million in the comparable quarter of 2008.
Watson Wyatt Worldwide, Inc. (WW) last week reported a decline in its profit for the first quarter, reflecting one-time costs as well as a 6% decrease in revenues. Net income dropped to $29.78 million or $0.69 per share from $35.16 million or $0.82 per share in the previous year. Revenues were down 6% to $401.34 million from $426.13 million a year ago.
Looking ahead, Hewitt Associates sees low- to mid-single digit total company net revenue growth for fiscal 2010 on an underlying basis, with solid growth in Consulting, a flat performance in Benefits Outsourcing, and a decline in HR BPO.
The company also sees full-year 2010 underlying earnings per share of $2.85 to $2.95, with operating income growth moderately exceeding earnings per share growth, an effective tax rate in the range of 37% to 38%, and continued execution against its share repurchase authorization. Analysts forecast earnings of $2.62 per share for the year.
"While we are seeing some positive signs in terms of customer demand, our guidance is not dependent on a meaningful recovery," said Fradin.
"In 2010, we intend to accelerate our sales efforts and continue to invest in growing our business by adding new clients and services," he added.
HEW is trading at $39.88, up $1.63, on a volume of 643,411 shares.
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