Chicago firm's stock plunged 11%

by Nicole Duarte

published by the Medill News Service, February 16, 2006

Shares of Navigant Consulting Inc. plummeted 11 percent after an arbiter found the company liable for "unspecified damages" in a dispute with the city of Vernon, Calif. The decision came as the company reported improved fourth-quarter and full-year 2005 earnings.

A Navigant subsidiary under contract to the city of Vernon had its contractor's license suspended for 19 days in 2001 and 30 days in 2003. Given those suspensions, an arbiter issued an "interim finding" declaring the city was "entitled to recovery for unspecified amounts paid under the contract" for an undefined period, Navigant stated in a release. The company, a Chicago-based consulting firm, said both suspensions were the result of clerical errors.

Navigant said the arbiter did not give further details.

The company said it expected the arbiter's rulings would have a "material impact" on the company's 2005 figures. Navigant said it is slated to appear before the arbiter again next week.

"The reason the stock is down is the uncertainty surrounding the case in California," said James Janeskey, an analyst at New Jersey-based Ryan Beck & Co. "I do expect [the stock] to rebound" once the arbitration is resolved, barring more legal issues, he said.

The company reported profits of $11.57 million or 22 cents per diluted shared for the quarter ended Dec. 31, compared with $11.15 million or 22 cents per diluted share in the year-earlier quarter.

Revenues for the quarter totaled $150.45 million, including $16.35 million from client reimbursements of business-related expenses. Sales were up 16 percent from $129.31 million, including $14.55 million in reimbursements, in the fourth quarter of 2004.

The company's performance fell slightly short of analyst estimates of 25 cents per diluted share on revenues of $151.58 billion.

The arbiter also ruled late Wednesday afternoon that Navigant could not collect $1.4 million in unpaid expenses from Vernon, Calif. In 2003 the Navigant subsidiary terminated its contract with the city, and the company had been locked in arbitration to collect unpaid bills. Navigant wrote off the $1.4 million in the fourth quarter.

In a conference call, Navigant CEO and Chairman William Goodyear said it was "disappointed" with the $1.4 million, or 3 cents per share, expense that resulted from the arbiter's decision, but added it was a one-time charge the company looked forward to putting behind it.

The company also paid out a one-time litigation settlement of $1.25 million in the fourth quarter of 2005.

Despite its legal difficulties, the company offered hopeful guidance for the coming year. "We would expect to add another $100 million to our business base next year," said Goodyear, projecting net income of $59.5 million to $64.5 million and earnings per share in the range of $1.10-1.19.

"The outlook for 2006 is pretty solid," said Janesky. "The outlook for revenues was at or above what we were expecting. The company has made some infrastructure investments that are holding back earnings a little bit," however, he added that increased utilization and company initiative toward larger engagements "should have a positive effect on their earnings growth."

For the year ended Dec. 31 the company reported net income of $49.86 million or 95 cents per diluted share, compared with $40.38 million or 80 cents per diluted share in 2004.

For 2005, revenue totaled $575.49 million, including $66.12 million in reimbursements. Sales were up 19 percent from $482.12 million, including $55.25 million in reimbursements, in the year prior.

The stock closed at $19.83, down $2.52 or 11.3 percent.