FTI Consulting (FCN)

Business advisory firm FTI Consulting (NYSE:FCN) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 3.3% year on year to $898.3 million. Its non-GAAP profit of $2.29 per share was 27.7% above analysts’ consensus estimates.

Company Overview

With a team of experts deployed across 30+ countries to tackle complex business challenges, FTI Consulting (NYSE:FCN) is a global business advisory firm that helps organizations manage change, mitigate risk, and resolve disputes across financial, legal, operational, and regulatory matters.

The sector stands to benefit from ongoing digital transformation, increasing corporate demand for cost efficiencies, and the growing complexity of regulatory and cybersecurity landscapes. For those that invest wisely, AI and automation capabilities could emerge as competitive advantages, enhancing process efficiencies for the companies themselves as well as their clients. On the flip side, AI could be a headwind as well as the technology could lower the barrier to entry in the space and give rise to more self-service solutions. Additional challenges in the years ahead could include wage inflation for highly skilled consultants and potential regulatory scrutiny on outsourcing practices—especially in industries like finance and healthcare where who has access to certain data matters greatly.

FTI Consulting's competitors include other global professional services firms such as Alvarez & Marsal, AlixPartners, Berkeley Research Group, and segments of the Big Four accounting firms (Deloitte, EY, KPMG, and PwC) that offer advisory and consulting services.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $3.67 billion in revenue over the past 12 months, FTI Consulting is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, FTI Consulting grew its sales at a solid 8.8% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. FTI Consulting’s annualized revenue growth of 8.6% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.

This quarter, FTI Consulting missed Wall Street’s estimates and reported a rather uninspiring 3.3% year-on-year revenue decline, generating $898.3 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.6% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges.

FTI Consulting has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 10.3%, higher than the broader business services sector.

Analyzing the trend in its profitability, FTI Consulting’s operating margin decreased by 2.8 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, FTI Consulting generated an operating profit margin of 8.8%, down 2 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

FTI Consulting’s EPS grew at an unimpressive 7.1% compounded annual growth rate over the last five years, lower than its 8.8% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into FTI Consulting’s earnings to better understand the drivers of its performance. As we mentioned earlier, FTI Consulting’s operating margin declined by 2.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, FTI Consulting reported EPS at $2.29, up from $2.23 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects FTI Consulting’s full-year EPS of $8.04 to stay about the same.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

FTI Consulting has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.7% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that FTI Consulting’s margin dropped by 5.6 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

FTI Consulting burned through $483 million of cash in Q1, equivalent to a negative 53.8% margin. The company’s cash burn increased from $279.5 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

FTI Consulting historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 13.8%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, FTI Consulting’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

FTI Consulting reported $151.1 million of cash and $361.2 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $407.8 million of EBITDA over the last 12 months, we view FTI Consulting’s 0.5× net-debt-to-EBITDA ratio as safe. We also see its $372,000 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly FTI Consulting blew past analysts’ EPS and EBITDA expectations this quarter. On the other hand, its revenue slightly missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 1.5% to $170.89 immediately following the results.

Updated: May 17, 2025 at 12:01 AM EDT

Are you wondering whether to buy FTI Consulting or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

FTI Consulting isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its cash profitability fell over the last five years. And while the company’s economies of scale give it more fixed cost leverage than its smaller competitors, the downside is its projected EPS for the next year is lacking.

FTI Consulting’s P/E ratio based on the next 12 months is 20.7x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $175 on the company (compared to the current share price of $166.84).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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