Towers Watson Increases Sales but Misses Estimates on Earnings

Seth Jayson, The Motley Fool

Towers Watson (NYS: TW) reported earnings on Feb. 7. Here are the numbers you need to know.

The 10-second takeaway
For the quarter ended Dec. 31 (Q2), Towers Watson beat expectations on revenues and missed expectations on earnings per share.

Compared to the prior-year quarter, revenue increased and GAAP earnings per share improved significantly.

Gross margins contracted, operating margins expanded, and net margins increased.

Revenue details
Towers Watson recorded revenue of $879.7 million. The eight analysts polled by S&P Capital IQ foresaw revenue of $845.6 million on the same basis. GAAP reported sales were 11% higher than the prior-year quarter's $790.7 million.

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Source: S&P Capital IQ. Quarterly periods. Dollar amounts in millions. Non-GAAP figures may vary to maintain comparability with estimates.

EPS details
Non-GAAP EPS came in at $1.19. The six earnings estimates compiled by S&P Capital IQ predicted $1.20 per share on the same basis. GAAP EPS of $0.92 for Q2 were 42% higher than the prior-year quarter's $0.65 per share.

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Source: S&P Capital IQ. Quarterly periods. Non-GAAP figures may vary to maintain comparability with estimates.

Margin details
For the quarter, gross margin was 31.5%, 80 basis points worse than the prior-year quarter. Operating margin was 15.1%, 30 basis points better than the prior-year quarter. Net margin was 7.6%, 150 basis points better than the prior-year quarter.

Looking ahead
Next quarter's average estimate for revenue is $896.8 million. On the bottom line, the average EPS estimate is $1.35.

Next year's average estimate for revenue is $3.46 billion. The average EPS estimate is $5.14.

Investor sentiment
The stock has a three-star rating (out of five) at Motley Fool CAPS, with 158 members out of 170 rating the stock outperform, and 12 members rating it underperform. Among 56 CAPS All-Star picks (recommendations by the highest-ranked CAPS members), 55 give Towers Watson a green thumbs-up, and one gives it a red thumbs-down.

Of Wall Street recommendations tracked by S&P Capital IQ, the average opinion on Towers Watson is outperform, with an average price target of $71.33.

At the time thisarticle was published Seth Jayson had no position in any company mentioned here at the time of publication. You can view his stock holdings here. He is co-advisor ofMotley Fool Hidden Gems, which provides new small-cap ideas every month, backed by a real-money portfolio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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