April 20, 2009 - Hewitt Associates, Inc. (HEW-NYSE) provides human resource benefits, outsourcing, and consulting services primarily in the United States and the United Kingdom. The company operates through three segments: Benefits Outsourcing, Human Resource Business Process Outsourcing (HR BPO), and Consulting.

The HR BPO segment provides talent management services, which include recruiting, learning and development, performance management, and succession planning; workforce management services that comprise compensation administration, total rewards, work force administration, domestic relocation, leave management, and mobility; and core process management services, which include payroll services, benefits services, and payments services.

The Consulting segment provides benefits consulting services, including retirement and financial management consulting, and health care consulting; and talent and organization consulting services. It provides an array of consulting and actuarial services covering the design, implementation, communication and operation of health and welfare, compensation, and retirement plans, as well as human resources programs and processes. Hewitt Associates was founded in 1940 and is based in Lincolnshire, Illinois.

It's hard to find companies that prosper when times are difficult. Hewitt Associates is one of them. Good demand for benefits outsourcing is a bright spot for large and mid-sized companies. There's also strong demand for consulting services for pension related programs and healthcare management.

For the first quarter of 2009, HEW showed lower revenues (by 3%) but earnings beat most estimates thanks to strong growth in the Consulting division and better operating leverage, mostly from restructuring moves in the HR-BPO unit. (Fiscal year ends September 30.) Earnings for the second quarter (ended March) are predicted at 55 cents, up from 37 cents last year in the second period. For the third quarter, analysts expect 62 cents, nicely ahead of last year's third period report of 53 cents a share. For the full year, 11 analysts have a consensus estimate of $2.49 (range of $2.25 to $2.55). Last year, earnings per share were $2.02. Next year, consensus is for $2.77.

Some divisions are seeing weakness. Not a surprise in this economy. In particular, the Benefits Outsourcing group is getting called less frequently. These projects tend to be discretionary and easily postponed by companies until times are better. The same slowdown is hitting the Consulting division which typically offers discretionary type services as well.

To help earnings per share, management is buying back stock. Earnings will also benefit from a one-time pretax gain of $10 million from the sale of the Hewitt HR-BPO business in Latin America. There has also been a restructuring in the remaining HR-BPO division that should improve the bottom line.

The stock price was hit hard last October and November, joining the rest of the market. It went from its all-time high of $43 to $22.80 in a few months. It's recovered some of that loss but is still a good way from the old high. The stock has traded since 2002 when it spun off from Hewitt Holdings LLC.

More numbers: Market Cap is $3.06 billion. P/E is 15.5 while the Forward P/E is 10.75. Price to Book is 4.31. Operating margin for the last 12 months was 11.77% while Profit margin was 5.9%. Total Cash is $431 million for Cash per share of $4.59. Total debt is $675.54 million. Current Ratio is 1.48. Book Value is $6.94. Beta is .58. There are 93.88 million shares outstanding with a float of 73.48 million. Insiders own 10.93% of the stock. Institutions have 87%. There is no dividend.

Hewitt is a service company that offers certain programs that are essential to large and mid-size firms, and others that are discretionary. The discretionary programs are being postponed in a terrible economy. But the other divisions are doing well. When the economy does improve as some expect (hope?), next year, look for this company to run on all cylinders and deliver earnings that are above current expectations.

Company Web site: www.hewitt.com

- Ted Allrich