Korn/Ferry’s Profit Points to Renewed Hiring

Executive search firm Korn/Ferry International swung to a profit in its second quarter, its first profit since April 2001, and said hiring in the technology and financial sectors was improving.

Analysts and economists saw the upbeat earnings report, along with earlier government reports, as a sign that businesses are ready to put some jobs into the “jobless recovery.”

“What we’re seeing now is that businesses are investing: in tools, in equipment, in new leases. So now there is a need to add to the employment base,” said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. “We’ve probably past the trough in our economic cycle.”

The news pushed Los Angeles-based Korn/Ferry’s shares to a 52-week high of $11.54 before closing at $11.22, up $1.23, on the New York Stock Exchange.

The fiscal second-quarter profit of $2.2 million, or 6 cents a share, for the period ended Oct. 31, reversed a long slide that included an $18.3-million loss, or 48 cents, in the year-earlier quarter. In last year’s second quarter the company took a $16.3-million restructuring charge because of a massive downsizing as it cut its workforce from a peak of 2,800 in 2000 to 1,400 today.

In the last two years, Korn/Ferry has taken $118 million in restructuring charges.

There were no restructuring charges in the second quarter and Paul C. Reilly, Korn/Ferry’s chief executive, said he did not foresee any additional charges for the balance of the fiscal year.

Revenue in the second quarter fell 4% to $82 million from $85.7 million a year ago.

But second-quarter revenue rose 6% from the first quarter and marks an improvement over declines Korn/Ferry suffered over the last 2 1/2 years, analysts said.

Quarterly revenue for Korn/Ferry’s North American operation was down 4% compared with a year earlier, “but the prior year it was down 13.7% year over year, and the year before that it was down 20%,” said Mark Marcon, a senior research analyst with Wachovia Securities. “The trend is improving.”

Overall, contracts at the company’s flagship executive recruitment segment rose 14% in the second quarter compared with a year earlier. Reilly predicted that third-quarter fee revenue could be as high as $78 million, up from $77 million in the second quarter. Revenue from fees makes up about 94% of the company’s total sales.

For the first time, the company’s Futurestep division turned a profit, Reilly said. It was launched in 1998 to recruit executives for dot-coms, but after the tech meltdown it has largely become a middle-management recruitment service. The unit posted operating income of $479,000 in the second quarter, contrasted with a loss of $5.6 million a year earlier.

Nationwide, employers added 126,000 workers in October, a departure from more than three years of anemic hiring figures. With more companies calling on executive search firms for help finding managers, insiders say the worst is over for the $10-billion industry.

“The past two to three years clearly have been the most difficult years facing executive search firms,” said Joseph Daniel McCool, editor of Executive Recruiter News, a monthly trade publication in New Hampshire.

McCool said the Korn/Ferry earnings report “clearly shows that companies are once again starting to invest in their people.”