Korn/Ferry Profit Reflects Hirings by Corporate Clients

Headhunter Korn/Ferry International posted an $8.4-million quarterly profit, reversing a year-earlier loss, as more corporations worldwide added upper-management jobs across a range of industries.

Analysts said Wednesday’s news from the Century City-based firm was another encouraging sign that as the economy recovered, more companies were hiring and turning to outside search consultants to help with increasing employment demands.

“I believe hiring has been going on despite what some of the numbers have shown,” said Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange. “Corporations are very smart. They see a vacuum in the executive job market ... and they start to gear up.”

Korn/Ferry’s $8.4 million in net income for its fiscal first quarter ended July 31 equaled 20 cents a share, topping analysts’ expectations of 15 cents. For the same period last year, the company reported a net loss of $9.4 million, or 25 cents a share. Without restructuring charges, the year-ago loss would have been $900,000, or 2 cents.

Looking ahead, Korn/Ferry said its second-quarter earnings would be 14 cents to 20 cents a share, at the high end of Wall Street forecasts, according to a survey by Thomson First Call.

Still, its shares fell 94 cents to $19.05 on the New York Stock Exchange. Analysts said investors already had priced in a return to profitability.

Gary Burnison, Korn/Ferry’s chief operating officer, noted that the job gains were particularly broad-based, with nearly all industries boosting hiring, including the financial-services sector where a number of investment banks have fattened their ranks.

Fee revenue soared 42% to $102.8 million, up from $72.6 million a year ago. Business was especially strong in Europe, where revenue rose to $25 million from $18 million.

This was Korn/Ferry’s fourth straight profitable quarter. Yet these results have been marred by the disclosure in June that the Securities and Exchange Commission was conducting an informal inquiry into a potential conflict of interest involving a former director of the firm and its outside auditor, Ernst & Young.

Analysts said Korn/Ferry has benefited not only from the growing economy, but from corporate disclosure rules that have pushed many companies to beef up their accounting and fiscal oversight by bringing on more auditors and outside directors.

For Korn/Ferry, these regulations have “worked in their favor,” said Randy Mehl, an analyst with Robert W. Baird & Co. “There are some areas where the labor supply is challenging.”

The employment picture has brightened somewhat in recent weeks, with the government reporting Friday that a net 144,000 jobs were created in August, double the number for July. On Wednesday, Federal Reserve Chairman Alan Greenspan said the economy appeared to be picking up steam after hitting a soft spot in June.

“The war for talent will intensify,” said Korn/Ferry’s Burnison. “You can’t have this kind of economic growth quarter after quarter and not have jobs being created.”

Nonetheless, some economists question just how much stronger the labor market will get, given that many companies have figured out how to squeeze more output from a smaller staff.

Indeed, Korn/Ferry itself is about half the size it was in 2000 at the height of the economic and hiring boom.

It now has about 1,400 employees, including 392 consultants, 14 more than the same time a year ago.

“They are executing well, and they have a group of highly productive consultants now,” said Mehl, who has a neutral rating on the stock. “They shed some of the less productive ones.”