Korn/Ferry Swings to Profit - Analyst Blog

Korn/Ferry International (KFY) swung to a net income of $10.9 million or 24 cents per share in the first quarter of fiscal 2011, from a net loss of $14.3 million or 33 cents per share in the year-ago quarter. Quarterly earnings handily beat the Zacks Consensus Estimate of 20 cents per share. The strong quarterly performance benefited from robust fee revenues and absence of restructuring charges.

Korn/Ferry is a provider of executive recruitment, leadership and talent consulting and talent acquisition solutions, with presence the Americas, Asia Pacific, Europe, the Middle East and Africa. The Los Angeles-based company offers its services through a worldwide network of 76 offices.

Korn/Ferry’s total revenues surged 48.6% to $183.2 million from $123.3 million in the year-ago quarter. The growth was mainly attributable to a strong 50.0% growth in fee revenue to $175.1 million, on the back of a recovery in industrial, financial services and technology sectors in North America coupled with strong results in the U.K., U.A.E., Hong Kong and Australia.

Compensation and benefits expense grew 33.0% year-over-year to $120.2 million, primarily due to higher compensation and bonus payouts. Korn/Ferry’s general and administrative expenses increased 2.0% to $28.6 million on mainly due to higher bad debt and business development expenses. However, robust growth in revenues more than offset the increase in operating expenses. Consequently, Korn/Ferry swung to an operating income of $19.3 million from an operating loss of $25.0 million in the year-ago quarter, which included restructuring charges of $18.2 million.

Korn/Ferry ended the quarter with cash and cash equivalents of $146.0 million, compared to $187.6 million in the year-ago period. During the reported quarter, the company used $40.8 million towards operations and $11.7 towards capital expenditure and $11.1 million towards share buybacks.

Moving forward, Korn/Ferry expects earnings of 20 cents to 27 cents on revenues of $165 million to $185 million in the second quarter of fiscal 2011. The Zacks Consensus Estimate for the quarter is currently pegged at 22 cents per share, which edged up a penny over the past week. For the entire fiscal 2011, the Zacks Consensus Estimate presently stands at 90 cents per share, which remained constant over the past 2 months.

Korn/Ferry has a short-term Zacks #3 Rank (Hold) and a long-term Neutral recommendation.