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Tickers in this Article: KFY, RHI, HSII, MWW
Executive recruiter Korn/Ferry International (NYSE:KFY) is a bellwether for the health of global corporations as they seek qualified candidates for high-level executive positions. By the yardstick of Korn/Ferry's first-quarter results, the prognosis for a quick recovery is grim, but it did state that conditions are indeed stabilizing.

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Struggling Revenue
Total revenue fell a dramatic 43.3% to $123.3 million as bread-and-butter fee revenue, which Korn/Ferry garners from recruiting executive-level positions such as boards of directors, CEOs and related senior executives, fell 38.9% to account for 95% of total revenue. The remainder of the revenue consists of expenses that are reimbursed from client corporations and fell 44.8%, in sympathy with the decreased executive search activity.

Archrival Heidrick & Struggles (Nasdaq:HSII) also reported a precipitous decline in its most recent quarter as revenues fell 45.1%.

In grasping for a silver lining, Korn/Ferry management pointed out that fee revenue increased 9% consecutively or from the first quarter. It also spoke of market stabilization and green shoots appearing as the company looks to diversify into ancillary services, such as Futurestep that offers recruitment consultant and opportunities for corporations to outsource certain human resources functions.

Yet despite these efforts, nearly every corner of the recruiting market is being adversely impacted. Temporary and full-time financial staff recruiter Robert Half (NYSE:RHI) reported a 38.8% decline in its second-quarter revenue while online recruiter Monster Worldwide (NYSE:MWW) posted a 37% decline in its second-quarter revenue.

Cutting Expenses
Compensation and benefit expenses fell significantly (down 36.4%) as Korn/Ferry was able to pare headcount and other variable costs. However, it was only able to reduce more fixed general and administrative costs by 17.4% and had to take a hefty restructuring charge related to the June acquisition of Whitehead Mann, an international executive search firm focused primarily in the European market. Whitehead Mann apparently also negatively impacted revenue as Korn/Ferry stated the top line improved 3.7% when stripping out Whitehead Mann revenue.

The end result was negative earnings of 33 cents per diluted share compared to a profit of 36 cents per diluted share in last year's first quarter. Returning again to the competition, each player mentioned above reported a bottom-line loss during its most current quarter. Despite the loss, earnings from continuing operations beat analyst expectations.

For the coming year, Korn/Ferry expects fee revenue between $110 million to $120 million but stated that "making a meaningful prediction about earnings remains impractical" given the continued uncertainty in the global job market. Analysts currently project a full-year loss of 9 cents per share. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)

The Bottom Line
As with most firms reporting results during the current earnings season, Korn/Ferry alluded to a stabilization of market conditions as actual results demonstrate that fundamentals continue to deteriorate. In Korn/Ferry's case it can easily ride out the storm given it can cut headcount at a moment's notice, has shied away from any long-term debt on the balance sheet and actually ended the quarter with $265.9 million in cash, or more than $6 per share. Earnings visibility remains murky and while the shares currently trade at 1.6 times sales projections for the coming year, the top line will likely also remain depressed for the foreseeable future.

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