Korn/Ferry International Inc. (KFY) in its third-quarter earnings release noted that traditional customers of executive search and staffing firms are reducing spending at an unprecedented pace.
Company Chief Executive Officer Gary Burnison stated that “…the unprecedented economic environment has impeded business throughout the world.” In a massive understatement, Burnison went on to state that “…we have not been immune from the recession.”
In the company’s third quarter, executive search engagements experienced a 33.5% decline. Early indications are that the fourth quarter will not provide a respite from the decline of business, as new engagements are down by an even greater percentage in the first few weeks of the quarter.
Company Chief Financial Officer Steve Giusto in the third quarter report provided fourth quarter and year end guidance that was substantially below previous estimates.
Giusto forecast revenues of $110 million and stated that the company would not be profitable on an operating or net income basis at this level of revenue.
Wall Street analysts had been expecting guidance in the range of $140-$160 million. The street had also forecast third quarter earnings at $0.10 per share. Results came in at $0.08.
KFY reacted to the guidance by taking the stock down to its low for the 52 weeks of $7.70 per share.
Korn/Ferry is accelerating its cost reduction program commenced in the early part of the second quarter. In a move which is likely to delay the company’s recovery from the current doldrums, executive staffing will undergo significant reductions. The earlier cuts were primarily in support positions.
The problem with reducing expenses in this fashion is that re-staffing to meet increased opportunities, which will result from a resumption in the economic growth cycle, may prove to be extremely difficult, as experienced staffers will have found new positions and may not be available for re-hiring.
Korn/Ferry has excellent liquidity along with a stellar reputation which will allow them to recover at some point as the recession wanes. Competitors Kelly Services (KELYA), Manpower (MAN) and Robert Half (RHI) are all experiencing the same difficulties as Korn/Ferry and are trading near their low for the year. None of these stocks are likely to provide much return until late in 2010.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.