Heidrick & Struggles Posts 17 Percent Revenue Gain

One of the nation's top executive search firms delivers big in its third quarter revenue report to Wall Street. Let’s go inside the latest numbers.

October 30, 2018 – Executive search, leadership consulting and culture shaping services provider Heidrick & Struggles International/(NASDAQ:HSII) posted second quarter net revenues of $187.6 million, an increase of 17.4 percent from $159.8 million in the 2017 third quarter. The results topped Wall Street expectations. The average estimate of three analysts surveyed by Zacks Investment Research was for revenues of $175.8 million.

The Chicago-headquartered recruiter — the fourth largest global firm as ranked by Hunt Scanlon Media — recorded net income $16.5 million, or 85 cents per share, compared to earnings of $8.6 million, or 43 cents per share, last year. This also topped Wall Street expectations, which was calling for earnings of 50 cents per share.

Executive search net revenue increased 19.4 percent year over year, or $27.9 million, to $172.1 million from $144.1 million during the same period a year ago. All three regions contributed to this growth with net revenue increasing 20.7 percent in the Americas, 10.2 percent in Europe and 28.5 percent in Asia Pacific.

Heidrick Consulting net revenue decreased one percent, or $0.2 million, to $15.5 million, from $15.7 million last year. Heidrick said the decline largely reflects the impact of new revenue recognition accounting on enterprise license agreements, which increased deferred revenue thereby reducing net revenue in the quarter by approximately $0.9 million.

“We are very pleased to report another quarter of record net revenue, coupled with additional savings in general and administrative expenses, which led to a continued improvement in operating margin, net income and EPS,” said Krishnan Rajagopalan, president and CEO. “The third quarter and year-to-date results reflect the hard work of our employees globally and the continued execution of our key 2018 initiatives — to grow our scale and impact with clients, collaborate across business lines to drive revenue, invest in the business to deliver a premium service experience to our clients, and improve profitability.”

Big Growth in Store as Executive Recruiters Adapt to Automation
The executive search industry’s leading 50 players in the Americas once again surpassed $3 billion in revenues last year, according to industry newsletter ESR, in a market intelligence briefing just released by Hunt Scanlon Media.

Hedge Fund Investing Activity

Publicly-held search outfits, namely Heidrick & Struggles and rival Korn Ferry, have recently seen a flurry of investor activity. Hedge funds, in particular, have been acquiring new stakes in both companies, while others have been reducing positions and moving on to other investments throughout the talent management sector.

A number of institutional investors have recently added to or reduced their stakes in Heidrick’s stock: Schwab Charles Investment Management recently raised its holdings in shares of the firm by 11.3 percent, according to the company in its most recent disclosure with the Securities and Exchange Commission. The fund owned 113,090 shares of the search firm’s stock after purchasing an additional 11,440 shares during the period. It owned about 0.60 percent of Heidrick worth $3,959,000 as of its most recent SEC filing.

Other hedge funds have also added to or reduced their stakes in the firm. Piedmont Investment Advisors recently bought a new stake in Heidrick valued at $154,000. Principal Financial Group grew its position in shares of the firm by 2.4 percent. It now owns 143,985 shares of the firm’s stock worth $4,500,000 after acquiring an additional 3,417 shares during the last quarter. Cambria Investment Management also bought a new position in shares of Heidrick worth about $320,000. BlackRock grew its position in shares of the firm by 1.7 percent during the quarter. It now owns 2,456,773 shares of Heidrick’s stock worth $76,774,000 after recently acquiring an additional 42,250 shares. Finally, First Trust Advisors grew its position in shares of the firm by 18.8 percent. It now owns 21,445 shares of the firm’s stock worth $751,000 after recently acquiring an additional 3,401 shares. Hedge funds and other institutional investors own 89.71 percent of Heidrick’s stock.

Analysts Weigh In

A number of analysts have recently weighed in on the company: BidaskClub lowered shares of Heidrick from a “sell” rating to a “strong sell” rating in a recent research report. Barrington Research restated a “buy” rating on shares of the firm in a separate research report. TheStreet lowered shares of Heidrick from a “b-” rating to a “c+” rating in a research report in late September. ValuEngine lowered shares of the search firm from a “buy” rating to a “hold” rating in another research report released in late September. Lastly, Zacks Investment Research upgraded shares of Heidrick from a “hold” rating to a “strong-buy” rating and set a $47.00 price target for the firm. One investment analyst has rated the stock with a sell rating, four have issued a hold rating and one has assigned a buy rating to the firm’s stock.


Heidrick is forecasting 2018 fourth quarter consolidated net revenue of between $170 million and $180 million. This forecast is based on the average currency rates in September and reflects, among other factors, management’s assumptions for the anticipated volume of new executive search confirmations, Heidrick Consulting assignments, the current backlog, consultant productivity, consultant retention, and the seasonality of its business.

“Our outlook for the market demand for executive search and leadership advisory services continues to be positive,” said Mr. Rajagopalan. “There will always be quarter-to-quarter variability that is difficult to predict given the nature of our business and global footprint, but we are on track to deliver a record year in net revenue and are well positioned to create shareholder value by executing on our 2018 initiatives,” he says.

“We delivered another outstanding quarter and continued our pace of growth from the first half of the year,” said Mark Harris, CFO of Heidrick. “Our business continues to benefit from the overall market strength and we believe we are winning more than our fair share of it,” he says. “We will continue to focus on strong execution, prudent investments, long-term planning and adding value to our clients.”

Heidrick & Struggles shares have climbed 19 percent since the beginning of the year. In the final minutes of trading on Monday, shares hit $29.18, an increase of 18 percent in the last 12 months.

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media

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