Heidrick & Struggles Posts Double Digit Gains Led by Americas

October 27, 2017 – Executive search, leadership consulting and culture shaping services provider Heidrick & Struggles International / (NASDAQ:HSII) has posted revenues of $159.8 million for the third quarter, an increase of 11.3 percent from the same period last year.

Executive search net revenue increased 14.1 percent year over year, or $17.9 million, to $144.1 million from $126.3 million in the third quarter of last year. Search revenues grew 16.7 percent in the Americas and 18.9 percent in Europe, but declined 4.2 percent in Asia Pacific. Leadership consulting net revenue rose 1.6 percent, or $200,000, to $8.8 million from $8.6 million in the third quarter last year. Culture shaping net revenue declined 19.8 percent, or $1.7 million, to $6.9 million from $8.6 million in the third quarter of 2016.

During the quarter, the Chicago-headquartered recruiter — the third largest in the Americas as ranked by Hunt Scanlon Media — recorded a net income of $8.6 million, or 43 cents per share, compared to net income of $6.7 million, or 35 cents per share, last year.

“We are pleased with the continued strong performance of our executive search business in the third quarter,” said Krishnan Rajagopalan, president and CEO. “Almost all of our financial and key performance metrics improved in the third quarter.”

Consolidating Business Units

Progress has also been made, Mr. Rajagopalen said, in integrating the firm’s leadership consulting and culture shaping operations into a new business, Heidrick Consulting. The goal, he said, is to provide a cohesive suite of services that will allow clients to accelerate their performance at the leader, team and organizational levels.

“We have seen the market for consulting services across talent, leadership and culture continue to evolve and grow rapidly,” Mr. Rajagopalen said. “Heidrick Consulting will offer leadership services in leadership assessment & development, organization & team effectiveness, and culture shaping, all as a full complement to its core executive search business.”

That integration will be co-led by Colin Price, EVP and managing partner of leadership consulting, and Mike Marino, EVP and managing partner of culture shaping.

“In addition to helping our clients around the globe identify and develop top leadership talent, we equip leaders with the skills, tools and insights to inspire and lead transformational change that delivers on their organization’s purpose,” Mr. Rajagopalan said. “Our consultants draw from deep expertise in human behavior and organizational culture combined with data-driven solutions grounded in empirical research.”

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Hedge Fund Investing Activity

Several hedge funds and other institutional investors have modified their holdings of Heidrick stock over the last several quarters. JPMorgan Chase & Co. lessened its stake by 15.9 percent, according to its most recent disclosure with the Securities and Exchange Commission. The fund owned 270,440 shares of Heidrick’s stock after selling 51,100 shares during the past quarter. JPMorgan owned about 1.44 percent of the recruiter’s worth $5,882,000 as of its most recent SEC filing. Royce & Associates recently increased its holdings in Heidrick by 107.1 percent. It now owns 1,549,800 shares of the firm’s stock worth $33,708,000 after acquiring an additional 801,336 shares in the last quarter.

Dimensional Fund Advisors also boosted its position in shares of Heidrick by 7.6 percent. It now owns 1,272,325 shares of the recruiter’s stock, worth $33,525,000, after buying an additional 90,410 shares. Renaissance Technologies recently increased its position in shares of Heidrick 4.3 percent. It now owns 1,159,902 shares of the firm’s stock, worth $30,563,000, after acquiring an additional 47,916 shares. Vanguard Group raised its position in shares of Heidrick by 7.9 percent. It now owns 993,314 shares, worth $26,173,000, after buying an additional 72,798 shares. Lastly, Boston Partners boosted its position by 2.4 percent. It now owns 917,669 shares of the firm’s stock worth $19,959,000 after buying an additional 21,472 shares. Institutional investors and hedge funds own 84.16 percent of the company’s stock.

Several analysts have recently weighed in on Heidrick: In one recent research report, Zacks Investment Research raised the firm’s stock from a “sell” rating to a “hold” rating. ValuEngine, meanwhile, cut Heidrick from a “buy” rating to a “hold” rating, while BidaskClub cut the company from a “sell” rating to a “strong sell” rating. Deutsche Bank AG reaffirmed a “hold” rating and set a $25 price objective (down from $27) on shares of Heidrick. Finally, TheStreet cut the firm’s stock from a “b” rating to a “c” rating in a research report. One research analyst rated the stock with a sell rating and four have issued a hold rating. The company currently has an average rating of “hold” and an average price target of $25.

Fourth Quarter Outlook 

Heidrick expects fourth quarter consolidated net revenue of between $150 million and $160 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 quarterly results have historically been quite variable, but results for the first nine months of 2017 reflect a clearer picture of our performance,” said Mr. Rajagopalan. “Executive search revenue increased 8.2 percent, leadership consulting revenue increased 29.2 percent, and our adjusted operating margin, as defined above, improved to 7.3 percent for the first nine months of 2017.”

“We have stabilized the culture shaping business and are building a scalable foundation for Heidrick Consulting while driving to achieve operational efficiencies and a better trajectory of profitable growth,” he said. “We see good opportunities to grow executive search by focusing on growth markets and healthy economies where we should have a larger presence, like our acquisition in Copenhagen.”

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