December 6, 2019 – Korn Ferry (NYSE:KFY) has posted fiscal second quarter revenues of $492.4 million, down one percent (up one percent at constant currency) from last year. The Los Angeles-headquartered executive recruiter and leadership consultant – the largest globally and in the Americas as ranked by Hunt Scanlon Media – recorded net income was $42.8 million, compared to a loss of $46 million in the second quarter of last year.
Adjusted diluted earnings per share for the second quarter excluded $2.6 million, or $0.04 per share, related to integration/acquisition costs associated with the recently completed acquisition of Miller Heiman Group, AchieveForum and Strategy Execution.
“For Korn Ferry’s recently completed second quarter, we generated fee revenue of approximately $492 million (down one percent using actual rates; up one percent on a constant currency basis) and consistent profitability with an adjusted EBITDA margin of almost 16 percent,” said Gary D. Burnison, CEO of Korn Ferry. “Despite the confused socio-political climate, we continued to have a long-term balanced approach to capital deployment, acquiring three leadership development companies while repurchasing almost $50 million of stock during the quarter in addition to our normal quarterly dividend.”
“We have historically only focused on a 10 percent subset of the $300 billion market for learning and development,” Mr. Burnison said. “The recent acquisitions of Miller Heiman, Strategy Execution and AchieveForum add professional development capabilities that will leverage our Korn Ferry Digital platform, tapping a much broader market opportunity.”
As Mr. Burnison mentioned, during the quarter Korn Ferry entered into a definitive agreement to acquire three companies from TwentyEighty Inc. in the leadership development area: Miller Heiman Group, AchieveForum and Strategy Execution. Financial details of the deal were not disclosed.
Byron Matthews of Miller Heiman Group, Christoffer Ellehuus of Strategy Execution, and Scott Bohannon of AchieveForum said: “We are delighted to find the perfect strategic home at Korn Ferry. We are enthusiastic about what the future will bring from this acquisition in terms of synergistic product and consulting solution offerings for our customers as well as career opportunities for our employees.”
Miller Heiman Group specializes in transforming sales performance and customer experience. AchieveForum offers frontline leadership development. Strategy Execution provides organizational and project management training. Combined, the three companies have trained thousands of professionals and hundreds of clients across the globe and have substantial expertise in sales performance and customer experience, frontline leadership development and project management, which will greatly benefit future clients.
These companies will be part of a newly branded Korn Ferry Digital (formerly the Products Group), which, working closely with its Consulting unit, will provide clients direct access to data, insights and analytics. The addition of these three companies is expected to further expand Korn Ferry’s intellectual property and content and leverage the firm’s digital delivery platforms.
Hedge Fund Investing Activity
Publicly-held search outfits, namely Korn Ferry and rival Heidrick & Struggles, 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.
Recruiting Sector Jumps 13.9 Percent, Driven by Tightening Talent Markets
A constricting labor market with low unemployment means companies are struggling to find qualified talent. When the right people are found, the costs associated with hiring them are rising, making a lengthy onboarding process now the rule, not the exception.
A number of institutional investors have recently added to or reduced their stakes in Korn Ferry’s stock: Wells Fargo & Company recently grew its position in shares the firm by 5.1 percent, according to its most recent filing with the Securities and Exchange Commission. The fund owned 890,688 shares of Korn Ferry’s stock after acquiring an additional 43,204 shares during the quarter. Wells Fargo holdings in the firm were worth $35.69 million as of its most recent filing. Parallel Advisors boosted its holdings in Korn Ferry by 1,403.1 percent during the first quarter. It now owns 1,969 shares of the firm’s stock worth $88,000 after acquiring an additional 1,838 shares during the last quarter.
Advisors Asset Management raised its stake in shares of Korn Ferry by 14.5 percent during the first quarter. It now owns 3,090 shares of the firm’s stock worth $138,000 after purchasing an additional 392 shares during the period. CWM Advisors recently bought a new stake in shares of Korn Ferry worth $206,000. Fox Run Management also recently bought a new stake in shares of Korn Ferry worth $290,000. Finally, Everence Capital Management bought a new stake in shares of Korn Ferry during the first quarter worth $336,000. Currently, 93.75 percent of the firm’s stock is owned by hedge funds and other institutional investors.
Analysts Weigh In
A number of analysts have recently weighed in on Korn Ferry: Zacks Investment Research raised Korn Ferry from a “sell” rating to a “hold” rating in a research note on Aug. 22. ValuEngine upgraded the firm from a “strong sell” rating to a “sell” rating in a research note on Aug.1. Finally, SunTrust Banks lowered their target price on Korn Ferry to $58 and set a “buy” rating on the stock in a research note in June. Two analysts have rated the stock with a sell rating, one has given a hold rating and two have given a buy rating to the company. Korn Ferry presently has an average rating of “Hold” and an average target price of $49.33.
Just recently, Korn Ferry continued with its balanced approach to capital allocation, buying back 1.3 million shares or $49.2 million of stock during the quarter and declaring a quarterly dividend of $0.10 per share on Dec. 4, payable on Jan. 15 to stockholders of record on Dec. 20.
“Last month we celebrated our 50th anniversary, capping an unprecedented moment in Korn Ferry’s history as the preeminent global organizational consulting firm,” said Mr. Burnison. “As our recent acquisitions attest, we continue to evolve our business to help clients synchronize their strategy, operations and talent. I look forward to what the future holds as we ring in a New Year.”
Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, on a consolidated basis Korn Ferry said fiscal Q3 revenue is expected to be in the range of $490 million and $510 million and diluted earnings per share is expected to range between $0.35 to $0.52.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media