Executive search firm Korn/Ferry (NYSE: KFY ) is doing well and feeling good about its growth prospects around the globe. Its business is susceptible to economic ups and downs, but that shouldn't prevent Fools from keeping tabs on the stock.
In its recently released third-quarter earnings, Korn/Ferry recorded rapid revenue growth in its key geographic regions of North America (up 28%), Europe (up 31%), and Asia Pacific (up 34%). South American revenue fell a couple of percentage points, but it only accounts for a similar proportion of the total executive recruitment business. Futurestep, the company's middle-management recruitment arm, also grew strongly, up 24% for the quarter.
The mid-level and temporary-staffing markets are much more crowded, including competitors such as Manpower (NYSE: MAN ) , KForce (Nasdaq: KFRC ) , and Administaff (NYSE: ASF ) . Heidrick & Struggles (Nasdaq: HSII ) is one of a small handful of firms that also specialize in executive recruiting. The white-collar job market seems to hold up better than middle-management and blue-collar manufacturing-related positions, but Korn/Ferry and all staffing firms tend to get hit when the economy heads south. In fact, the most recent recession as a result of the dot-com bubble hit upper management as hard as any job category out there.
Fortunately for Korn/Ferry, it operates in a service business, so its capex needs tend to be minimal; it requires little beyond office space to maintain its operations. That means cash flow holds up well during business downcycles, even if market sentiment turns against recruiters in general. Check out the stock charts of any of the above firms, and you'll find they trade as a group, despite varying issues at individual companies.
Korn/Ferry is one of the more geographically diversified industry players, and also the most exposed to executive recruiting. For nearly four straight years now, those trends have worked in its favor; total revenue increased in 14 of the last 15 quarters.
Fellow Fool Rich Smith recently pointed out that Korn/Ferry and rival Heidrick have been struggling on the margin front because of rising costs. In the third-quarter conference call, Korn/Ferry management explained that it's spending more on growth initiatives that should serve to boost results down the road. The company also expects a strong job market to continue, seeing no signs to the contrary.
Skeptics could point to lower profitability as a potential cloud on the horizon, but for now, Korn/Ferry is chugging along rather nicely. Economic doldrums could be the best time to pick up some shares, but right now, it's hard to tell if and when that might happen. In any case, the stock is worth keeping on your watch list. Korn/Ferry remains the crown jewel in executive placement.
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.
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