What: Shares of HR specialist Korn/Ferry International (NYSE:KFY) were selling off today on disappointing guidance in its fourth-quarter earnings report. As of 11:12 a.m. EDT, the stock was down 18.4%.
So what: The executive search company beat expectations in the past quarter, posting a profit of $0.58 a share, against estimates of $0.54. Fee revenue in the quarter grew 47% to $400 million, also beating the analyst view at $392.4 million.
Korn/Ferry is in the middle of a transition, having recently acquired the advisory company Hay Group. CEO Gary Burnison explained, "We are in the midst of creating a new firm-with 65% of our colleagues new to the organization in the last three years, due to expansion and growth." Burnison also said the scope and pace of the Hay Group integration has exceeded expectations.
Now what: What seemed to kill the stock was weak first-quarter guidance. Management sees first-quarter revenue in the range of $371 million-$391 million and adjusted earnings per share of $0.50-$0.58. Analysts, meanwhile, had projected results near the end of those ranges, with a consensus of $0.58 EPS and $384.9 million. Following the report, Korn/Ferry also got downgraded by Robert W. Baird to from outperform to neutral as Wall Street is sometimes puzzled to see a strong quarter followed by weak guidance.
A sell-off near 20% seems steep for modestly weak guidance. The stock hit 52-week lows on the news, but with reasonable growth still expected and the stock trading at a price-to-earnings ratio near 10, today's drop could be a buying opportunity.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
More from The Motley Fool
Why Korn/Ferry International, Tetra Technologies, and Cavium Slumped Today
Even though the market bounced back, these stocks suffered. Find out why.
Economy Gains 288,000 Jobs... Will Korn/Ferry or Kelly Services Benefit?
Both Korn/Ferry and Kelly Services could be good investments today.
Korn/Ferry's Earnings Preview: 3 Things to Watch
When Korn/Ferry reports earnings on Dec. 4, three critical factors will determine whether it is distancing itself from Kelly Services, Robert Half International, and ManpowerGroup.