Fools who caught Alyce Lomax's report on Korn/FerryInternational (NYSE:KFY) back in June will recall that the company's fourth quarter of fiscal 2004 was when this headhunter finally turned the corner on profitability. Three months later, Korn/Ferry appears to have completed its turn and is now plowing full speed ahead. (OK, enough with the nautical metaphors.)

The contrast between the results of the first quarter of 2005 and first quarter of 2004 could not be clearer. Whereas a year ago, the company was bleeding red ink and lost its shareholders $9.4 million, the first quarter of 2005 saw a complete reversal of those losses for an $8.4 million gain. That's a direct result of the company's upping fee revenue from placing employees with its clients by 42% -- an acceleration over the 28% year-on-year increase in revenues posted three months ago. The sequential increase in operating margins rose in tandem with the acceleration in revenue growth. Last quarter, Korn/Ferry was making an operating margin of 11.6%; this quarter, the company earned 14.2%.

Compare that with the company's full-year results for fiscal 2004, when it earned a 4.2% operating margin on average, and it becomes clear just how far this company -- and, presumably, the U.S. job market -- has come since the bursting of the Internet bubble in 2000. In fact, Korn/Ferry came right out and said this, attributing its success to an "increase in the number of new engagements opened across all regions."

As good as the story sounds so far, however, a couple of points bear watching. For one thing, in contrast to such competitors as Heidrick & Struggles (NASDAQ:HSII) and, to a lesser extent, Kelly Services (NASDAQ:KELYA) and Manpower (NYSE:MAN), Korn/Ferry's cash levels have decreased rather than increased in recent months. Because the company failed to provide a cash flow statement with its earnings release, it is difficult to tell where the cash went, but Fools will want to take a good hard look at that issue when the company files its 10-Q.

Another point of interest was the dramatic rise in the weighted average of diluted shares outstanding, which increased more than 22% year on year, against just a 1% in basic shares outstanding. This isn't a new development. Weighted average diluted shares currently stand at 45.9 million vs. 40.6 million six months ago and 37.4 million a year ago. So, evidently, shareholder dilution is par for the course at Korn/Ferry. But just because it's ongoing doesn't make it right.

Why don't Fools like stock dilution? Learn more on the subject in Rich Smith's Takes:

Fool contributor Rich Smith has no interest in any of the companies mentioned in this article.