Analysts Say Recruiter's Ills May Have Reached an End.

A slowing economy means less job hopping, so it's little surprise that the stock of Korn/Ferry International, the world's largest executive recruitment firm, is in the dumper.

And while analysts are advising caution (meaning you might want to wait on the sidelines for awhile longer), the lion's share of the damage has been done, they say.

The damage has been substantial. Shares of the Century City-based firm have lost half their value since last November, bottoming out on Feb. 7 at $15.30 -- well off the 52-week high of $44.13 last March. The stock was trading at between $16 and $17 last week.

The slide came after company officials acknowledged that revenues for the fiscal year ending April 30 would fall well short of Wall Street's consensus estimate of $700 million.

The company is not expected to report its financial results for the fiscal third quarter ended Jan. 31 until early to mid-March. But for the second fiscal quarter ended Oct. 31, it reported net income of $6.1 million (16 cents per diluted share), down from $6.5 million (17 cents a share) in the like year-earlier quarter.

Second-quarter revenues were $173.6 million, vs. $116.3 million in the year-earlier quarter.

Analysts are attributing Korn/Ferry's stock slump to souring economic conditions, particularly in the advanced technology and financial services areas, which are two of its 12 specialty departments.

Despite the hit taken in those sectors, however, revenues are projected to jump from $500.7 million last fiscal year to a record $650 million this fiscal year, according to analysts.

"With technology and financial services, the last three years had been nirvana for executive search firms and (for) Korn/Ferry," said Thatcher Thompson, a business services research director for Merrill Lynch Inc. "I think Korn/Ferry is going through a transition right now. My attitude is to stand on the sidelines and see what emerges. Long term, you can probably do all right. (Those industries) will recover slowly over the next 12 to 18 months."

In the wake of the revised revenue projections, Korn/Ferry on Feb. 6 unveiled its fiscal recovery plan, which included laying off 10 percent of its 2,000-employee workforce and other unspecified across-the-board spending cuts. Its 557 headhunters, however, kept their jobs.

"We've got our costs in line, and we've got each of our practice heads really focused on the marketplace," said Don Spetner, Korn/Ferry's senior vice president of executive search business. "And we have probably the strongest brand in the industry. Historically, we've gained market share in every (economic) downturn."

He said the changes should enable the company to deliver on its revised earnings-per-share projection of 82 to 84 cents for the fiscal year ending April 30. Previously, Wall Street analysts had been expecting $1 per share.

Company officials acknowledged that their operations will likely suffer, as client companies looking to cut their own costs begin to handle lower-level recruiting themselves.

Korn/Ferry's two Internet operations, Futurestep (a joint venture with The Wall Street Journal that finds jobs for middle-level management applicants) and JobDirect (an online service that places recent college graduates and entry-level job seekers) have also been hit.

In another cost-cutting move, 12 percent of the 500-person staff at Futurestep was given pink slips.

Still, analysts said, the executive recruitment arm -- which accounts for 85 percent of the company's revenues -- will continue to thrive because even in a slowing economy, large companies seldom spare any expense in finding the most qualified leaders.

And due to Korn/Ferry's strong reputation, even executives who are happy with their present jobs often return the firm's recruitment calls, according to analysts who cover the company's stock.

"Even if you're ecstatic about your job, you'd be foolish not to return their call and learn more about their spot," said Arnold Ursaner, managing director of CJS Securities Inc. "You know if you get a call from Korn, they focus on the highest-level, most-senior, most-desirable positions. It really is one of their most competitive strengths."

Korn/Ferry, which was founded in 1969 and went public in 1999, placed 9,089 CEOs, CFOs, and other senior-level positions in new jobs during fiscal 2000 and 6,771 the year before.

                         Korn/Ferry International
YEAR (April 30)                 2000    1999
Revenue (millions)            $500.7  $356.1
Operating Expenses (millions)  445.9   410.7
Operating Income (millions)     54.8  (55.6)
Net Income (millions)           30.8  (66.4)
Earnings Per Share             $0.82 ($2.37)

SUMMARY

Business: Executive recruiting

Headquarters: Century City

CEO: Windle B. Priem

Market Cap: $628.1 million

Dividend Yield: N/A [*]

Total Liabilities: $241.6 million

P/E Ratio: 20.34

Long-Term Debt: $19.6 million

(*.) Korn/Ferry does not pay dividends.