Korn/Ferry now flies high after getting a slow start.

The global labor shortage, especially for high-level corporate talent, has been a source of major headaches for countless businesses. But it is fueling great times at Century City-based Korn/Ferry International.

The performance of the world's largest executive search firm, along with its Internet subsidiary Futurestep, has started to wake up investors.

In the last two months, the stock has shot up 90 percent, from $12.94 a share on Aug. 5 to $24.56 as of Oct. 5. The steep ran-up is a striking turnaround from the Feb. 17 initial public offering, which went out at $14 a share and closed that day at $11.56. The IPO, originally slated for fall 1998, was delayed after market jitters prompted many companies to postpone such offerings. In recent weeks, those jitters have returned, but Korn/Ferry's stock keeps chugging along.

"Our IPO was met with lukewarm response because people didn't understand the industry very well, and Futurestep was in its infancy so investors had a wait-and-see attitude," said James E. Boone, president of the company's North and Latin American regions. "Now the Street is starting to see what the marriage of Korn/Ferry is all about."

The stock surge comes on the heels of the 30-year-old company's record first-quarter results, which surprised analysts.

For the first quarter ended July 31, net income was $5.6 million (15 cents per share), compared with $1.5 million (5 cents) for the like period a year ago. Revenues were $104.8 million, up from $84.7 million.

The first-quarter earnings of 15 cents a share beat analysts' consensus expectations of 11 cents, according to Zacks Investment Research Inc. It was especially well received after Korn/Ferry had posted a $66.4 million net loss in 1999 - arising from non-recurring, onetime charges following the stock offering.

The stock surge parallels a series of acquisitions. In July, it bought Levy-Kerson, which specializes in finding executives for retail and fashion companies. And last month, it bought two companies - London-based PA Consulting Group and Pearson Caldwell & Farnsworth of San Francisco.

In addition, Futurestep, an online search service for mid-level managers, recently announced a partnership with America Online to provide weekly updated career information for AOL's Workplace Channel. Futurestep also entered into a multi-year, multimillion-dollar deal with Ernst & Young to provide the accounting firm with a primary tool for e-cruiting professionals.

"We raised our estimates from 67 cents to 75 cents for fiscal 2000," said Arnold Ursaner, managing director of CJS Securities in White Plains, N.Y. "If they announce more of these contracts, it will change the business model of search firms from one-time transactions to multi-year products."

With the buoyant economy and tight labor market, executive search firms - including other industry giants such as Heidrick & Struggles International and Spencer Stuart - are doing well. These companies place upper-level executives in jobs that pay upward of $100,000.

U.S. search firm revenues have tripled from $3.3 billion in 1992 to a projected $9.5 billion this year, according to Kennedy Information, a Fitzwilliam, N.H.-based search and consulting specialist.

Analysts caution that the rate of growth is slowing, as mergers cut potential job openings and smaller search firms attract more clients. The largest 40 search firms' aggregate revenues grew by 14 percent last year, down from 27 percent in 1997.

Yet Boone argued that demand for topnotch talent is consistent, through good times and bad. "There is always a war for talent going on to fuel business enterprises, even when the economy is bad," he said. "It's then when you need good leaders to get through the long haul."

In response to Internet demand, Korn/Ferry launched its subsidiary Futurestep last July, the first full-service search firm to go online.

Futurestep generated revenues of $1.8 million in 1998, and analyst John Hillenbrand at Credit Suisse First Boston projects revenues to hit $17 million in 1999 and $57 million in 2000. He does project a net loss of 27 cents per share in 1999, but earnings of 3 cents a share in 2000.

Korn/Ferry International

YEAR (April 30)                           1999            1998

Revenue (millions)                      $373.1            $315
Operating Expenses (millions)            317.7           282.4
Operating Profit (millions)             (50.4)            18.2
Net Income (millions)                   (66.4)             5.2
Earnings Per Share                     ($2.37)           $0.23

SUMMARY

Business: Executive search

Headquarters: Century City

CEO: Windle B. Priem

Market Cap: $892 million

Dividend Yield: N/A(*)

Total Liabilities: $70.9 million

P/E Ratio: 31.9

Long-Term Debt: $1.4 million

* Korn/Ferry does not pay dividends