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Korn Ferry (KFY) Faces Headwinds in Q2 FY'24 with Fee Revenue Dip and Net Loss

  • Korn Ferry (NYSE:KFY) reports a 3% year-over-year decrease in Q2 FY'24 fee revenue, totaling $704.0 million.

  • Net loss attributable to Korn Ferry stands at $1.7 million, including significant restructuring charges.

  • Adjusted EBITDA reaches $98.5 million with a margin of 14.0%, while the company announces an 83% dividend increase.

On December 6, 2023, Korn Ferry (NYSE:KFY) released its 8-K filing, revealing a challenging second quarter for fiscal year 2024. The global organizational consulting firm reported a slight decrease in fee revenue and a net loss, primarily due to restructuring actions aimed at realigning the workforce in response to the current macroeconomic environment.

Financial Performance Overview

Korn Ferry (NYSE:KFY) experienced a 3% decrease in fee revenue compared to the same quarter last year, with a reported $704.0 million in Q2 FY'24. This decline was mainly due to reduced demand in permanent placement talent acquisition offerings, including Executive Search, Professional Search Permanent Placement, and Recruitment Process Outsourcing (RPO), amidst global economic pressures. However, the firm saw resilience in its Consulting and Digital businesses, each growing by nearly 3% year-over-year.

The company's operating margin for the quarter was 3.2%, a significant drop from 16.4% in the previous year's quarter. Adjusted EBITDA was $98.5 million with a margin of 14.0%, compared to $131.1 million and a margin of 18.0% in Q2 FY'23. The net loss attributable to Korn Ferry was $1.7 million, including a substantial $52.8 million charge, net of tax, primarily related to restructuring. This contrasts with a net income of $73.5 million in the same period last year.

Segment Performance and Restructuring Impact

Consulting fee revenue increased modestly to $177.8 million, while Digital also saw a rise to $97.1 million. Executive Search, however, faced a downturn with fee revenue dropping by 7% to $203.0 million, reflecting the impact of economic uncertainty on executive search activities. Professional Search & Interim reported a 3% increase in fee revenue to $138.4 million, and RPO experienced an 18% decrease to $87.7 million due to reduced client demand.

The restructuring charges, which amounted to $63.5 million, were a significant factor in the quarter's financial results, as Korn Ferry sought to align its workforce with the challenging economic landscape.

Dividend Increase and Future Outlook

In a positive move for shareholders, Korn Ferry announced an 83% increase in its regular quarterly cash dividend to $0.33 per share. Looking ahead, the company expects Q3 FY'24 fee revenue to be in the range of $645 million to $665 million, with diluted earnings per share between $0.87 to $0.95. On an adjusted basis, diluted earnings per share are projected to be between $0.96 to $1.02.

Conclusion

While Korn Ferry navigates through economic headwinds, the firm's strategic restructuring and the resilience of its Consulting and Digital segments showcase its adaptability. The increase in dividend also reflects confidence in the company's financial stability and commitment to shareholder value. Investors and stakeholders will be watching closely to see how these strategic moves play out in the coming quarters.

For a detailed breakdown of Korn Ferry's financials and further insights into their performance, readers are encouraged to view the full earnings report and accompanying financial tables.

Explore the complete 8-K earnings release (here) from Korn Ferry for further details.

This article first appeared on GuruFocus.

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