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Deficit Widens for Search Firm as Its Fees Sink

September 11, 2003|Ronald D. White | Times Staff Writer

The jobless recovery is hurting the bottom line at Korn/Ferry International, the Los Angeles-based executive recruiting firm.

The company on Wednesday reported a loss of $9.2 million, or 25 cents a share, for its fiscal first quarter ended July 31. That contrasts with a loss of $583,000, or 2 cents, in the year-ago period.

Revenue fell 13% to $89.8 million.

Korn/Ferry stock dropped 7%, or 72 cents, to $9.95 on the New York Stock Exchange.

Korn/Ferry, the world's second-largest executive search firm, attributed $8.5 million of its quarterly losses to restructuring costs, including severance pay related to 160 job cuts.

But at the root of the firm's poor quarter is a tight job market. Korn/Ferry said its executive recruitment fees fell by 14% in the U.S. and 18% in Europe.

"While there appears to be more activity in the market, we have yet to see a broad increase in employment activity," Korn/Ferry Chairman and Chief Executive Paul C. Reilly said in a statement.

The U.S. economy lost a net 93,000 jobs last month, which brought to 437,000 the net number of jobs lost since the beginning of the year. The job losses have occurred despite growth in the economy overall.

"This so far has been a jobless recovery," said Daniel Blake, director of the San Fernando Valley Economic Research Center. "There just aren't a lot of people moving around."

Other headhunting firms also are feeling the strain.

"The economy and the market turning around will eventually produce more executive jobs, but it has been a very difficult period of time," said Fran Pomerantz, managing director of Pomerantz Group in Santa Monica, a boutique executive search firm for media and entertainment technology companies.

Executive search firms typically lag behind economic recoveries by six to nine months, noted analyst Bob Labick of CJS Securities in White Plains, N.Y. By cutting costs, Korn/Ferry has positioned itself for a profitable second quarter, said Labick, who does not hold shares in the company.

Even so, it's not clear when companies will hire again "either on the factory floor or up where the big boys and girls play" in the executive suites, said Ken Goldstein, an economist at the New York-based Conference Board.

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