The Struggling Struggle of Heidrick & Struggles

In my previous post I outlined how Heidrick blew away analysts' expectations. The company disclosed a much higher loss, one that was higher than the most pessimistic analyst dreamed to imagine. Besides a loss, Heidrick experienced a sharp revenue drop, and brutally hemorrhaged cash.

The question now is what can be expected for the remainder of 2009. Though I do not have a crystal ball, a broad trend can be discerned. Let's start with the folks of Heidrick.

I quote Mr. Kelly, CEO of Heidrick during the conference call of yesterday:

Even if the level of first quarter search confirmations persists through the remainder of the year, our goal at the operating income line is to run the business at a minimum of breakeven, excluding restructuring charges.

For this the firm will need to cut further costs dramatically; and this will only be possible by laying off people, even closing down offices. The firm for that purposes expects to rake up an additional 6 to 10 Million USD in restructuring charges.

Mr. Kelly again:

Search confirmations hit a low in December and showed a modest but steady improvement through March. However, the improvement was not as strong as we had anticipated and operating losses in each region were a result of a cost structure that, despite cost-cutting initiatives, was not supported by first quarter revenue.

Based on the above we can expect another slight loss excluding restructuring charges. I reckon  when the results of this quarter (Q2 2009) will show how the low of December carried itself through in January and February, ticking up slowly in March.

Therefore part of the revenue of Q1 was generated by Q4 of 2008; as assignments usually take 3-4 months to conclude. The full extent of the pain will become clear in Q2 2009. A small amount of new search assignments in Q2, combined with a further drop in overall search fees (depends how Heidrick will be able to resist slashing prices), does not bode well for Q2. The operational loss will probably between 30 cents and 50 cent per share, with another 40 to 50 cent.

My penny and guess for this quarter is a total loss in the neighbourhood of 80 cent.