Korn Flakes Q1 ended on 31 July. The facts:

- Year to year revenue dropped 39%, to 123.3 Mio USD from 217.5 Mio USD, compared to Q4 FY2009 revenue grew net 4% (excluding results from an acquisition earlier this year).

- KFY posted a net loss of 14.3 Mio USD, compared to net profit of 15 Mio USD a year ago, and a to loss of 17.2 Mio USD  last quarter. This includes restructuring costs. Adjusted, the net loss from operations is 2.3 Mio USD.

- The KFY CEO sees the firm entering an overal period of "stabilization" whereby restructuring lowered expenses, and will bring more diversified revenue streams. One positive evolution amongst all the grim news is the fact total fee revenue went up slightly.

My take is that the tremendeous brand equity of Korn Ferry helps the firm taking in high value assignments, compensating for the significant shrinkage in middle management positions. The bloodletting is over, and the firm can now slowly start to rebuild.

The company announced its Q4 results and they are worse than analyst expectations, as I predicted earlier. A recent restatement made the loss a tad easier to bear, but still, it's not well at the big ES firms.

KFY Revenue fell 48% compared to the same quarter previous FYI. Ouch!  expect the summer won't bring much solace in the form of "improved" revenue and margins. Korn Flake made a loss for its fiscal year, and IMHO next quarter won't be much better either.

The firm warned in its 10K - despite a reserve of over 200 Mio USD in cash that:

The operating environment for the Company’s suite of services deteriorated rapidly in the second half of fiscal 2009. In response to the uncertain economic environment and labor markets, the Company has taken steps to align its cost structure with anticipated revenue levels, in an effort to retain positive cash flow. Continued adverse changes in the Company’s revenue, however, could require us to institute additional cost cutting measures, and to the extent our efforts are not quick or deep enough, we may incur negative cash flows, which if persist, would require us to obtain additional financing to meet our needs.

The 10K filing to the SEC can be found here, and provides much more juicy details for those willing to look at the financials and breakdown of fees and margin by region (EMEA is abysmal low in terms of margin).

Analysts, tea-leaf readers and occultists with a boon for the stockmarket should expect a quarter more of the same. The next earnings announcement of Heidrick & Struggling will bring much insight.

Reuters reported that UBS raised its outlook on 4 US employment stocks.

NAME RIC RATING

New Old

Heidrick & Struggles International (HSII.O) Neutral Sell

Korn/Ferry International (KFY.N) Neutral Sell

Robert Half International Inc (RHI.N) Buy Neutral

Manpower Inc (MAN.N) Buy Neutral

What does this mean ?

Staffing companies became "Buy", while the two leading executive search firms are now "Neutral". Yawn. Yes, the market is "steadying", and the overall outlook of opinion makers turns optimistic.

I was in a conference last week in Istanbul featuring Prof. Steve Hanke on the Economic Crisis, its causes, effects and the so-called "New World Order" resulting out of it. Professor Hanke, a former economics advisor to US presidents, saw light at the end of the tunnel - though he started his speech claiming that 95% of what you read about economics is wrong.

Yes, the overall psychological mood, the absolutely necessary requirement and ingredient for economic recovery, is improving. Now what about the upgrades of the venerable analysts? A "Sell" simply means get rid of the stock, the upgrade to "Neutral" is an upgrade to an euphemism saying just the same. Don't spend your dimes buying those stocks.

My take is that the pain for Korn Flakes and Heidrick & Struggling will continue, and worsen. Both will undoubtly report results that trail behind the "steadying" market. Furthermore, that market itself is by far not a return too good ol' 2006 and 2007. In this light the neutral rating says more about the mindset of the analyst themselves, and reflects a cautious consensus the worst is behind us.

The musings of analysts on Korn Flake (KFY) - from Zacks Investment Research:

Korn Flake's third fiscal quarter will end 31 April, and analysts see a the company reporting a loss, with a likelihood to return into the black at the end of its fiscal year.

My take is that its loss will be below the estimated average, and Korn will continue to bleed into the next quarter. That's my cautious estimate based on the fact that the firm has the majority of its revenues in the US and Western Europe, two markets where hiring is not yet following stock markets trends. The freeze has definitely not yet turned into a thaw. But again, that's my bet.

The coming earnings conference call will yield more insights on how Korn will fare for the reminder of the year.

Now let's have a look at Heidrick & Struggeling (HSII)

Although earnings estimates for both firms follow similar trends, Heidrick is rated by analysts following the firm as a strong sell; while Korn is still regarded as a stock to "hold" on to. IMHO this an indication of a smell in the air that worse is still to come, an omen not yet picked up by those reading the tea leaves on Korn's future fortunes. Heidrick will announce its first quarter results soon, on Tuesday 28th April.

I bet my penny both Korn and Heidrick will sink further in the dolldrums, and the impact of the crisis in the US and Western Europe will catch up with their balance sheets and analysts alike. Note that a major source of inordinate fat fees completely imploded, i.e. banking, private equity and venture capital which made up a large share of billing in their New York, London, Frankfurt and Hong Kong offices.

Spring will be interesting. Stay tuned.

Our good friends at the expensive search firm Korn Flake conducted an equiz, and found that

Despite Acknowledging the 'Severe Recession,' Percentage of Executives Who Believe the Economy is Recovering Nearly Doubled in March

Nearly doubled? Yeah. From 7% to 13%. The moods of the executive participants in the equiz improved.  Do they piggy-back the stock index?

Quoting the above, a thought came up. When global search firms are press-releasing mellow platitudes as news, I believe we are still a long way from hearing champagne bottles uncork on their side of the Atlantic.

Apart from patting their own backs, it seems to me their cheerleader  still suffers from a heavy hangover.

On our side, I can confirm that we see since March a clear and steady growth in search assignments, with the trend accelerating in April. This applies for the region we focus on, mainly CEE and MEA. I have no idea yet if the US or Western Europe follow suit. The possible reasons for this bounce are manifold:

• The multiple non-integrated economies we are active in are somehow resistant to the bug that sickens the US and Western Europe.
• Multinational clients prioritize developing their talent pool in the emerging market zone.
• Global firms are replacing expensive expatriates with less expensive, but equally qualified local talent.
• We kick butt, we are lucky, maybe both. I can't stop wondering what the talent index of Heidrick & Struggeling would predict for our part of the world, anyone?

And now for something completely different.

Mr. Joe Griesedieck, vice chairman and managing director, CEO Services for Korn Flake sees executives as "conflicted" about the relationship between government and business. Anyhow, in his generosity he concludes the press release by sharing with all of us the following gem of executive insight:

“What executives do agree upon is that consumers, business and government all play vital roles in our recovery.”

I could not agree more. Yawn.