Korn Ferry (KFY)

Organizational consulting firm Korn Ferry (NYSE:KFY) beat Wall Street’s revenue expectations in Q4 CY2024, but sales were flat year on year at $676.5 million. On the other hand, next quarter’s revenue guidance of $690 million was less impressive, coming in 1.3% below analysts’ estimates. Its non-GAAP profit of $1.21 per share was 7% above analysts’ consensus estimates.

Company Overview

With clients including 97% of the S&P 100 and operations in 103 offices across 51 countries, Korn Ferry (NYSE:KFY) is a global consulting firm that helps organizations design optimal structures, recruit talent, develop leaders, and create effective compensation strategies.

The Professional Staffing & HR Solutions subsector within Business Services is set to benefit from evolving workforce trends, including the rise of remote work and the gig economy. With companies casting a wider net to find talent due to remote work, the expertise of staffing and recruiting companies is even more valuable. For those who invest wisely, the use of predictive AI in recruitment and screening as well as automation in HR workflows can enhance efficiency and scalability. On the other hand, digitization means that talent discovery is less of a manual process, opening the door for tech-first platforms. Additionally, regulatory scrutiny around data privacy in HR is evolving and may require companies in this sector to change their go-to-market strategies over time.

Korn Ferry competes with global consulting firms like Aon, Mercer, Willis Towers Watson, McKinsey, and Deloitte in the organizational consulting space. In executive search, its competitors include Egon Zehnder, Heidrick & Struggles, Russell Reynolds Associates, and Spencer Stuart.

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $2.74 billion in revenue over the past 12 months, Korn Ferry is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, Korn Ferry’s 6.2% annualized revenue growth over the last five years was decent. This shows its offerings generated slightly more demand than the average business services company, a useful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Korn Ferry’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 2% over the last two years.

This quarter, Korn Ferry’s $676.5 million of revenue was flat year on year but beat Wall Street’s estimates by 2.8%. Company management is currently guiding for a 1.4% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3.7% over the next 12 months. Although this projection indicates its newer products and services will fuel better top-line performance, it is still below the sector average.

Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.

Korn Ferry has managed its cost base well over the last five years. It demonstrated solid profitability for a business services business, producing an average adjusted operating margin of 13.3%.

Looking at the trend in its profitability, Korn Ferry’s adjusted operating margin rose by 2.6 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q4, Korn Ferry generated an adjusted operating profit margin of 12.5%, up 3.9 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Korn Ferry’s EPS grew at a decent 8.7% compounded annual growth rate over the last five years, higher than its 6.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Korn Ferry’s earnings can give us a better understanding of its performance. As we mentioned earlier, Korn Ferry’s adjusted operating margin expanded by 2.6 percentage points over the last five years. On top of that, its share count shrank by 3.5%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q4, Korn Ferry reported EPS at $1.21, up from $1.09 in the same quarter last year. This print beat analysts’ estimates by 7%. Over the next 12 months, Wall Street expects Korn Ferry’s full-year EPS of $4.91 to grow 4.2%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Korn Ferry has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.2% over the last five years, quite impressive for a business services business.

Taking a step back, we can see that Korn Ferry’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

Korn Ferry’s free cash flow clocked in at $196.4 million in Q4, equivalent to a 29% margin. This result was good as its margin was 6.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Korn Ferry’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 16.4%, slightly better than typical business services business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Korn Ferry’s ROIC averaged 4.6 percentage point decreases over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Companies with more cash than debt have lower bankruptcy risk.

Korn Ferry is a profitable, well-capitalized company with $820 million of cash and $434.3 million of debt on its balance sheet. This $385.6 million net cash position is 11.6% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Korn Ferry beat analysts’ revenue expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its revenue guidance for next quarter slightly missed. Overall, this quarter had some key positives. The stock remained flat at $64.29 immediately after reporting.

Updated: May 23, 2025 at 12:00 AM EDT

When considering an investment in Korn Ferry, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Korn Ferry falls short of our quality standards. Although its revenue growth was good over the last five years, it’s expected to deteriorate over the next 12 months and its diminishing returns show management's prior bets haven't worked out.

Korn Ferry’s P/E ratio based on the next 12 months is 13.3x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $78.75 on the company (compared to the current share price of $68.15).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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