Its mixed quarterly results and guidance, together with some cautious commentary during the earnings call, provide another data point indicating that economic conditions have slowed.
For the quarter, KFY generated EPS of $0.88, in line with consensus, with revenue up a modest 3.2% yr/yr to $490.8 mln, coming up short of the $496.8 mln expectation.
Click here to access KFY's earnings report.
After seven straight quarters of beating analysts' revenue expectations, KFY has now missed the top-line number in back-to-back quarters.
Perhaps more concerning, its revenue growth rate has decelerated for five straight quarters, going from the mid-to-upper teen levels to a low single digit rate.
New business for its largest segment, Advisory, was up 2% on a constant currency basis. Executive search grew by 4% while Recruitment Process Outsourcing (RPO) was the clear outperformer, up 25%. However, RPO is the smallest segment for KFY, representing about 16% of total new awards.
Looking ahead, KFY anticipates strong growth to continue for its RPO business.
Enterprises might find implementing an RPO model to be attractive because it essentially eliminates the need to hire its own in-house HR/recruiting staff. Not only does an RPO firm find and hire employees, but they also take a more permanent role by monitoring turnover, implementing technology, and taking responsibility for virtually all employment functions.
Its other segments aren't as favorably aligned.
During the earnings call last night, its CEO, Gary Burnison, provided some interesting commentary regarding business trends and the global economy.
He noted that new business awards for Executive Search were solid in April at +5%, but were up only 1% in May. The Advisory segment experienced a more significant drop-off, going from +5% to -7% in May.
Mr. Burnison also stated, "... I think U.S. GDP growth is going to be substantially less this quarter than last quarter. Clearly, the trade skirmish has impacted business in China, and it's also impacted our industrial search business in the United States, that's not coincidental. There's tremendous decoupling of supply chains in China."
Consequently, KFY issued disappointing guidance for Q1, seeing EPS of $0.73-$0.81 vs. the $0.80 consensus and revenue of $466-$486 vs. the $489 mln consensus.
While KFY is taking a more cautious approach to its outlook, it is not forecasting a major collapse of economic conditions as it expects central banks to remain accommodating this year.
Key Takeaways: KFY is a good barometer for the overall health of the global economy. Its sliding top-line growth rates, soft Q1 guidance, and commentary indicate that the climate has cooled.
Its RPO segment and diversification of services should help it weather an economic slowdown, but the company's financial performance is still highly correlated to the health of the global economy.