Korn Ferry Q1 FY27 EPS beats; Q2 guidance misses on AMS acquisition
- Korn Ferry Q1 FY27 adjusted EPS beat at $1.43 vs $1.36 estimate
- Fee revenue grew 7% YoY to $756.5 million for sixth consecutive quarter
- Q2 adjusted EPS guidance of $1.30-$1.40 missed $1.45 analyst estimate
- Company closed AMS acquisition adding ~$650 million in annual fee revenue
- Internal referral rate rose 300 bps to 29.4% of consolidated fee revenue
*this image is generated using AI for illustrative purposes only.
Korn Ferry (NYSE: KFY) shares declined despite a strong first-quarter fiscal 2027 performance that exceeded Wall Street expectations for both earnings and revenue.
The consulting firm’s stock traded lower after management issued second-quarter adjusted earnings per share guidance below analyst estimates, offsetting the positive impact of the quarterly results beat. The pullback followed the recent closure of its acquisition of AMS, which adds approximately $650 million in annual fee revenue.
Financial Performance
Korn Ferry reported adjusted EPS of $1.43, surpassing the $1.36 estimate. GAAP diluted EPS rose 5% year over year to $1.32. Total revenue increased 6.9% to $764.622 million, beating the $739.430 million consensus.
Fee revenue grew 7% to $756.5 million, marking the sixth consecutive quarter of top-line growth. Net income attributable to Korn Ferry increased 4% to $69 million, though the margin narrowed to 9.1% from 9.4%.
Adjusted EBITDA rose 7% to $128.2 million, with the margin holding steady at 17%. Integration and acquisition costs jumped to $7.6 million from $1.5 million in the prior year period.
| Metric | Q1 FY27 | Estimate / Prior | Change |
|---|---|---|---|
| Adjusted EPS | $1.43 | $1.36 | Beat |
| Revenue | $764.6 million | $739.4 million | +6.9% YoY |
| Fee Revenue | $756.5 million | N/A | +7% YoY |
| Adjusted EBITDA | $128.2 million | N/A | +7% YoY |
Regional and Segment Growth
Americas fee revenue led growth, rising 9% to $442.1 million. EMEA fee revenue increased 4% to $227.7 million, while APAC fee revenue grew 1% to $86.7 million.
Profitability diverged across regions. Americas adjusted EBITDA margin improved to 26.3% from 24.9%, whereas APAC’s margin declined to 22.2% from 23.1%.
By solution, Search fee revenue climbed 10% to $307.9 million. Workforce Solutions rose 11% to $189.4 million. Talent & Organizational Solutions remained roughly flat at $259.2 million.
What the Numbers Show
New business momentum remains robust, rising 12% year over year to $832.3 million. This growth is supported by improved productivity, with fee-earner new business productivity increasing to $1.84 million from $1.61 million. Estimated remaining fees under existing contracts also expanded 14% to $1.915 billion, suggesting a durable pipeline for future revenue conversion.
Management highlighted that internal business referral rates increased to 29.4% of consolidated fee revenue, up about 300 basis points year over year. This indicates deepening client relationships and successful cross-selling initiatives following the "We Are Korn Ferry" strategy implementation.
Balance Sheet and Capital Allocation
Korn Ferry ended the quarter with $800.9 million in cash and $398.8 million in long-term debt. The company deployed $54 million during the quarter, comprising $15 million in capital expenditures, $9 million in debt service, and $30 million in dividends.
The firm increased its annual dividend by 15% to $2.20 per share. Management noted that future investable cash will likely be used for debt reduction associated with the AMS acquisition, though share buybacks remain an option if the share price becomes attractive.
Outlook and AMS Acquisition
The stock pullback followed second-quarter adjusted EPS guidance of $1.30-$1.40, missing the $1.45 estimate. Korn Ferry expects Q2 fee revenue of $860 million to $878 million and an adjusted EBITDA margin of 16.8% to 17.2%.
This outlook includes two months of results from the AMS acquisition, which closed on September 1. CEO Gary D. Burnison stated that AMS brings operational capability and technology-enabled talent solutions at scale. Management expressed confidence in achieving a $40 million increase in AMS-related EBITDA within a year, emphasizing a focus on revenue synergies rather than just cost cuts.
The guidance assumes no further changes in geopolitical conditions, economic conditions, financial markets, or foreign exchange rates.
How will the integration of AMS impact Korn Ferry's adjusted EBITDA margins in the near term, given the current guidance miss and historical integration costs?
Can Korn Ferry sustain its 12% new business growth momentum if geopolitical or economic conditions deteriorate from the assumptions made in their Q2 outlook?
What specific operational synergies is management prioritizing to achieve the targeted $40 million EBITDA increase from AMS within the first year?
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