Heidrick & Struggles Hammered

Heidrick & Struggles (HSII) sank 9% late Wednesday after the executive search firm said profit margins in its fourth quarter were hit by management shakeups.

The Chicago-based company expects to report revenue at the high end of its previous guidance, which called for a top line of $465 million to $475 million. But the company said it expects its operating margin to be 10%, below its previous 11%-12% guidance.

Heidrick cited $5 million in severance expense associated with a realignment of management responsibilities for the new CEO's senior team and a realignment of management in Germany. The operating margin was also hit by $3 million in added travel expenses, fees for professional services and marketing costs.

"While we are disappointed to report a lower than expected operating margin for 2006, we are confident that the actions taken in the fourth quarter better position Heidrick & Struggles for increased profitable growth in 2007," said CEO Kevin Kelly. "We have new management in all three regions focused on accelerating revenue growth, improving our operating margins, and ensuring that our new consultants are successful. We are also very encouraged by our achievements in integrating Highland Partners since acquiring the company on October 2, 2006. Current business trends point to continued demand for executive search and leadership consulting services and we hope to take an increasing share of this market."