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Paychex (PAYX) Earnings & Revenues Beat Estimates in Q1

Zacks Equity Research

Paychex, Inc. PAYX reported solid first-quarter fiscal 2020 results wherein both earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings of 71 cents per share outpaced the consensus estimate by 2 cents and increased 6% on a year-over-year basis. Total revenues of $992 billion beat the consensus mark by $1.1 million and increased 15% year over year. Oasis acquisition (completed during December 2018) contributed less than 10% to top-line growth in the reported quarter.

The company witnessed solid growth in its human resource (“HR”) outsourcing services, time and attendance solutions, and retirement services and professional employer organization (“PEO”) business.

So far this year, shares of Paychex have rallied 25.7% compared with 23.6% rise of the industry it belongs to and 16% increase of the Zacks S&P 500 composite.


 Revenues in Detail

Revenues from Management Solutions increased 5% year over year to $724.5 million. The growth was driven by increase in the company’s client base across many of its services and growth in revenue per client (on the back of price increases, net of discounts). Under Management Solutions, retirement services’ revenues benefited from an increase in the asset fee revenues earned on the asset value of participants’ funds.

PEO and insurance services revenues were $247 million, up 56% from the year-ago quarter. The uptick was driven by contribution from Oasis acquisition and growth in clients and client worksite employees across the company’s PEO business. Insurance Services revenue growth was driven by rise in the number of health and benefit clients and applicants, partially offset by softness in the workers’ compensation market as state insurance fund rates declined.

Furthermore, interest on funds held for clients increased 20% year over to $20.5 million on higher average interest rates earned. 

Operating Performance

Operating income increased 9% year over year to $349.1 million. However, operating income margin declined to 35.2% from 37.1% in the year-ago quarter.

EBITDA of $403.0 million improved 13% year over year. EBITDA margin of 41% was flat year over year.

Paychex’s total expenses rose 18% from the year-ago quarter to $642.9 million.

Paychex, Inc. Price, Consensus and EPS Surprise


Paychex, Inc. Price, Consensus and EPS Surprise

Paychex, Inc. price-consensus-eps-surprise-chart | Paychex, Inc. Quote

Balance Sheet & Cash Flow

Paychex exited fiscal first-quarter 2020 with cash and cash equivalents of $586.4 million compared with $673.6 million at the end of the prior quarter. Cash provided by operating activities was $294.8 million in the reported quarter.

During the reported quarter, the company paid $222 million in dividends and repurchased shares worth $171.9 million.

Fiscal 2020 View

For fiscal year 2020, Paychex expects PEO and insurance services revenues to register 30% growth compared with the prior guided growth rate of 30-35%. Management solutions revenues are anticipated to register 5% growth compared with the prior guided growth rate of 4%. Adjusted earnings per share are expected to register 9% growth compared with the prior guided growth rate of 8-9%.

Zacks Rank & Upcoming Releases

Paychex currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Zacks Business Services sector are keenly awaiting third-quarter 2019 reports from key players like TransUnion TRU, Republic Services RSG and Waste Management WM. While TransUnion will release earnings on Oct 22, Republic Services and Waste Management will report on Oct 30 and Oct 23, respectively.

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