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Paychex (PAYX) Q3 Earnings In Line, Revenues Beat Estimates

Zacks Equity Research

Paychex, Inc.’s PAYX third-quarter fiscal 2019 earnings matched the Zacks Consensus Estimate while revenues surpassed the same.

Adjusted earnings of 89 cents per share came in line with the consensus estimate and improved 3% on a year-over-year basis. Total revenues of $1.07 billion beat the consensus mark by $35.5 million and increased 14% year over year.

The company posted strong growth across major human capital management ("HCM") product lines driven by solid performance of human resource outsourcing services, time and attendance solutions, health and benefit insurance and retirement services. The company continued to witness solid demand for its professional employer organization ("PEO") services.

New product and mobility application enhancements for clients were unveiled. The company is progressing well with the integration of Oasis. The acquisition of Oasis boosted Paychex’s PEO growth.

Over the past, shares of Paychex have gained 32.2% compared with 20.6% rise of the industry it belongs to and 7.9% increase of the Zacks S&P 500 composite.

 

Revenues in Detail

Revenues from Management Solutions improved 4% year over year to $801.6 million. The growth was driven by increases in the company’s client bases across many of its services and growth in revenue per check (on the back to price increases, net of discounts). Under Management Solutions, retirement services revenues benefited from an increase in asset fee revenues earned on the asset value of participants’ funds.

PEO and insurance services revenues were $245.8 million, up 65% from the year-ago quarter. Clients and client worksite employees increased across the company’s PEO business. Insurance Services revenue growth was driven by rise in the number of health and benefit applicants, partially offset by softness in the workers’ compensation market as state insurance fund rates declined.

Furthermore, interest on fund held by clients increased 27% year over to $23 million on higher average interest rates earned. 

Operating Performance

Adjusted operating income increased 7% year over year to $429.3 million. However, adjusted operating income margin declined to 40.1% from 42.9% in the year-ago quarter.

Paychex’s total expenses rose 13% from the year-ago quarter to $641.1 million.

Paychex, Inc. Price, Consensus and EPS Surprise

Paychex, Inc. Price, Consensus and EPS Surprise | Paychex, Inc. Quote

 

Balance Sheet & Cash Flow

Paychex exited fiscal third-quarter 2019 with cash and cash equivalents and corporate investments of $696.4 million compared with $510.6 million at the end of the prior quarter. The company has no long-term debt.

Cash provided by operating activities was $525.6 million in the reported quarter. Capex was $27.2 million.

During the reported quarter, the company paid $201.2 million in dividends.

Fiscal 2019 Outlook

Paychex reaffirmed its guidance for fiscal year 2019. Total revenues (including interest on funds held for clients) are expected to register 6-7% growth. The company continues to expect PEO and insurance services revenues to register 18% to 20% growth. Management solutions revenues are anticipated to register 4% growth.

Interest on funds held for clients is expected to register 20-25% growth. Effective income tax rate for fiscal 2019 is expected to be approximately 24%. Adjusted earnings per share are expected to grow at a rate of 11-12%.

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 first-quarter 2019 earnings reports from key players like Republic Services RSG, Waste Management WM and Waste Connections WCN.  While Waste Connections will release earnings on Apr 24, Republic Services and Waste Management will report on Apr 25.

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