Paychex (PAYX) Q4 Earnings Match Estimates, Revenues Beat
Paychex, Inc.’s PAYX fourth-quarter fiscal 2020 adjusted earnings of 61 cents per share came in line with the Zacks Consensus Estimate but decreased 3.2% on a year-over-year basis. Total revenues of $915.1 billion beat the consensus mark by 0.4% but decreased 7% year over year.
Quarterly results were weighed down by coronavirus-led lockdowns, which prompted businesses to suspend operations.
Over the past year, shares of Paychex have declined 8.3% compared with 10.2% decline of the industry it belongs to, and 7.4% increase of the Zacks S&P 500 composite.
Revenues in Detail
Revenues from Management Solutions decreased 6% year over year to $661.8 million. The downfall was due to a decline in check volumes, partially offset by increased penetration of retirement services and time and attendance services. The decrease in check volumes was owing to a reduction in the number of clients processing payrolls and the number of employees paid due to the shutdown.
Professional employer organization (“PEO”) and insurance services revenues were $228 million, down 11% from the year-ago quarter. The downfall was due to a decline in the number of worksite employees serviced by existing clients. Insurance Solutions revenues were impacted by a decline in the number of health and benefit applicants and loss in workers’ compensation premiums.
Interest on funds held for clients increased 14% year over year to $25.3 million on higher realized gains, which were partially offset by lower average investment balances and average interest rates. The realized gains came from the strategic repositioning of client fund portfolio to enhance liquidity in response to coronavirus-related uncertainties. Funds held for clients’ average investment balances were impacted by lower client fund collections due to coronavirus and changes in client-base mix, partially offset by wage inflation and timing of collections and remittances.
Paychex, Inc. Revenue (TTM)
Paychex, Inc. revenue-ttm | Paychex, Inc. Quote
Operating Performance
Operating income decreased 5% year over year to $299.6 million. Operating margin rose to 32.7% from 32.1% in the year-ago quarter.
EBITDA of $351 million decreased 5% year over year. EBITDA margin came in at 38.4% compared with 37.9% in the year-ago quarter.
Paychex, Inc. Price, Consensus and EPS Surprise
Paychex, Inc. price-consensus-eps-surprise-chart | Paychex, Inc. Quote
Balance Sheet & Cash Flow
Paychex exited fourth-quarter fiscal 2020 with cash and cash equivalents of $905.2 million compared with $780 million at the end of the prior quarter. Long-term debt was $796.8 million compared with $796.7 million in the prior quarter. Cash provided by operating activities was $388.2 million in the reported quarter.
During the reported quarter, the company paid out $222.6 million in dividends.
Fiscal 2021 View
For fiscal 2021, total revenues are expected to decline 2-5%. Adjusted earnings per share are anticipated to fall 6-10%. Adjusted operating margin is expected in the band of 34-35%. Adjusted EBITDA margin is expected to be between 39 and 40%. Effective income tax rate is projected in the range of 24.5-25%.
Paychex expects PEO and insurance services revenues to decline 2-7%. Management solutions revenues are anticipated to decline 1-4%. Interest on funds held for clients is expected to be between $55 and $65 million.
Currently, Paychex carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Business Services Companies
S&P Global Inc.’s (SPGI) first-quarter 2020 adjusted earnings per share of $2.73 beat the consensus mark by 15.7% and improved 29.4% year over year on the back of revenue growth, benefits of productivity initiatives and reduced business travel. The stock currently carries a Zacks Rank #3.
IQVIA Holdings Inc.’s IQV first-quarter 2020 adjusted earnings per share of $1.50 beat the consensus mark by 1.4% but decreased 1.9% on a year-over-year basis. The reported figure was within the guided range of $1.46-$1.51. The stock currently carries a Zacks Rank #3.
Insperity, Inc.’s NSP first-quarter 2020 adjusted earnings of $1.70 per share beat the consensus mark by 5.6% but decreased 14.1% year over year. The reported figure matched the higher end of the guided range of $1.61-$1.70. The stock currently carries a Zacks Rank #3.
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