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Paychex (PAYX) Q4 Earnings Miss Estimates, Revenues Beat

Zacks Equity Research

Paychex, Inc. PAYX reported mixed fourth-quarter fiscal 2019 results wherein earnings lagged the Zacks Consensus Estimate but revenues surpassed the same.

Adjusted earnings of 63 cents per share missed the consensus estimate by 2 cents but increased on a year-over-year basis. Total revenues of $980.4 billion beat the consensus mark by $2 million and increased year over year.

The company witnessed solid growth in its human resource (“HR”) solutions administrative services organization with double-digit worksite employee growth and solid sales performance in professional employer organization (“PEO”), retirement, and insurance services. The company also recorded solid client retention and customer satisfaction. The company is progressing well with the integration of Oasis.

So far this year, shares of Paychex have rallied 30.2% compared with 27.6% rise of the industry it belongs to and 15.1% increase of the Zacks S&P 500 composite.


Revenues in Detail

Revenues from Management Solutions increased 4% year over year to $694.9 million. The growth was driven by increase in the company’s client base 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 the number of plans served and rise in revenues earned on the asset value of participants’ funds.

PEO and insurance services revenues were $263.3 million, up 67% 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 clients and applicants, partially offset by softness in the workers’ compensation market as state insurance fund rates declined.

Furthermore, interest on fund held by clients increased 25% year over to $22.2 million on higher average interest rates earned. 

Operating Performance

Adjusted operating income increased 4% year over year to $314.5 million. However, adjusted operating income margin declined to 32.1% from 35.7% in the year-ago quarter.

Paychex, Inc. Price, Consensus and EPS Surprise


Paychex, Inc. Price, Consensus and EPS Surprise

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

Paychex’s total expenses rose 22% from the year-ago quarter to $665.9 million.

Balance Sheet & Cash Flow

Paychex exited fiscal fourth-quarter 2019 with cash and cash equivalents and corporate investments of $692.2 million compared with $696.4 million at the end of the prior quarter. The company has no long-term debt.

Cash provided by operating activities was $266.7 million in the reported quarter.

During the reported quarter, the company paid $222.9 million in dividends and repurchased shares worth $24.1 million.

Fiscal 2020 View

Paychex provided its guidance for fiscal year 2020. Total revenues (including interest on funds held for clients) are expected to register 10-11% growth. The company expects PEO and insurance services revenues to register 30% to 35% growth. Management solutions revenues are anticipated to register 4% growth.

Interest on funds held for clients is expected to register 4-8% growth. Effective income tax rate for fiscal 2020 is expected to be in the range of 24-24.5%. Adjusted earnings per share are expected to grow at a rate of 8-9%.

Zacks Rank & Upcoming Releases

Paychex currently carries a Zacks Rank #4 (Sell).

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 second-quarter 2019 earnings reports of key players like TransUnion TRU, Republic Services RSG and Waste Management WM.  While TransUnion will release earnings on Jul 23, Republic Services and Waste Management will report on Jul 25.

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