Paychex Beats, Revenue Improves (revised) - Analyst Blog
29 Marzo 2012 - 5:10AM
Zacks
Paychex Inc. (PAYX) reported third-quarter
fiscal 2012 earnings of 37 cents per share, beating the Zacks
Consensus Estimate of 34 cents. The company witnessed revenue
improvement across all its segments and displayed a good operating
performance.
Revenues
Paychex reported third-quarter 2012 revenues of $569.5 million, up
7.2% from $531.3 million in the year-ago quarter. The
year-over-year upside can be attributed to growth in Payroll
service revenue and Human Resource service revenue.
Payroll Service segment revenue increased 5.5% year over year to
$386.5 million. Excluding the contribution from SurePayroll,
Payroll service revenue growth was 4.0%, mainly attributable to the
increase in checks per payroll and a modest rise in revenue per
check. Revenue generated per issued check was impacted by price
increases, partially offset by discounting.
Human Resource Services segment generated $172.0 million in
revenues, up 12.3% from the prior-year quarter. The improvement was
partly based on the contribution from ePlan Services. Excluding
ePlan, the segment revenue growth for the third quarter stood at
10%, reflecting client growth and price increases.
Operating Results
In the third quarter, Paychex incurred total expense of $359.1
million, up 8.0% from the year-ago quarter. The rise was mainly due
to higher selling, general and administrative expenses.
Operating income was $210.4 million, up 5.8% from the year-ago
period, attributable to modest revenue growth and better cost
management. Operating margin was 36.9% versus 37.4% in the year-ago
quarter.
Net income of $135.4 million in the reported quarter reflected a
3.7% increase from $130.6 million in the prior-year quarter. Net
income per diluted share was 37 cents compared with 36 cents in the
year-ago quarter. There was no one-time item during the
quarter.
Balance Sheet
Paychex exited the third quarter with cash and cash equivalents of
$146.5 million, down from $96.1 million at the end of the prior
quarter. Corporate investments decreased $41.0 million sequentially
to $356.8 million.
Additionally, interest on funds held for clients decreased 7.0%
year over year to $11.0 million, as a result of lower average
interest rates earned, partly offset by a 7% increase in average
investment balances. Paychex has no long-term debt.
Guidance
Keeping in view the current market and economic conditions, Paychex
believes that checks per client will moderate for the remainder of
fiscal 2012, thereby impacting quarterly comparisons for both
Payroll Service and Human Resource Services revenues.
Moreover, Paychex reaffirmed its full-year guidance.
For fiscal 2012, Paychex expects a 5–7% increase in Payroll Service
revenues compared with the year-ago quarter. Human Resource
Services revenues are expected to increase in the range of 12.0% to
15.0%.
Total service revenue will likely grow in the range of 7% to 9%.
The company expects a 12–14% decline in interest on funds held for
clients and a roughly 2% upside in net investment income.
Interest on funds held for clients and investment income for fiscal
2012 are expected to be impacted by the low interest rate
environment. However, investment of cash generated from operations
is expected to persist, thus increasing investment income.
Net operating income is expected in the range of 36% to 37% for
fiscal 2012. The effective income tax rate for fiscal 2012 is
expected to be similar to the rate experienced for the nine months
ended February 29, 2012.
Our Take
Paychex’ third quarter results were modest, with the bottom line
exceeding the Zacks Consensus Estimate. We are also positive on
management’s positive commentary regarding continued investments in
product development and synergies from the recent acquisition. The
company has managed cost well along with improving revenue.
Though new business wins in the SMB sector and stiff competition
from Automated Data Processing (ADP) and
Insperity (NSP) will remain a constant worry, we
believe that Paychex can benefit from the improvement in the U.S.
employment situation and zero European exposure.
Paychex has a Zacks #3 Rank, implying a short-term Hold rating.
(We are reissuing this article to correct a mistake. The
original article, issued early today, March 29, 2012, should no
longer be relied upon.)
AUTOMATIC DATA (ADP): Free Stock Analysis Report
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PAYCHEX INC (PAYX): Free Stock Analysis Report
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