Paychex Beats by a Penny in 1Q - Analyst Blog
25 Septiembre 2012 - 3:00AM
Zacks
Paychex Inc.
(PAYX) reported first-quarter fiscal 2013 earnings of 42 cents per
share, inching past the Zacks Consensus Estimate by a penny. The
quarter’s result was 2.5% above the year-ago level. The company
witnessed modest revenue improvement across its segments.
Revenues
Paychex reported first-quarter 2013
revenues of $578.2 million, up 2.7% from $563.1 million in the
year-ago quarter. The quarter’s revenue was below the Zacks
Consensus Estimate of $584.0 million. However, improved client base
and client retention rate were noticed during the quarter.
Payroll Service segment revenue
increased 0.9% year over year to $385.9 million. Checks per payroll
grew 2.0% from the year-ago quarter. Revenue generated per issued
check was impacted by price increases, partially offset by
discounting.
Human Resource Services segment
generated $182.2 million in revenues, up 7.4% from the prior-year
quarter. The improvement was mainly attributable to client growth
and price increases, partially offset by lower contribution from
professional employer organization and unfavorable product mix.
Operating
Results
In the first quarter, Paychex
incurred total expenses of $340.2 million, up 2.0% from the
year-ago quarter. The rise was mainly due to higher selling,
general and administrative expenses.
Operating income was $238.0
million, up 3.6% from the year-ago period, attributable to modest
revenue growth supported by better cost management. Operating
margin was 45.5% versus 46.3% in the year-ago quarter.
Net income of $153.1 million in the
reported quarter reflected a 2.8% increase from $148.9 million in
the prior-year quarter. Net income per diluted share was 42 cents
compared with 41 cents in the year-ago quarter. There was no
one-time item during the quarter.
Balance Sheet
Paychex exited the first quarter
with cash and cash equivalents of $149.0 million, up from $108.8
million at the end of the prior quarter. Corporate investments
increased 16.6% sequentially to $241.9 million.
Additionally, interest on funds
held for clients decreased 9.0% year over year to $10.1 million as
a result of lower average interest rates earned, partly offset by
an 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 fiscal 2013, which will be partially offset by
modest client growth and improved revenue per check. Also, Human
Resources organic revenue growth will follow the historical trend.
Financial guidelines were maintained for fiscal 2013.
For fiscal 2013, Paychex expects a
3–4% increase in Payroll Service revenues from the year-ago
quarter. Human Resource Services revenues are expected to increase
in the range of 9.0% to 11.0%.
Total service revenue will likely
grow in the range of 5% to 6%. The company expects a 6–8% decline
in interest on funds held for clients and 25–35% 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 as a
percentage of service revenue is estimated at 37.0% for fiscal
2013. The effective income tax rate is expected to be 36.0%. Net
income is expected to grow in the range of 5% to 7%.
Our Take
Paychex’ first quarter results were
modest, with the bottom line barely beating the Zacks Consensus
Estimate and the top line missing the same. Fiscal 2013 guidance
was disappointing reflecting macro uncertainties.
We are encouraged by management’s
commentary regarding continued investments in product development
and focus toward building sales force to support revenue
growth.
But lingering unemployment
situation, strict interest rates and stiff competition from
Automated Data Processing (ADP) and
Insperity (NSP) keep us concerned. However,
Paychex’ zero European exposure will be beneficial for the
company.
Paychex has a Zacks # 3 Rank,
implying a short-term Hold rating.
AUTOMATIC DATA (ADP): Free Stock Analysis Report
INSPERITY INC (NSP): Free Stock Analysis Report
PAYCHEX INC (PAYX): Free Stock Analysis Report
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