Paychex’ HR Services Fuel 4% Revenue Jump

Human resource services has outpaced growth in Paychex' core payroll business, with another 12-14% revenue gain expected this year.
Matthew HellerOctober 3, 2017

Shares in Paychex rose more than 3% on Tuesday after the payroll processing services provider beat quarterly earnings estimates and forecast continued strong revenue growth in its HR outsourcing and services business.

For the first quarter, Paychex posted net income of $227.8 million, or 63 cents a share, up from $217.4 million, or 60 cents a share, in the year-earlier period. Adjusted per-share earnings came to 62 cents, ahead of the FactSet consensus of 60 cents.

Revenue rose 4% to $816.8 million from $785.5 million, also beating the FactSet consensus of $816 million. Revenue from Paychex’ core payroll service business rose 2% to $457.8 million, while revenue from human resource services (HRS) jumped 7% to $345.3 million.

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“We continued to experience strong demand for our HR outsourcing solutions,” CEO Martin Mucci said in a news release. “This demand, along with our recently announced acquisition of HR Outsourcing Inc., a national professional employer organization (PEO) serving small- to mid-sized businesses, positions us for continued growth.”

Paychex also predicted full-year revenue growth of about 6% and an increase in HRS revenue of 12% to 14%. In trading Tuesday, its shares rose 3.6% to $61.99.

As Forbes reports, the company’s top-line growth over the last few years “has been driven by the double digit jump in its HR outsourcing and services business. In fiscal 2017, the company’s HR outsourcing revenues grew by 12.4% to $1.3 billion, while its core payroll processing business increased at a steady rate of 3% to $1.8 billion.”

HR outsourcing clients have grown from 23,000 in 2012 to 37,000 in 2017 and Paychex enhanced its offerings by acquiring HR Outsourcing for an undisclosed sum last month.

“Since both companies are targeting small and mid-sized businesses, the deal will strengthen Paychex’s leadership position in the HR outsourcing market, while allowing it to offer better HR solutions and capture newer markets,” Forbes said.

Paychex has previously indicated that it expects demand for payroll services to be weaker in fiscal 2018, with revenue growth of 1% to 2% compared to 3-4% in recent years.