Paychex Meets Estimates With Profit Growth

Earnings per share rose 9% in the third quarter as the company experienced steady growth in payroll processing and HR services.
Katie Kuehner-HebertMarch 30, 2016

Paychex’s third-quarter profit rose on continued growth in both its payroll processing and human resource services businesses.

The Rochester, N.Y. company said Wednesday that net income for the period that ended Feb. 29 rose 7% to $180.4 million, and diluted earnings per share rose 9% to 50 cents. Total revenue rose 7% to $752.6 million, with payroll service revenue increasing 4% to $439.6 million, and HR services revenue increasing 12% to $301.1 million.

Analysts polled by Thomson Reuters had expected per-share profit of 50 cents on $751 million in revenue.

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“Double-digit growth in worksite employees served through our comprehensive human resource outsourcing services reflects continued strong demand for these offerings,” Paychex CEO Martin Mucci said in a news release. “In addition, revenue from our Affordable Care Act compliance solutions continues to increase as we assist clients with their monitoring and year-end reporting requirements.”

Paychex shares, which had risen 16% since Feb. 9, were down 2.4% at $53.19 in trading Wednesday. Seeking Alpha has said the stock is overvalued and would fall unless the earnings report was “spectacular.”

According to Paychex, its recent acquisition of Advance Partners, a provider of payroll funding, outsourcing services and other support services to temporary staffing firms, contributed about 1% to service revenue growth in the third quarter.

“We believe [Advance] is an ideal fit for Paychex, as the temporary staffing industry has experienced expanded growth, and clients are within our targeted market of small- and mid-sized businesses,” Mucci said.

Mucci told the Rochester Democrat & Chronicle that job growth, particularly within small businesses, should continue.

“We saw the best three-month increase in the job growth rate for small businesses under 50 [employees] in two years,” he said. “We think that small business job growth is on the upswing right now … [particularly] in sectors of jobs like other services, and leisure and hospitality. We certainly are seeing some optimism in the job growth rate.”