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Paychex, Inc. (PAYX - Free Report) reported first-quarter fiscal 2019 adjusted earnings of 67 cents per share that surpassed the Zacks Consensus Estimate by 2 cents. Total revenues of $862.8 million beat the consensus mark by $13 million. The company posted strong growth across major human capital management ("HCM") product lines and professional employer organization ("PEO") services.
In the past six months, shares of Paychex have gained 20.9%, outperforming the 12.1% rise of the Zacks S&P 500 Composite Index.
Revenues in Detail
Post-adoption of Accounting Standards Codification Topic 606, Paychex classifies its service revenues as Management Solutions revenues, and PEO and insurance services revenues.
Management Solutions provides payroll processing, payroll-related ancillary services (which includes retirement services and time and attendance solutions) and administrative services organization (“ASO”). Revenues from Management Solutions improved 3% year over year to $687.7 million. The growth was driven by rise in client bases across the company’s human capital management (HCM) services — payroll, ASO, retirement services and time and attendance solutions. Acquisition of Lessor Group contributed less than 1% to growth in Management Solutions revenues in the reported quarter.
PEO and insurance services includes PEO services offered through Paychex’s registered and licensed subsidiaries, Paychex Business Solutions, LLC and HR Outsourcing Holdings, Inc. (“HROI”). Additionally, it includes the company’s insurance services sold through its licensed insurance agency, Paychex Insurance Agency, Inc.
PEO and insurance services revenues were $158.0 million, up 39% from the year-ago quarter. The uptick was driven by increase in clients and client worksite employees across the company’s PEO business. Acquisition of HROI contributed around 20% to total PEO and insurance services revenues for the first quarter of fiscal 2019.
Furthermore, interest on fund held by clients improved 25% year over to $17.1 million on the back of higher average interest rates earned.
Paychex’s total expenses rose 14% from the year-ago quarter to $542.5 million on account of continued growth in PEO business, higher compensation-related costs and acquisitions. Operating income increased 1% year over year to $320.3 million. However, operating income margin declined 290 basis points to 37.1%.
Balance Sheet & Cash Flow
Paychex exited the fiscal first quarter with cash, cash equivalents and corporate investments of $523 million compared with $424.2 million at the end of the prior quarter. The company has no long-term debt.
Cash provided by operating activities was $273.7 million in the reported quarter. Capex came in at $389.1 million.
During the fiscal first quarter, the company repurchased 0.5 million shares for $32.8 million and paid $201.4 million in dividends.
Fiscal 2019 Outlook
For fiscal year 2019, Paychex expects PEO and insurance services revenues to register 18% to 20% growth. Management solutions revenues are anticipated to register 4% growth.
Investors interested in the broader Business Services sector are keenly awaiting earnings reports from key players like Automatic Data Processing (ADP - Free Report) , Waste Management (WM - Free Report) and Republic Services (RSG - Free Report) . While ADP will report first-quarter fiscal 2019 on Oct 31, Waste Management and Republic Services will release third-quarter 2018 results on Oct 25.
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Paychex (PAYX) Surpasses Q1 Earnings & Revenue Estimates
Paychex, Inc. (PAYX - Free Report) reported first-quarter fiscal 2019 adjusted earnings of 67 cents per share that surpassed the Zacks Consensus Estimate by 2 cents. Total revenues of $862.8 million beat the consensus mark by $13 million. The company posted strong growth across major human capital management ("HCM") product lines and professional employer organization ("PEO") services.
In the past six months, shares of Paychex have gained 20.9%, outperforming the 12.1% rise of the Zacks S&P 500 Composite Index.
Revenues in Detail
Post-adoption of Accounting Standards Codification Topic 606, Paychex classifies its service revenues as Management Solutions revenues, and PEO and insurance services revenues.
Management Solutions provides payroll processing, payroll-related ancillary services (which includes retirement services and time and attendance solutions) and administrative services organization (“ASO”). Revenues from Management Solutions improved 3% year over year to $687.7 million. The growth was driven by rise in client bases across the company’s human capital management (HCM) services — payroll, ASO, retirement services and time and attendance solutions. Acquisition of Lessor Group contributed less than 1% to growth in Management Solutions revenues in the reported quarter.
PEO and insurance services includes PEO services offered through Paychex’s registered and licensed subsidiaries, Paychex Business Solutions, LLC and HR Outsourcing Holdings, Inc. (“HROI”). Additionally, it includes the company’s insurance services sold through its licensed insurance agency, Paychex Insurance Agency, Inc.
PEO and insurance services revenues were $158.0 million, up 39% from the year-ago quarter. The uptick was driven by increase in clients and client worksite employees across the company’s PEO business. Acquisition of HROI contributed around 20% to total PEO and insurance services revenues for the first quarter of fiscal 2019.
Furthermore, interest on fund held by clients improved 25% year over to $17.1 million on the back of higher average interest rates earned.
Paychex, Inc. Revenue (TTM)
Paychex, Inc. Revenue (TTM) | Paychex, Inc. Quote
Operating Performance
Paychex’s total expenses rose 14% from the year-ago quarter to $542.5 million on account of continued growth in PEO business, higher compensation-related costs and acquisitions. Operating income increased 1% year over year to $320.3 million. However, operating income margin declined 290 basis points to 37.1%.
Balance Sheet & Cash Flow
Paychex exited the fiscal first quarter with cash, cash equivalents and corporate investments of $523 million compared with $424.2 million at the end of the prior quarter. The company has no long-term debt.
Cash provided by operating activities was $273.7 million in the reported quarter. Capex came in at $389.1 million.
During the fiscal first quarter, the company repurchased 0.5 million shares for $32.8 million and paid $201.4 million in dividends.
Fiscal 2019 Outlook
For fiscal year 2019, Paychex expects PEO and insurance services revenues to register 18% to 20% growth. Management solutions revenues are anticipated to register 4% growth.
Zacks Rank & Upcoming Releases
Currently, Paychex carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Investors interested in the broader Business Services sector are keenly awaiting earnings reports from key players like Automatic Data Processing (ADP - Free Report) , Waste Management (WM - Free Report) and Republic Services (RSG - Free Report) . While ADP will report first-quarter fiscal 2019 on Oct 31, Waste Management and Republic Services will release third-quarter 2018 results on Oct 25.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>