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Adjusted earnings of 73 cents per share beat the Zacks Consensus Estimate by 10.6% and increased 4.3% on a year-over-year basis. Total revenues of $983.7 billion beat the consensus mark by 3.2% but decreased 0.7% year over year.
Despite continuous impact of the COVID-19 pandemic, the company witnessed solid client retention in the reported quarter. Sales performance has resulted in year-over-year growth in the number of clients sold and serviced. Paychex remains focused on offering excellent customer service, human resource ("HR") expertise and product innovations to help clients amid the pandemic. Additionally, cost-saving initiatives have resulted in sequential improvement of margins.
So far this year, shares of Paychex have gained 13.6% compared with 6.5% rise of the industry it belongs to, and 16.3% increase of the Zacks S&P 500 composite.
Revenues in Detail
Revenues from Management Solutions increased 1% year over year to $732.8 million. The uptick was backed by increase in the company’s client base and increased penetration of its suite of solutions, especially HR outsourcing, time and attendance, and retirement services, partially offset by decline in check volumes.
Professional employer organization and Insurance Solutions revenues were $236.1 million, down 3% from the year-ago quarter. The downfall was due to a decline in the number of clients’ worksite employees. Insurance Solutions revenues were impacted by lower workers’ compensation premiums, driven by reduced wages and related premium rates.
Interest on funds held for clients decreased 25% year over year to $14.8 million on lower average investment balances, average interest rates and realized gains. Funds held for clients’ average investment balances were impacted by lower client fund collections and changes in client base mix, partially offset by wage inflation and timing of collections and remittances.
Operating Performance
Adjusted operating income increased 4% year over year to $355.3 million. Adjusted operating margin rose to 36.1% from 34.5% in the year-ago quarter.
Adjusted EBITDA of $407.7 million increased 2% year over year.
Paychex exited second-quarter fiscal 2021 with cash and cash equivalents of $693.5 million compared with $835.7 million at the end of the prior quarter. Long-term debt was $797 million compared with $796.9 million in the prior quarter. Cash provided by operating activities was $215.7 million in the reported quarter.
During the first six months of fiscal 2021, the company paid out $446.7 million in dividends and repurchased 0.4 million shares for a total of $28.8 million.
Fiscal 2021 View
For fiscal 2021, total revenues are expected to be either flat or decline up to 3%. Previously, it was expected to decline in the range of 2% to 4%.
Adjusted earnings per share are anticipated to fall 1-4% compared with the prior guidance of 6-8%. Adjusted operating margin is expected around 36% compared with the prior guidance of 35%. Adjusted EBITDA margin is expected to be around 41% compared with the prior guidance of 40%.
Equifax Inc. (EFX - Free Report) reported third-quarter 2020 adjusted earnings of $1.87 per share that beat the Zacks Consensus Estimate by 16.2% and improved 26.4% on a year-over-year basis. Revenues of $1.07 billion outpaced the consensus estimate by 5.9% and improved 22% year over year.
ManpowerGroup Inc. (MAN - Free Report) reported third-quarter 2020 earnings of $1.12 per share, beating the consensus mark by 90.5% but declining more than 37.5% year over year. Revenues of $4.58 billion surpassed the consensus mark by 8.7% but declined 12.7% year over year.
IHS Markit Ltd. recorded third-quarter fiscal 2020 adjusted earnings per share of 77 cents that surpassed the consensus estimate by 11.6% and increased 15% on a year-over-year basis. Total revenues came in at $1.07 billion, marginally beating the consensus mark but declining 4% from the year-ago quarter.
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Paychex (PAYX) Q2 Earnings & Revenues Beat, Tweaks Guidance
Paychex, Inc. (PAYX - Free Report) reported better-than-expected second-quarter fiscal 2021 results.
Adjusted earnings of 73 cents per share beat the Zacks Consensus Estimate by 10.6% and increased 4.3% on a year-over-year basis. Total revenues of $983.7 billion beat the consensus mark by 3.2% but decreased 0.7% year over year.
Despite continuous impact of the COVID-19 pandemic, the company witnessed solid client retention in the reported quarter. Sales performance has resulted in year-over-year growth in the number of clients sold and serviced. Paychex remains focused on offering excellent customer service, human resource ("HR") expertise and product innovations to help clients amid the pandemic. Additionally, cost-saving initiatives have resulted in sequential improvement of margins.
So far this year, shares of Paychex have gained 13.6% compared with 6.5% rise of the industry it belongs to, and 16.3% increase of the Zacks S&P 500 composite.
Revenues in Detail
Revenues from Management Solutions increased 1% year over year to $732.8 million. The uptick was backed by increase in the company’s client base and increased penetration of its suite of solutions, especially HR outsourcing, time and attendance, and retirement services, partially offset by decline in check volumes.
Professional employer organization and Insurance Solutions revenues were $236.1 million, down 3% from the year-ago quarter. The downfall was due to a decline in the number of clients’ worksite employees. Insurance Solutions revenues were impacted by lower workers’ compensation premiums, driven by reduced wages and related premium rates.
Interest on funds held for clients decreased 25% year over year to $14.8 million on lower average investment balances, average interest rates and realized gains. Funds held for clients’ average investment balances were impacted by lower client fund collections and changes in client base mix, partially offset by wage inflation and timing of collections and remittances.
Operating Performance
Adjusted operating income increased 4% year over year to $355.3 million. Adjusted operating margin rose to 36.1% from 34.5% in the year-ago quarter.
Adjusted EBITDA of $407.7 million increased 2% year over year.
Paychex, Inc. Price, Consensus and EPS Surprise
Paychex, Inc. price-consensus-eps-surprise-chart | Paychex, Inc. Quote
Balance Sheet & Cash Flow
Paychex exited second-quarter fiscal 2021 with cash and cash equivalents of $693.5 million compared with $835.7 million at the end of the prior quarter. Long-term debt was $797 million compared with $796.9 million in the prior quarter. Cash provided by operating activities was $215.7 million in the reported quarter.
During the first six months of fiscal 2021, the company paid out $446.7 million in dividends and repurchased 0.4 million shares for a total of $28.8 million.
Fiscal 2021 View
For fiscal 2021, total revenues are expected to be either flat or decline up to 3%. Previously, it was expected to decline in the range of 2% to 4%.
Adjusted earnings per share are anticipated to fall 1-4% compared with the prior guidance of 6-8%. Adjusted operating margin is expected around 36% compared with the prior guidance of 35%. Adjusted EBITDA margin is expected to be around 41% compared with the prior guidance of 40%.
Currently, Paychex carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Some other Services Companies
Equifax Inc. (EFX - Free Report) reported third-quarter 2020 adjusted earnings of $1.87 per share that beat the Zacks Consensus Estimate by 16.2% and improved 26.4% on a year-over-year basis. Revenues of $1.07 billion outpaced the consensus estimate by 5.9% and improved 22% year over year.
ManpowerGroup Inc. (MAN - Free Report) reported third-quarter 2020 earnings of $1.12 per share, beating the consensus mark by 90.5% but declining more than 37.5% year over year. Revenues of $4.58 billion surpassed the consensus mark by 8.7% but declined 12.7% year over year.
IHS Markit Ltd. recorded third-quarter fiscal 2020 adjusted earnings per share of 77 cents that surpassed the consensus estimate by 11.6% and increased 15% on a year-over-year basis. Total revenues came in at $1.07 billion, marginally beating the consensus mark but declining 4% from the year-ago quarter.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>