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Paychex (PAYX) Beats on Q3 Earnings & Revenues, Tweaks Guidance

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Paychex, Inc. (PAYX - Free Report) reported better-than-expected third-quarter fiscal 2021 results.

Adjusted earnings of 96 cents per share beat the Zacks Consensus Estimate by 3.2% but decreased 1% on a year-over-year basis. Total revenues of $1.11 billion beat the consensus mark by 0.5% but decreased 2.7% year over year.

Despite continuous impact of the COVID-19 pandemic, the company witnessed solid client retention in the reported quarter. So far this year, shares of Paychex have gained 7.7% compared with 8.1% rise of the industryit belongs to and 9.1% increase of the Zacks S&P 500 composite.

Revenues in Detail                  

Revenues from Management Solutions decreased 0.4% year over year to $846.8 million. The segment benefited from 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. Solid growth was witnessed from new services and product initiative offerings.

Professional employer organization (“PEO”) and Insurance Solutions revenues were $249.8 million, down 8% from the year-ago quarter. The downfall was due to a decline in the number of clients’ worksite employees, decrease in state unemployment insurance within the PEO driven by rising unemployment costs, and lower workers’ compensation premiums driven by reduced wages and softening of market rates.

Interest on funds held for clients decreased 29% year over year to $15.1 million on lower average interest rates and realized gains. Average investment balances stayed consistent.

Operating Performance

Adjusted operating income decreased 0.3% year over year to $468.6 million. Adjusted operating margin rose to 42.2% from 41.1% in the year-ago quarter.

Adjusted EBITDA of $517.5 million decreased 1% year over year.

Paychex, Inc. Price, Consensus and EPS Surprise Paychex, Inc. Price, Consensus and EPS Surprise

Paychex, Inc. price-consensus-eps-surprise-chart | Paychex, Inc. Quote

Balance Sheet & Cash Flow

Paychex exited third-quarter fiscal 2021 with cash and cash equivalents of $787 million compared with $693.5 million at the end of the prior quarter. Long-term debt was $797.2 million compared with $797 million in the prior quarter. Cash provided by operating activities was $439.9 million in the reported quarter.

During the reported quarter, the company paid out $223.8 million in dividends and repurchased shares worth $47.2 million.

Fiscal 2021 View

For fiscal 2021, total revenues are expected to either decline up to 2% or remain flat. Previously, it was expected to be either flat or decline up to 3%.

Adjusted earnings per share are anticipated to decline up to 2% or  remain flat. Previously, it was expected to decline in the range of 1% to 4%. Adjusted operating margin is expected to be 36-37% compared with the prior guidance of around 36%. Adjusted EBITDA margin is expected to be 41-42% compared with the prior guidance of around 41%.

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

Rollins’ (ROL - Free Report) fourth-quarter 2020 adjusted earnings of 13 cents per share came ahead of the consensus estimate as well as the year-ago figure by 18.2%. Revenues of $536.3 million beat the consensus mark by 1.7% and improved 6% year over year.

IHS Markit’s (INFO - Free Report) fourth-quarter fiscal 2020 adjusted earnings per share of 72 cents beat the Zacks Consensus Estimate by 7.5% and increased 11% on a year-over-year basis. Total revenues came in at $1.11 billion, marginally missing the consensus mark and declining 1% from the year-ago quarter on a reported basis.

Automatic Data Processing’s (ADP - Free Report) second-quarter fiscal 2021 adjusted earnings per share of $1.52 beat the consensus mark by 17.8% and were flat year over year. Total revenues of $3.69 billion beat the consensus mark by 3.2% and improved 0.7% year over year.

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