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Insperity Q2 Earnings Beat Estimates, Down Y/Y, Revenues Miss

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Insperity Inc. (NSP - Free Report) reported second-quarter 2014 adjusted earnings of 13 cents per share, which came ahead of the Zacks Consensus Estimate by a penny. However, on a year-over-year basis, earnings were down 45.8%.


Shares of Insperity were down 2.3% on Aug 1, following its mixed second-quarter results and a tepid fiscal 2014 earnings guidance. Moreover, shares were down due to unfavorable bottom line comparisons on a year-over-year basis.

Quarter Details

Although Insperity’s second-quarter revenues of $564.6 million increased 3.2% on a year-over-year basis, it lagged the Zacks Consensus Estimate of $568.0 million. The year-over-year improvement was attributed to higher average paid worksite employees (up 1.2%) and higher revenues per worksite employee (up 1.9%). The company reported average client retention of approximately 99% during the quarter. Net hiring from its clients was also high.

Insperity’s gross margins were down 95 basis points from the year-ago quarter to 16.9%, primarily due to an increase in benefits cost center deficit and lower average service fees.

The company’s operating expenses increased 5.2% from the year-ago quarter and came in at $92.0 million, owing to higher general and administrative expenses and higher salaries, wages and payroll taxes. Operating margins came in at 0.6% compared with 1.9% in the year-ago period, primarily due to higher operating expenses.

Insperity’s adjusted net income decreased from $6.2 million or 24 cents per share reported in the year-ago quarter to $3.5 million or 13 cents per share.

Insperity exited the second quarter with cash and marketable securities of $212.3 million compared with $260.4 million in the previous quarter. The company has paid dividends of $9.2 million and repurchased shares worth $14.7 million during the first six months of 2014.


Insperity expects gross profit per worksite employee per month in the range of $243–$245 for third quarter 2014 and $250–$253 for fiscal 2014 (down both sequentially and year over year). The tepid guidance is primarily due to low average service fee and higher compensation expenses. The company expects operating expenses in the range of $86.0–$87.0 million for the third quarter and $350.0 – $351.0 million for 2014.

For 2014, Insperity expects earnings per share in the range of 95 cents to $1.07 (mid-point $1.01). The Zacks Consensus Estimate is pegged at $1.07 per share.


Insperity provides human resources as well as business solutions to small and medium sized businesses to help them perform better. The company reported mixed second-quarter results wherein the top line lagged the Zacks Consensus Estimate, but the bottom line came ahead of the same. Margins were also impacted by higher-than-expected expenses. Moreover, the company provided a tepid full year earnings guidance.

Nonetheless, we believe management’s initiatives to expand the number of Business Performance Advisors and implement a healthcare reform strategy will be beneficial in the long run. Moreover, the company’s software-as-a-service and other adjacent business services are also gaining traction, which are expected to improve 2014 results.

A debt-free balance sheet, share repurchases and dividend payouts are positives, but increasing expenses and competition from Automatic Data Processing Inc. (ADP - Free Report) and Paychex Inc. (PAYX - Free Report) are concerns.

Currently, Insperity has a Zacks Rank #3 (Hold). Investors can also consider NVIDIA Corporation (NVDA - Free Report) which has a Zacks Rank #1 (Strong Buy) and is worth buying.

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