MarketWatch reported that the human resources company, Paychex, saw a surge in its share prices after its fiscal third quarter earnings results were announced.
The conference call on which the results were announced was attended by the analysts from various firms such as Evercore, Bank of America Merrill Lynch, Goldman Sachs, Deutsche Bank, Northcoast Research, RBC Capital Markets, Stifel Financial, Barclays, BMO and Baird.
The meeting was hosted by the Chief Executive Officer and President, Martin Mucci, who was assisted by the company’s Chief Financial Officer, Efrain Rivera. The meeting focused on results for the fiscal third quarter of 2018.
Paychex reported solid results with both the top and the bottom lines were ahead of market expectations. The company also showed year-on-year improvements on both counts.
According to Nasdaq, Paychex reported a non-GAAP EPS of $0.63 per share, which beat market estimates by a penny, but also grew year-on-year by 15%. The company showed higher revenues which were offset slightly by increased costs too.
Total revenue, which included the interest garnered from funds held for clients, was reported at $866.5 million, which was a 9% increase from the same quarter the previous year. Revenues generated by services provided by the company (Payroll and HR services) and excluding the interest on funds showed an 8% increase year-on-year at $848.4 million. The target market consensus was for a revenue of $588 million.
Revenue for the Payroll Services division went up by 2% compared to the same time the last year, and was reported at $455 million. The Human Resources Services division saw a revenue growth of 17% year-on-year to $393.4 million. This growth was driven by an increase in the company’s client base as well as worksite employees, increased revenues from retirements and the company’s online HR services.
The interest on funds held for the company’s clients increased by 37% to $18.1 million vis-à-vis the same time the previous year. This was mainly thanks to increased interest rates.
Total expenses for the company also increased by 17% as compared to the same time the previous year, to $574 million. This was because of the company increasing the compensation packages, one-time bonuses to non-management employees as well as a one-time payment related to the termination of some license agreements. Total expenses as a percentage of total revenues went up by 66.2%.
Paychex’s operating income, however, went down by 5% year-on-year to $292.5 million. Additionally, due to higher overall expenses, the company’s operating margin went down by 33.8%.
Net income for the company was good at $260.4 million, as compared to the same time the previous year, when the net income garnered was $202.5 million.
The company also showed cash, cash equivalents as well as corporate investments to the tune of $421.2 million, compared to the $338.6 million reported the same time the previous year. Paychex has no long term debt.
The company also updated its forecast for the rest of the year. Total revenue is now forecast to grow by 7%, which is a 1% increase from the previous projection. Current market consensus estimates are that revenues will be around the $3.36 billion mark.
Payroll Services are expected to go up by 2%, vis-à-vis the previous expectation of between 1% and 2%. HR Services are expected to grow by 13% – 14% as compared to the previous forecast of 12% to 14%. Interest on funds held for their customers is expected to go up to between 20% and 25%, versus a mid- to upper-teens range.
Net income is expected to go up by 13% on a GAAP basis and by 15% on a non-GAAP basis.