Paychex (PAYX) Tops Q3 EPS by 1c, Revenues Beat

Paychex (NASDAQ: PAYX) reported Q3 EPS of $0.89, $0.01 better than the analyst estimate of $0.88. Revenue for the quarter came in at $1.1 billion versus the consensus estimate of $1.07 billion.

• Total revenue increased 14% to $1.1 billion.
  • Total service revenue increased 14% to $1.0 billion.
  • Interest on funds held for clients increased 27% to $23.0 million.
• Operating income increased 16% to $429.3 million and adjusted operating income(1) increased 7% to $429.3 million.
• Net income decreased 12% to $324.6 million and adjusted net income(1) increased 3% to $322.4 million. Net income and adjusted net income for the three months ended February 28, 2018 were impacted by one-time net tax benefits recognized as a result of the Tax Cuts and Jobs Act (the “Tax Act”).
• Diluted earnings per share decreased 11% to $0.90 per share and adjusted diluted earnings per share(1) increased 3% to $0.89 per share. Diluted earnings per share and adjusted diluted earnings per share for the three months ended February 28, 2018 were also impacted by one-time net tax benefits recognized as a result of the Tax Act.

Martin Mucci, President and Chief Executive Officer, commented, “We experienced solid growth in the third quarter across our major human capital management product lines. Results were paced by our human resource outsourcing services and time and attendance solutions, and our health and benefit insurance and retirement services. We also introduced some significant new product and mobility app enhancements for our clients.”

Mucci added, “Demand for our professional employer organization (“PEO”) business continues to grow. The recent completion of the acquisition of Oasis positions us for additional long-term growth. The acquisition advances Paychex’s leading PEO position, providing new clients access to our innovative products and technology-enabled solutions. The integration of Oasis is progressing well.”

Outlook

Our outlook for the fiscal year ending May 31, 2019 (“fiscal 2019”), is based upon current market expectations and economic conditions continuing with no significant changes. Excluding the anticipated impact related to the acquisition of Oasis, our guidance for fiscal 2019 remains unchanged from what we disclosed last quarter. Our guidance, excluding Oasis, is as follows:​

• Management Solutions revenue is anticipated to increase approximately 4%;
• PEO and Insurance Services revenue is anticipated to increase in the range of 18% to 20%;
• Interest on funds held for clients is expected to increase in the range of 20% to 25%;
• Total revenue, including interest on funds held for clients, is expected to increase in the range of 6% to 7%;
• Operating income as a percent of total revenue is anticipated to be approximately 37%;
• Interest (expense)/income, net is anticipated to be in the range of $10 million to $15 million;
• The effective income tax rate for fiscal 2019 is expected to be approximately 24%;
• Net income and diluted earnings per share are expected to increase approximately 4%; and
• Adjusted net income(1) and adjusted diluted earnings per share(1) are expected to increase in the range of 11% to 12%.

The inclusion of Oasis, which was completed during the third quarter, is expected to have an incremental impact to total revenue in the range of $155 million to $175 million for fiscal 2019. Excluding one-time costs related to the acquisition, Oasis is anticipated to have minimal impact on earnings per share. One-time acquisition and integration costs are anticipated to impact diluted earnings per share by approximately $0.03 per share for fiscal 2019.

For earnings history and earnings-related data on Paychex (PAYX) click here.

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