Paychex (PAYX) Reports In-Line Q2 EPS, Slight Miss on Revenues; Reiterates 2018 Guidance

Paychex (NASDAQ: PAYX) reported Q2 EPS of $0.59, in-line with the analyst estimate of $0.59. Revenue for the quarter came in at $826.5 million versus the consensus estimate of $827.04 million.

Outlook

Our outlook for the fiscal year ending May 31, 2018 (“fiscal 2018”) is based upon current market, economic, and interest rate conditions continuing with no significant changes. Our guidance for fiscal 2018 is unchanged from what we disclosed last quarter and is summarized as follows:

• Payroll service revenue is anticipated to increase in the range of 1% to 2%;
• HRS revenue is anticipated to increase in the range of 12% to 14%;
• Interest on funds held for clients is expected to reflect growth in the mid- to upper-teens;
• Total revenue is expected to grow approximately 6%;
• Operating income, as a percent of total revenue, is anticipated to be in the range of 39% to 40%;
• Investment income, net is expected to be in the range of $9.0 million to $11.0 million;
• The effective income tax rate, excluding any potential impact from tax reform legislation, is anticipated to be in the range of 35.0% to 35.5%;
• Net income is expected to increase approximately 5% and adjusted net income(1) is anticipated to increase approximately 7%; and
• Diluted earnings per share is expected to increase in the range of 5% to 6% and adjusted diluted earnings per share(1) is expected to increase in the range of 7% to 8%.

Our fiscal 2018 guidance presented above does not include any impact from tax reform legislation. We anticipate that the impact of tax reform legislation will be a benefit of 10% to 12% on our annualized effective income tax rate. This is based upon our current understanding of the legislation and may be subject to change upon further review of the final law and interpretive guidance that may be issued. We expect a portion of these benefits to be reinvested in the business to drive future growth.

Second Quarter Fiscal 2018 Highlights

• Total revenue increased 7% to $826.5 million.
• Total service revenue also increased 7% to $812.5 million.
• Payroll service revenue increased 1% to $444.8 million.
• Human Resource Services revenue increased 15% to $367.7 million.
• Operating income increased 7% to $332.2 million.
• Net income increased 7% to $217.0 million and adjusted net income(1) increased 7% to $214.4 million.
• Diluted earnings per share increased 7% to $0.60 per share and adjusted diluted earnings per share(1) increased 5% to $0.59 per share.

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

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