Paychex Beats, Revenue Improves - Analyst Blog
29 Março 2012 - 6:30AM
Zacks
Paychex Inc.
(PAYX) reported third-quarter fiscal 2012 earnings of 37 cents per
share, beating the Zacks Consensus Estimate of 34 cents. The
company witnessed revenue improvement across all its segments and
displayed a good operating performance.
Revenues
Paychex reported third-quarter 2012
revenues of $569.5 million, up 7.2% from $531.3 million in the
year-ago quarter. The year-over-year upside can be attributed to
growth in Payroll service revenue and Human Resource service
revenue.
Payroll Service
segment revenue increased 5.5% year over year to $386.5
million. Excluding the contribution from SurePayroll, Payroll
service revenue growth was 4.0%, mainly attributable to the
increase in checks per payroll and a modest rise in revenue per
check. Revenue generated per issued check was impacted by price
increases, partially offset by discounting.
Human Resource
Services segment generated $172.0 million in revenues, up
12.3% from the prior-year quarter. The improvement was partly based
on the contribution from ePlan Services. Excluding ePlan, the
segment revenue growth for the third quarter stood at 10%,
reflecting client growth and price increases.
Operating
Results
In the third quarter, Paychex
incurred total expense of $359.1 million, up 8.0% from the year-ago
quarter. The rise was mainly due to higher selling, general and
administrative expenses.
Operating income was $210.4
million, up 5.8% from the year-ago period, attributable to modest
revenue growth and better cost management. Operating margin was
36.9% versus 37.4% in the year-ago quarter.
Net income of $135.4 million in the
reported quarter reflected a 3.7% increase from $130.6 million in
the prior-year quarter. Net income per diluted share was 37 cents
compared with 36 cents in the year-ago quarter. There was no
one-time item during the quarter.
Balance Sheet
Paychex exited the third quarter
with cash and cash equivalents of $146.5 million, down from $96.1
million at the end of the prior quarter. Corporate investments
decreased $41.0 million sequentially to $356.8 million.
Additionally, interest on funds
held for clients decreased 7.0% year over year to $11.0 million, as
a result of lower average interest rates earned, partly offset by a
7% increase in average investment balances. Paychex has no
long-term debt.
Guidance
Keeping in view the current market
and economic conditions, Paychex believes that checks per client
will moderate for the remainder of fiscal 2012, thereby impacting
quarterly comparisons for both Payroll Service and Human Resource
Services revenues.
Moreover, Paychex reaffirmed its
full-year guidance.
For fiscal 2012, Paychex expects a
5–7% increase in Payroll Service revenues compared with the
year-ago quarter. Human Resource Services revenues are expected to
increase in the range of 12.0% to 15.0%.
Total service revenue will likely
grow in the range of 7% to 9%. The company expects a 12–14% decline
in interest on funds held for clients and a roughly 2% upside in
net investment income.
Interest on funds held for clients
and investment income for fiscal 2012 are expected to be impacted
by the low interest rate environment. However, investment of cash
generated from operations is expected to persist, thus increasing
investment income.
Net operating income is expected in
the range of 36% to 37% for fiscal 2012. The effective income tax
rate for fiscal 2012 is expected to be similar to the rate
experienced for the nine months ended February 29, 2012.
Our Take
Paychex’ third quarter results were
modest, with the bottom line exceeding the Zacks Consensus
Estimate. We are also positive on management’s positive commentary
regarding continued investments in product development and
synergies from the recent acquisition. The company has managed cost
well along with improving revenue.
Though new business wins in the SMB
sector and stiff competition from Automated Data Processing
Inc. (ADP) and Administaff Inc. will remain a constant
worry, we believe that Paychex can benefit from the improvement in
the U.S. employment situation and zero European exposure.
Paychex has a Zacks # 3 Rank,
implying a short-term Hold rating.
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