), specializing in payment processing services, is scheduled to
announce its second-quarter fiscal 2013 results on December 19
after the closing bell. We notice that the analysts have
maintained their estimates at this point.
First Quarter Overview
Paychex delivered modest first-quarter 2013 results, with
earnings of 42 cents per share inching past the Zacks Consensus
Estimate by a penny.
Revenues grew 2.7% year over year, backed by increases of 7.4% in
Human Resource Service revenue and 0.9% in Payroll Service
revenue. The revenue improvement was supported by modest client
growth and price increases but was partially offset by the
discount offered, unfavorable mix and lower contribution from the
professional employer organization.
Higher operating expenses resulted in an 80 basis points drop in
operating margin to 45.5%.
Regarding its fiscal 2013 guidance, Paychex seems a bit cautious.
Given the current market and economic conditions, Paychex
believes that checks per client will likely moderate through
fiscal 2013. However, this will be partially offset by modest
client growth and improved revenue per check. Also, Human
Resources organic revenue growth will follow the historical
Agreement of Analysts
In the last 30 days, none out of the 20 estimates for the second
quarter were revised. However, one of the 23 estimates for fiscal
2013 moved higher in the past 30 days. The limited movement,
since Paychex's first quarter results, suggests a lack of driving
However, some analysts prefer to remain cautious based on
management's commentary regarding the sluggishness in new
small-business formation. Moreover, a few analysts believe that
aggressive pricing from
Automatic Data Processing Inc.
) is stealing customers away from Paychex.
The time between when the company receives payments from its
clients and pays it out to employees typically earns some
interest for Paychex. Now, with the government contemplating
lower interest rates, this quick income stream of the company
will also be restricted.
However, some analysts are positive about Paychex's efforts to be
technologically advanced by launching mobility apps for Apple
Inc.'s (AAPL) iPad and Android tablets, which allows users to use
the apps both on personal computers as well as laptops. In
addition, Paychex launched smartphone applications targeting both
employers and employees who are always on the move.
Magnitude of Estimate Revisions
There was no change in the Zacks Consensus Estimate for the
second quarter and fiscal 2013 in the past 30 days. However, the
estimates moved down by a penny to 40 cents for the second
quarter in the past 90 days. The estimate for fiscal 2013
remained unchanged at $1.61 in the past 90 days.
Though the job markets have fared well in the month of November,
industry experts believe that the trend is unlikely to continue.
The unstable job market coupled with macro uncertainties could
lead to a tough 2013 for Paychex.
However, we believe that the company is prudent in making
acquisitions that could support revenue growth in the coming
quarters. Last week, Paychex acquired expense management business
("ExpenseWire") of Rearden Commerce Inc. for an undisclosed sum.
Expense Management is an integral part of Paychex's HR Services
segment. Hence, we believe that the addition of new capabilities
would attract professional employer organizations, thus
generating revenue growth.
Earlier this year, Paychex acquired online and PC-based time and
attendance solutions provider, Icon Time Systems Inc. for an
undisclosed amount. The acquisition has supported growth within
Paychex's Payroll Service segment.
The company's initiative for boosting revenue growth through
acquisitions is encouraging. Also, the improving trend in small
and medium business (SMB) IT spending could pave the way for
Paychex in the coming quarters. However, low hiring in the SMB
sector (leading to lower checks per client) and lack of new
business wins has come in the way of solid revenue growth.
We also remain concerned regarding stiff competition from
Automatic Data Processing Inc. and
Currently, Paychex has a Zacks #4 Rank, (Sell), while both Intuit
and ADP have Zacks #3 Rank (Hold).
AUTOMATIC DATA (ADP): Free Stock Analysis
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PAYCHEX INC (PAYX): Free Stock Analysis
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