) 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.
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
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.
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
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
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.
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
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.
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
Automated Data Processing Inc.
) 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
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PAYCHEX INC (
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