) reported second-quarter fiscal 2013 earnings of 41 cents per
share, matching the Zacks Consensus Estimate. The quarter's
result was 4.9% above the year-ago level.
Paychex reported second-quarter 2013 revenues of $569.4
million, up 4.3% from $545.7 million in the year-ago quarter. The
quarter's revenue was below the Zacks Consensus Estimate of
Payroll Service segment revenue increased 1.4% year over year
to $377.0 million. Client disruptions from Hurricane Sandy led to
modest Payroll growth. Checks per payroll grew 1.2% from the
Human Resource Services segment generated $182.4 million in
revenues, up 11.7% from the prior-year quarter. The improvement
was mainly attributable to client growth and price increases,
partially offset by lower contribution from professional employer
organization and unfavorable product mix.
In the second quarter, Paychex incurred total expenses of
$339.4 million, up 3.5% from the year-ago quarter. The rise was
mainly due to higher selling, general and administrative
Operating income was $230.0 million, up 5.6% from the year-ago
period, attributable to modest revenue growth supported by better
cost management. Operating margin was 44.0% versus 43.9% in the
Net income of $147.9 million in the reported quarter reflected
a 5.3% increase from $140.4 million in the prior-year quarter.
Net income per diluted share was 41 cents compared with 39 cents
in the year-ago quarter. There was no one-time item during the
Paychex exited the second quarter with cash and cash
equivalents of $122.6 million, down from $149.0 million at the
end of the prior quarter. Corporate investments decreased 26.2%
sequentially to $178.6 million.
Additionally, interest on funds held for clients decreased
6.5% year over year to $10.0 million as a result of lower average
interest rates earned, partly offset by an 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 fiscal
2013, which will be partially offset by modest client growth and
improved revenue per check. Also, Human Resources organic revenue
growth will follow the historical trend. Financial guidelines
were maintained for fiscal 2013.
For fiscal 2013, Paychex expects a 2-3% increase in Payroll
Service revenues from the year-ago quarter. Human Resource
Services revenues are expected to increase in the range of 9.0%
Total service revenue will likely grow in the range of 5% to
6%. The company expects a 6-8% decline in interest on funds held
for clients and 0-5% upside in net investment income.
Interest on funds held for clients and investment income for
fiscal 2013 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
Net operating income as a percentage of service revenue is
estimated at 37.0% for fiscal 2013. The effective income tax rate
is expected to be 36.0%. Net income is expected to grow in the
range of 5% to 7%.
Paychex' second quarter results were modest, with the bottom
line matching the Zacks Consensus Estimate and the top line
missing the same. Fiscal 2013 guidance was disappointing
reflecting macro uncertainties.
We are encouraged by management's commentary regarding
continued investments in product development and focus toward
building sales force to support revenue growth.
But lingering unemployment situation, strict interest rates
and stiff competition from
Automated Data Processing
) keep us concerned. However, Paychex' zero European exposure
will be beneficial for the company.
Currently, Paychex has a Zacks # 3 Rank (Hold).
AUTOMATIC DATA (ADP): Free Stock Analysis
INSPERITY INC (NSP): Free Stock Analysis
PAYCHEX INC (PAYX): Free Stock Analysis
To read this article on Zacks.com click here.