) reported fourth-quarter fiscal 2012 earnings of 34 cents per
share, in line with the Zacks Consensus Estimate. The quarter's
result was 3.6% above the year-ago level. The company witnessed
revenue improvement across its segments but was lackluster
regarding new business creation.
Paychex reported fourth-quarter 2012 revenues of $551.5 million,
up 5.5% from $522.7 million in the year-ago quarter. The quarter's
revenue was below the Zacks Consensus Estimate of $558.0
Payroll Service segment revenue increased 3.5% year over year to
$369.5 million. Excluding the contribution from SurePayroll,
Payroll service revenue growth was 3.0%, 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 $171.2 million in
revenues, up 11.5% from the prior-year quarter. The improvement was
partly based on the contribution from ePlan Services. Excluding
ePlan, the segment revenue growth for the fourth quarter stood at
9.0%, reflecting client growth and price increases.
In the fourth quarter, Paychex incurred total expense of $355.6
million, up 4.6% from the year-ago quarter. The rise was mainly due
to higher selling, general and administrative expenses.
Operating income was $195.9 million, up 7.2% from the year-ago
period, attributable to modest revenue growth and better cost
management. Operating margin was 37.5% versus 36.8% in the year-ago
Net income of $123.3 million in the reported quarter reflected a
3.7% increase from $118.9 million in the prior-year quarter. Net
income per diluted share was 34 cents compared with 33 cents in the
year-ago quarter. There was no one-time item during the
Paychex exited the fourth quarter with cash and cash equivalents
of $108.8 million, down from $146.5 million at the end of the prior
quarter. Corporate investments decreased $149.3 million
sequentially to $207.5 million.
Additionally, interest on funds held for clients decreased 12.2%
year over year to $10.8 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.
For fiscal 2013, Paychex expects a 3-4% increase in Payroll
Service revenues from the year-ago quarter. Human Resource Services
revenues are expected to increase in the range of 9.0% to
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 25-35% 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 as a percentage of service revenue is
expected 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' fourth quarter results were mediocre, with the bottom
line matching the Zacks Consensus Estimate and the top line
missing. Fiscal 2013 guidance was disappointing reflecting macro
uncertainties. But management's commentary regarding continued
investments in product development was a positive.
Despite new business wins in the SMB sector, stiff competition
Automated Data Processing
), and an uncertain unemployment situation will remain constant
worries. However, Paychex's zero European exposure will be
Paychex has a Zacks #3 Rank, implying a short-term Hold
AUTOMATIC DATA (ADP): Free Stock Analysis
INSPERITY INC (NSP): Free Stock Analysis Report
PAYCHEX INC (PAYX): Free Stock Analysis Report
To read this article on Zacks.com click here.