Earnings Preview: Paychex (PAYX) likely had a modest start to fiscal 2025

Paychex, Inc. (NASDAQ: PAYX) has a strong track record of consistent revenue and margin performance, even in the face of challenging operating conditions and economic uncertainties. The company, a leading provider of human capital management solutions, is all set to unveil its first-quarter numbers early next week.

In the first half of 2024, Paychex’s stock traded almost sideways. Later, it gained momentum and reached an all-time high last week, extending the upswing seen in the past three months. PAYX has been a favorite among income investors, thanks to regular dividend hikes and above-average yield. While the current valuation looks high, Paychex is unlikely to disappoint long-term investors.

Paychex’s first-quarter 2025 report is slated for release on Tuesday, October 1, at 8:30 am ET. It is estimated that the company’s revenue and earnings performance were broadly in line with the prior-year quarter. Market watchers expect adjusted earnings to remain unchanged at $1.14 per share in the first three months of fiscal 2025. Meanwhile, revenues are seen rising modestly to $1.32 billion from $1.29 billion in Q1 2024.

Resilience

Over the years, Paychex has maintained stable revenue and margin performance, aided by continued innovation and effective client retention strategy. The company makes it easy for customers to switch to its platform from other payroll service providers. However, challenges in the SMB sector, mainly due to economic uncertainties and regulatory issues, could be a cause for concern because such businesses constitute a significant portion of Paychex’s clientele.

From Paychex’s Q4 2024 earnings call:

“We are excited to offer a comprehensive solution to help our clients solve one of their biggest problems, hiring and retaining talented employees. We are planning more innovations in this area for all our market segments in the coming fiscal year. Our PEO business has continued to gain momentum with excellent performance in fiscal year 2024. We finished the year with strong results in sales, retention, and insurance enrollment. We have continued to see a shift back towards the PEO offering, both inside and outside our client base.”

Earnings Beat

Interestingly, the company’s quarterly earnings have beaten estimates consistently in the past five years. In the most recent quarter, adjusted profit climbed 15% annually to $1.12 per share. Driving the growth, revenue increased across all three operating segments. At $1.3 billion, total Q4 revenue was up 5%. The Paychex management said it expects full-year 2025 earnings to grow 5-7%, on an adjusted basis. That reflects an estimated 4-5.5% growth in full-year revenues.

On Wednesday morning, PAYX traded slightly above $133, well above its 52-week average price. The stock has gained about 18% in the past twelve months.