Earnings preview: Jobs growth to drive Paychex Q4 2019 results

Human resources solution provider Paychex Inc. (NASDAQ: PAYX) is scheduled to report its earnings results for the fourth quarter of 2019 on Wednesday before the bell. The results will be benefited by the solid growth across its major human capital management product lines. The purchase of Oasis Outsourcing Group is likely to have an incremental impact on the top line this year.

The company continues to be benefited by strong employment numbers and a growing economy. Most of the top line growth will come from PEO and Insurance Services due to the purchase of Oasis. The company is expected to continue focusing on this division as a source for diversified revenue growth.

Paychex believes Oasis is a great fit for its PEO growth strategy, adding to its scale, expanding relationships with new insurance partners, creating upsell opportunities into the existing Oasis customer base, and augmenting its talent with an addition of an experienced leadership team.

Paychex and Oasis combined serve more than 1.4 million work-site employees through its various HR outsourcing services. Paychex anticipates Oasis to contribute revenue in the range of $355 million to $375 million in 2020 and is going to be largely neutral to earnings per share.

Analysts expect the company’s earnings to increase by 6.60% to $0.65 per share and revenue will grow by 12.60% to $981.11 million for the fourth quarter. In comparison, during the previous year quarter, Paychex posted a profit of $0.61 per share on revenue of $871.1 million. The company has surprised investors by beating analysts’ expectations thrice in the past four quarters.

For the third quarter, Paychex reported a 12% decline in earnings due to significant tax impacts. Adjusted earnings rose by 3%. Total revenue grew by 14% as the acquisition of Oasis accounted for about one half of the growth in service revenue. Expenses increased 13% due to the one-time bonus paid to non-management employees and a one-time charge following the termination of certain licensing agreements.

Shares of Paychex opened higher on Monday but changed course to the red territory on the Nasdaq. The stock has risen over 23% in the past year and over 10% in the past three months.

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