Paychex tops Q3 earnings estimates; revenues match expectations

Paychex Inc. (NASDAQ: PAYX) reported better-than-expected earnings along with revenues that matched estimates for the third quarter of 2020. However, the stock slipped to red territory as the outlook failed to meet analysts’ expectations.

Total revenues increased 7% to $1.14 billion compared to the same period a year ago. This was in line with estimates of $1.14 billion. The Oasis Outsourcing acquisition contributed around 1% to the revenue growth in the current quarter.  

GAAP net income rose 9% to $354.5 million, or $0.98 per share from last year. Adjusted net income grew 9% year-over-year to $351.2 million, or $0.97 per share, beating the consensus estimate of $0.95 per share.

Paychex said its third quarter results largely predate the disruption caused by the coronavirus pandemic. The company also believes the product solutions added over the last 18 months will help its clients navigate the challenges brought on by the health crisis.

During the quarter, Management Solutions revenue increased 6% year-over-year, driven by growth in both the client base and revenue per client. Professional employer organization (PEO) and Insurance Solutions revenue grew 10%, helped by increases in the number of clients in the PEO business as well as health and benefit applicants.

Interest on funds held for clients fell 7% during the quarter due to lower average interest rates earned. This was partly offset by higher average investment balances and realized gains.

For fiscal year 2020, total revenue is expected to grow 8-9%. On a GAAP basis, net income and EPS are expected to grow approx. 7% while on an adjusted basis, net income and EPS are estimated to grow around 6%. Analysts were looking for a higher rate of growth for both revenue and adjusted EPS.