Paychex Inc. (PAYX, Financial) declared its third-quarter numbers on March 25, and the number mix clearly left the Street analysts spellbound. In fact, the company reported revenue and earnings that surpassed the Street expectations and led to the stock moving further in positive territory. Let’s quickly peek into the financial highlights shared by the top brass in the recent earnings call on the third quarter of the fiscal year 2015.
Revenue and earnings show a decent rise
Total revenue for Paychex stood at $704.3 million, having improved 8% when compared with the year-ago quarter and also beat the Zacks’ consensus estimates of $702 million. Such a growth in revenue during the quarter was attributed to the revenue increase witnessed in almost all the business segments to which the company caters.
In fact, excluding interest on funds held by clients, total revenue in the quarter was at $693.6 million, also witnessing a 8% year-over-year rise. With respect to the business segments, Payroll service segment and Human Resource services segment exhibited improved revenue up by 2% and 19%, respectively, for the quarter. The Payroll service segment’s revenue improvement to $423.8 million was attributed chiefly to the higher revenue per check and client base during the quarter. Meanwhile the human resource services segment’s revenue that stood at $269.8 million was backed by solid growth in client base and worksite employees and rise in revenue fetched from retirement and online HR administrative services.
Such solid topline growth led to the net income improving over 5% year over year at $169.4 million, from $160.1 million reported a year earlier. This translates to earnings at $0.46 a share for the quarter, over the $0.44 a share reported in the same quarter a year ago. Earnings were in line with the Zack analysts’ estimates.
However, operating expenses during the quarter rose around 10% to $440 million when compared year over year, led by increase in compensation-related expenses and increased costs related to health insurance covering within its professional employer organization.
Outlook looks quite optimistic
The payroll processor and human resource services provider maintained the guidance it had meted out in June 2014 on the fiscal year 2015. For the annual year, the services provider expects 3%-5% improvement in Payroll service revenues and human resource services revenue is estimated to increase in the range of 16%-19%.
Net income for the fiscal year 2015 is expected to improve in the range of 6%-8%, from that witnessed a year ago. With the company reiterating on the fiscal 2015 outlook, it can be concluded that the company is well positioned for the future quarter though there are temporary headwinds, such as macroeconomic sluggishness, that could impact the top and bottom line negatively.
The management oversees immense opportunities for growth as Paychex’s chief focus is on small and mid-sized businesses that are on the lookout for innovative HR solutions. This understanding is well-reflected in the guidance which remains unaltered for the fiscal year 2015 from the management’s end.
Investors remain well rewarded
The company has generated cash worth $265.3 million during the quarter, almost 89% up from that seen in the past quarter. It is notable that, for the nine months of the fiscal 2015, the company has repurchased common stock worth $70.4 million and paid dividends worth $414.4 million. This signifies the interest of the company in keeping its investors well rewarded while they hold their investments in the stock.
Final word
Paychex is performing much better than normal expectations of analysts, and this is well conveyed through the earnings report card which remains in the green for the company. As the company proceeds to report its fourth quarter, let’s keep an eye on whether the figures meet the estimates provided by the company for the fiscal year 2015.
