Paychex Earnings Preview: HR Services, Payroll Processing To Drive Q2 Results
Paychex (NASDAQ:PAYX) is scheduled to announce its Q2 FY 2017 earnings before markets open on December 21. [1] Paychex has reported high single digit revenue growth over the last few years, with HR outsourcing and services business driving much of the growth. HR outsourcing revenues have grown at over 15% over the last few years, while its core payroll processing business has grown at a steady 3-4% in the same period. Keeping up with the trend, Q1 FY’17 revenues were up by 9% y-o-y to $786 million with HR outsourcing revenues increasing by 15% y-o-y to $323 million. Comparatively, payroll processing revenues were up 4% to $451 million and interest earned on client funds was up 11% to $12 million as shown below.
HR Outsourcing To Continue Growth Spree
Over the years, Paychex has cemented its dominant position in the HR outsourcing market for small and medium-sized businesses. On the other hand, competing firm ADP (NASDAQ:ADP) has a significant presence in the large enterprise space. With the small business jobs market trending upward in the last couple of years, Paychex is poised to capitalize on that growth. [2] We forecast the growth in Paychex’s HR outsourcing business to continue, with the total number of HR services clients increasing by 6% through FY 2017 to 275,000 clients.
Steady Growth For Payroll Processing
The total number of payroll processing clients served by Paychex has increased at 1-2% in the last few years, complemented by a 2-4% price increase. [3] This trend could continue, with payroll processing clients served expected to increase by around 2% for the year to 613,000 clients.
The third key area of growth for Paychex in the coming quarters could be the interest earned on client assets.
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- Paychex, Inc. Schedules Second Quarter Fiscal 2017 Earnings Release Conference Call for December 21, 2016, Paychex Press Release, December 2016 [↩]
- Small Business Employment Growth Consistent with 2015, According to Paychex, IHS Small Business Jobs Index, December 2016 [↩]
- Paychex Q2 2016 Earnings Call Transcript, Seeking Alpha, December 2015 [↩]