HR Services Lift Paychex’s Third Quarter Results

by Trefis Team
Rate   |   votes   |   Share
    Quick Take 

  • Paychex reported Q3 FY 2013 earnings on March 27, 2013.
  • The company reported total revenues of $582.4 million, growth of 4% year-over-year.
  • Payroll Service revenue rose 2% while HR outsourcing revenues grew 10% year-over-year.
  • According to management, major reason behind revenue increase is the increase in number of clients and an overall increase in prices.

Paychex (NASDAQ:PAYX) reported its third quarter earnings ending February 28, 2013, on March 27. Paychex is the second largest payroll processing and human resources outsourcing company in the U.S., with total revenues of over $2 billion. In the third quarter, the company’s revenues increased by 4% to reach $582.4 million. The net income for the company increased 7% to $144.5 million, owing to solid growth in the human resources services division. [1]

See our complete analysis of Paychex Here

Payroll Services

According to our estimates, payroll services account for over 60% of the total value for the company. The total revenue from the payroll services increased to about $393.7 million, an increment of 2% over the last quarter. Paychex serves more than 567,000 businesses worldwide and almost 82% of these constitute employers having less than 19 employees.

The prime reason for the increased revenue this quarter has been a 2.3% rise in the checks per payroll as compared to 1.8% for the same period last year. This is in line with our forecast of an increase in the number of employees per client to increase to about 20 by the end of our forecast period.

Another reason behind the rise has been the calendar year-end bonus payments to the employees. Also, the revenue per check has increased modestly owing to price increases partially offset by discounts provided by Paychex to its major clients. The total increment in the revenue has also slightly tempered by one less day of payroll processing in the quarter due to the leap year last year.

Human Resources Services

Human Resources Services revenue grew by 10% to $188.7 million for the third quarter compared to the same period last year. This division account for over 30% of Paychex’s value and is mainly comprised of revenues from retirement services, insurance services, HR solutions and SaaS-based solutions.

Retirement services and HR solutions recorded a growth in the revenue as the number of clients and employees per client increased over the period. Another reason has been a consistent rise in the prices charged by Paychex for the services provided. Paychex has also been looking at the Software as a Service (SaaS) solution as a priority area to combat the competition arising from companies like Intuit. It has so far been successful in improving the client base and increasing the prices for its SaaS based solutions. We are closely looking at this division as it may turn out to be a competitive segment in the days to come.

Insurance services’ revenue also added up to the total revenue growth as a result of the improvement in the number of health and benefits services applicants and price increases.

We currently have a $33.87 price estimate for Paychex, which is ~3% less than the current market price.

Click Here To Understand What Drives A Stock At Trefis

  1. Paychex 10-Q []
Rate   |   votes   |   Share


Name (Required)
Email (Required, but never displayed)
Be the first to comment!