What To Expect From Paychex’s Q1 Earnings

by Trefis Team
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Paychex (NASDAQ: PAYX) is scheduled to announce its Q1 2019 earnings on October 2.  Net sales of the company increased 9% to $871.1 million for the fourth quarter; 7% to $3.4 billion for fiscal 2018. This increase in revenue was driven by growth across all major human capital management (“HCM”) product lines. In particular, comprehensive human resource (“HR”) outsourcing solutions, retirement services, insurance services, and their time and attendance solutions have performed well. Their service delivery also remained strong as they continued to experience favorable client retention results. The company also benefited as their Interest on funds held for clients increased 27% to $17.7 million for the fourth quarter as a result of products and solutions they provided to clients continued to strengthen and enhance their market-leading position. The acquisition of HROI, PEO, and Lessor Group in FY2018  also contributed to the total revenue growth for the company.

Looking ahead based upon current market, economic, and interest rate conditions, for fiscal 2019 the company has forecast sales to grow by 6 to 7% y-o-y  and adjusted earnings  of the company are expected to increase around 11% per share, including the impact of the Tax Act. Please refer to our dashboard on Expectations from Paychex Inc’s Q1 Earnings.

Below are key factors that will likely drive Paychex’s first quarter FY2019 earnings results :

All the Three Segment’s will continue to drive revenue growth– The company posted broad-based growth across all its key segments in Q4. Payroll service revenue saw a 3% increase reaching $452.4 million driven by growth in revenue per check, which improved as a result of price increases, net of discounts. Human Resource Services (“HRS”) revenue increased by 17% y-o-y to $401.4 million driven by increases in client bases across the following HCM services: comprehensive HR outsourcing services, including HROI; retirement services; time and attendance; and insurance services.  Interest on funds held for clients increased by 27% y-o-y to $17.7 million, driven by higher average interest rates earned. These 3 segments in combination of their leading-edge technology and flexible service options will continue to drive stronger returns for Paychex.

Expansion in International markets will aid top line  – Growth prospects in International markets remained strong for Paychex. The company’s operations in have been benefiting post acquisition of Lessor Group as the company continues to expand in new geographies.

Recent Acquisitions to fuel strong returns in FY2019 – During fiscal 2018, Paychex acquired HR Outsourcing Holdings, Inc. (“HROI”), a national professional employer organization (“PEO”), and Lessor Group (“Lessor”), a market leading provider of payroll and HCM software solutions headquartered in Denmark and serving clients in Northern Europe. The combination of Lessor’s payroll and HCM software products with full service business process outsourcing capabilities provided a complete technology-enabled services platform in the markets they serve.  With their continued international market expansion they are welcoming all of the Lessor employees to the Paychex family of products.   The integration of these acquisitions are expected to make a positive contribution to Paychex’s longer-term growth. Driven by these key trends, we anticipate Paychex will continue to post better results in Q1 and beyond.

 

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