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Mayank Marwah
Mayank Marwah
Articles (886) 

Overview of Paychex’s 4th-Quarter Results

Revenue at the management solutions division declined 6% year-over-year

July 07, 2020 | About:

On July 7 before the market opened, Paychex Inc. (NASDAQ:PAYX) released the results for its fourth quarter fiscal 2020, which ended May 31. The payroll processor and human resources service provider posted revenue that beat analysts' predictions.

By the numbers

The Rochester, New-York based company recorded adjusted earnings per share of 61 cents in the fourth quarter, down 3% on a year-over-year basis. This in line with the Zacks Consensus Estimate of 61 cents. Quarterly revenue totalled $915.1 million, down 7% from the fourth quarter of the previous year, which beat analyst estimates. Net income for the full fiscal year was $1.1 billion, up 6% compared to the previous year, while revenue was up 7% to $4 billion.

President and CEO Martin Mucci had the following to say:

Fiscal 2020 was on track to be a solid year, reflecting growth across our business. As we began the fourth quarter, COVID-19 caused worldwide business shutdowns directly affecting small and medium-sized businesses, which impacted our business sales and financial performance. Since the end of April, we have seen sequential improvement in our key business metrics across our lines of business.

Segment details

In the Management Solutions division, revenue was $661.8 million in the fourth quarter, which reflected a 6% decrease from the prior-year quarter. The company attributed the decline to a fall in check volumes. This was partly negated by growing demand for retirement services and time and attendance services.

Revenue for its professional employer organization and insurance services segment plunged a combined 11% to $228 million. Decline in the PEO division was driven by a decrease in the number of client worksite employees. A decrease in the insurance service revenue was due to a fall in the number of health and benefit clients. In addition, softness in the workers compensation market adversely impacted insurance service revenue.

Financials

At the end of the fourth quarter, the companys balance of cash, restricted cash and total corporate investments stood at a combined $1 billion. Total debt came in at $801.9 million.

For fiscal 2020, Paychex made dividend payments totalling $889.4 million to the shareholders. In addition, the company bought back 2 million shares for a total cost of $171.9 million.

Outlook

Paychex projects that fiscal 2021 adjusted earnings will decline by 6-10% from fiscal 2020, with revenue falling 2-5%. The effective income tax rate is anticipated to be around 24.5-25%, while the adjusted operating margin is expected to lie between 34% and 35%.

Management Solutions revenue is projected to decline within the range of 1% to 4% and PEO and Insurance Solutions revenue is expected to decline between 2% and 7%.

Disclosure: I do not hold any positions in the stocks mentioned.

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About the author:

Mayank Marwah
A seasoned writer with keen interest in the automotive, technology, telecommunication, retail and aerospace sectors.

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