On Oct. 6 before the market opened, Paychex Inc. (PAYX, Financial) released the results for its first quarter fiscal 2021, which ended Aug. 31. The payroll processor and human resources service provider posted earnings and revenue that beat analysts' predictions.
By the numbers
The Rochester, New-York based company recorded adjusted earnings per share of 63 cents in the first quarter, down 11% on a year-over-year basis. Quarterly revenue totalled $932.2 million, down 6% from the first quarter of the previous year. Analysts had predicted EPS of 5 cents on $893.6 million in revenue.
President and CEO Martin Mucci had the following to say:
"The effects of the COVID-19 pandemic continue to impact our results causing unfavorable year-over-year comparisons, however, client retention has remained strong and sales performance is accelerating with year-over-year growth in the number of clients sold. We continue to provide excellent customer service and invest in our business while remaining cost-conscious. Cost-saving initiatives are underway and proceeding as expected."
Segment details
In the Management Solutions division, revenue was $687.4 million in the first quarter, which reflected a 5% 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 (PEO) and insurance services segment plunged a combined 7% to $229.9 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.
Response to pandemic
The company has recently come up with new features in its Paychex Flex, which is a comprehensive solution for all the services company provides be it HR-payroll, time and attendance, benefits and more. The newly added solutions would help clients not only to stay connected with workers working at a remote place but also workers who are returning to office. Mucci added:
"Our mobile technology delivers solutions for ongoing health attestations, time clocks with iris scanning capabilities and paperless reporting and tracking of COVID-19 exposure and return to work testing, including automated Occupational Safety and Health Administration reporting requirements. We believe our current and past investments in our platforms have prepared us well for the demands of this environment, allowing us to adapt while maintaining high levels of service delivery resulting in strong client satisfaction and retention."
Financials
At the end of the first quarter, the company's balance of cash, restricted cash and total corporate investments stood at a combined $952.1 million. Total debt came in at $803 million.
For the first quarter, Paychex made dividend payments totalling $223.2 million to the shareholders. In addition, the company bought back 400,000 shares for a total cost of $28.8 million.
Outlook
Paychex has provided fiscal 2021 guidance. The company projects that adjusted earnings will decline by 6-8% from fiscal 2020, with revenue falling 2-4%. The effective income tax rate is anticipated to be around 24-25%, while the adjusted operating margin is expected to lie at around 35%.
Management Solutions revenue is projected to decline within the range of 1% to 3% and PEO and Insurance Solutions revenue is expected to decline between 2% and 5%.
Disclosure: I do not hold any positions in the stocks mentioned.
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