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Mayank Marwah
Mayank Marwah
Articles (1023) 

Paychex Beats Projections on Strong Management Solutions Result

Revenue at management solutions surged 1% year-over-year

December 23, 2020 | About:

On Dec. 23 before the market opened, Paychex Inc. (NASDAQ:PAYX) released the results for its second quarter fiscal 2021, which ended Nov. 30. The payroll processor and human resources service provider posted earnings and revenue that beat analysts' predictions.

The key numbers

The Rochester, New-York based company recorded adjusted earnings per share of 73 cents in the second quarter, up 4% on a year-over-year basis. Quarterly revenue totalled $983.7 million, down 1% from the second quarter of the previous year. Analysts had predicted EPS of 66 cents on $952.9 million in revenue.

President and CEO Martin Mucci had the following to say:

"Financial results for the second quarter showed continued recovery in our key business metrics. The effects of the COVID-19 pandemic impacted our results and year-over-year comparisons; however, client retention remains strong, and our sales performance has resulted in year-over-year growth in the number of clients sold and serviced. We remain focused on providing excellent customer service, human resource ("HR") expertise, and product innovations to support our clients through the challenges of the pandemic. In addition, our margins have demonstrated sequential improvement as our cost-saving initiatives have proceeded as expected."

Segment details

In the Management Solutions division, revenue was $732.8 million in the second quarter, which reflected a 1% growth from the prior-year quarter. The company attributed the growth to an increase in its client base. Additionally, growing demand for retirement services and time and attendance services helped.

Revenue for its professional employer organization (PEO) and insurance services segment plunged a combined 3% to $236.1 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.

The Covid-19 response

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 environments. 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."


At the end of the first quarter, the company's balance of cash, restricted cash and total corporate investments stood at a combined $963.4 million. Total debt came in at $803.9 million.

For the first two quarters, Paychex made dividend payments totalling $446.7 million to the shareholders. In addition, the company bought back 400,000 shares for a total cost of $28.8 million.

Looking ahead

Paychex has provided fiscal 2021 guidance. The company projects that adjusted earnings per share will decline by 1-4% from fiscal 2020, with revenue either remaining flat or falling as much as 3%.. The effective income tax rate is anticipated to be around 24%, while the adjusted operating margin is expected to lie at around 36%.

Management Solutions revenue is projected to fall or increase as much as 1%, 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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About the author:

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

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