Paychex Delivers Q2 Earnings Beat As HR Solutions Demand Stays Strong

Payroll services company Paychex, Inc PAYX shares are trading higher after the company reported second-quarter results.

The company reported sales growth of 5% year over year to $1.316 billion, which aligns with the analyst consensus estimate. Adjusted EPS of $1.14 (+6% YoY) beat the analyst consensus estimate of $1.13.

Management Solutions revenue rose 3% to $962.9 million, driven by client growth and higher product penetration.

PEO and Insurance Solutions revenue grew 7% to $317.9 million in he quarter, driven by higher PEO worksite employees and increased insurance revenues.

Operating income increased 6% to $538.1 million, with the operating margin rising to 40.9% from 40.2%. The expiration of the ERTC program impacted operating income.

As of November 30, 2024, the company reported $1.3 billion in cash and investments and $841.1 million in operating cash flow for the six months. The company paid $706.2 million in cumulative dividends and repurchased 828,855 shares for $104.0 million in six months.

“The demand for our comprehensive suite of solutions remains solid as we head into the selling season with a new set of award-winning solutions tailored to meet the unique needs of small and medium-sized businesses. In the face of challenging labor market conditions and rising healthcare and benefits costs, many businesses are reevaluating their HR strategies as we head into the new year,” commented President and Chief Executive Officer John Gibson.

Outlook: The fiscal 2025 outlook remains unchanged, with expected revenue growth of 4.0% – 5.5%, reflecting $5.489 billion – $5.569 billion (consensus $5.521 billion).

Paychex anticipates Management Solutions revenue growth of 3.0% – 4.0%, PEO and Insurance Solutions growth of 7.0% – 9.0%, and adjusted EPS growth of 5% – 7%, representing $4.96 – $5.05 versus the $4.99 analyst estimate.

Price Action: PAYX shares are trading higher by 2.64% at $139.45 at the last check Thursday.

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