Behind The Numbers: Paychex Delivers 4% Sales Growth In Q3, Raises Eyebrows With Revised Outlook

Payroll services company Paychex, Inc. PAYX reported mixed third-quarter FY24 results.

The company reported sales growth of 4% Y/Y to $1.439 billion, missing the analyst consensus estimate of $1.458 billion.

Total revenue growth in the third fiscal quarter reflected a lower contribution from the company’s Employee Retention Tax Credit (ERTC) Service than the prior year period.

Management Solutions revenue rose 2% Y/Y to $1.0 billion, led by growth in the number of clients served across the human capital management (HCM) solutions suite and higher product penetration, including HR Solutions and Retirement.

Adjusted EPS of $1.38 beat the analyst consensus estimate of $1.37.

Operating income grew 6% to $649.8 million, with margin expanded by around 80 basis points Y/Y to 45.1%.

The company held $1.8 billion in cash and equivalents as of February 29, 2024. Operating cash flow for the year-to-date period totaled $1.7 billion.

Also Read: Paychex Earnings Are Imminent; These Most Accurate Analysts Revise Forecasts Ahead Of Earnings Call

Outlook: Paychex revised its FY24 revenue growth outlook to 5% to 6% (from +6% to +7% earlier).

The company now sees Management Solutions revenue growth in the 3.5% to 4.0% range.

Last quarter, the company forecasted an adjusted EPS growth outlook of 10%-11%.

John Gibson, President and Chief Executive Officer, said, “We are continuing to prioritize investments in data, analytics, and artificial intelligence (AI) to streamline our internal processes and offer greater value and actionable insights to our clients, as evidenced by our recent creation of a new role of senior vice president of data, analytics, and AI.” 

Investors can gain exposure to the stock via USCF ETF Trust USCF Dividend Income Fund UDI and SmartETFs Dividend Builder ETF DIVS.

Price Action: PAYX shares are down 0.05% at $121.56 on the last check Tuesday.