Paychex Q4 Earnings: CEO Highlights Challenges For Small And Mid-Size Businesses, Stock Slides

Payroll services company Paychex, Inc PAYX reported mixed fiscal fourth quarter results.

The company reported sales growth of 5% year over year to $1.295 billion, in-line with the analyst consensus estimate of $1.296 billion.

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

Management Solutions revenue rose 3% year over year to $930.3 million, 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.

Professional Employer Organization (PEO) and Insurance Solutions revenue increased 9%  year over year to $326.6 million.

Adjusted EPS of $1.12 beat the analyst consensus estimate of $1.10.

Operating income grew 6% to $481.8 million, and the margin expanded by around 30 basis points year over year to 37.2%.

Adjusted operating income grew 15% to $521.3 million, and the margin expanded by around 330 basis points year over year to 40.2%.

As of May 31, 2024, the company held $1.6 billion in cash and equivalents. For the fiscal year, operating cash flow was $1.9 billion.

Chief Executive Officer John Gibson said, “Small and mid-size businesses continue to face a challenging operating environment due to complex regulations, a tight labor market and inflationary pressures.”

Outlook: Paychex expects fiscal 2025 revenue growth of 4.0% to 5.5% versus the $5.55 billion analyst consensus.

The company sees Management Solutions revenue growth in the 3.0% to 4.0% range. It expects PEO and Insurance Solutions revenue growth of 7.0% to 9.0%.

Paychex expects an adjusted EPS growth of 5% – 7% versus the $4.97 analyst estimate.

Price Action: PAYX shares are down 4.77% at $119.06 at the last check on Wednesday.