Paychex Stock Takes A Hit As Margin Squeeze Overshadows Outlook

Paychex, Inc. PAYX shares are trading lower on Wednesday after reporting fiscal fourth-quarter 2025 earnings.

The company reported quarterly revenue growth of 10% year-on-year to $1.43 billion, marginally missing the analyst consensus estimate of $1.44 billion.

The company reported an adjusted EPS of $1.19, which aligns with the analyst consensus estimate.

Also Read: Paychex Analyst Sees Limited Upside Despite Q3 Profitability Surge

Revenue from Management Solutions increased 12% to $1.0 billion, driven by the acquisition of Paycor.

The revenue from Professional Employer Organizations (PEO) and Insurance Solutions increased 4% to $340.3 million.

Total expenses increased 22% to $1.0 billion due to acquisition-related costs associated with the Paycor acquisition.

Operating income for the quarter decreased 11% to $431.1 million, and the operating margin declined 700 basis points to 30.2%.

Adjusted operating income grew 11% to $576.7 million, and the margin remained flattish at 40.4%. Excluding Paycor, the adjusted operating margin expanded by approximately 110 basis points compared to the prior year.

Adjusted EBITDA climbed 10% to $623.1 million, but the adjusted EBITDA margin remained flat.

Paychex held $1.7 billion in total cash and equivalents as of May 31, 2025. The operating cash flow for the quarter totaled $400 million.

In a move to enhance shareholder value, Paychex bought back 828,855 shares for $104.0 million and paid out cumulative dividends totaling $1.4 billion at $4.02 per share over the fiscal year 2025.

Fiscal 2026 Outlook

Paychex expects fiscal revenue of $6.49 billion-$6.60 billion versus the $6.36 billion analyst consensus estimate. It projects fiscal adjusted EPS of $5.40-$5.50 versus the $5.31 analyst consensus estimate. The company expects a fiscal adjusted operating margin of ~43%.

Price Action: PAYX shares are trading lower by 9.33% at $138.04 at last check Wednesday.

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