Services

Paychex Earnings, Sales Up on Strong HR Business

Paychex Inc. (NASDAQ: PAYX) reported first-quarter fiscal 2016 results before markets opened Wednesday. The payroll and benefits outsourcing provider reported quarterly adjusted diluted earnings per share (EPS) of $0.52 on total revenues of $723 million. In the same period a year ago, Paychex reported EPS of $0.47 on revenue of $666.8 million. First-quarter results also compare to the consensus estimates for EPS of $0.51 and $717.55 million in revenue.

On a GAAP basis, first-quarter EPS totaled $0.58, including a tax benefit of approximately $0.06 per share.

Payroll service revenue totaled $432.5 million, up 5% compared with $412.8 million in the year ago quarter. Interest revenue on funds held for clients was up from $10.2 million a year ago to $10.8 million this year. Human resources services revenue rose 15% year over year to $279.7 million from $243.8 million.

Total expenses rose 7%, with operating expenses rising 6% on higher performance-based compensation costs and higher wages.

Operating income rose 11% from $267.5 million to $296.1 million, and net income also rose 22% from $171.3 million to $209.1 million. Net income includes the tax benefit.

In its fiscal year 2016 outlook, Paychex said it expects total service revenue to rise between 7% and 8% while net income is expected to rise in a range of 8% to 9%. The consensus estimates call for EPS to increase from $1.85 in fiscal 2015 to $2.01, a jump of 8.6%. Total revenues are forecast to rise from $2.74 billion to $2.94 billion, up 7.3%. For the second fiscal quarter ending in November, analysts are looking for EPS of $0.51 on revenues of $723.49 million.

The company’s CEO said:

Fiscal 2016 is off to a good start, and we have continued to experience positive results across our major product lines. Payroll service revenue growth was 5%, as expected. We continue to see strong demand for our human resource services, including double-digit growth in the number of client worksite employees served.

Paychex repurchased 1.3 million shares of its common stock during the first quarter, spending $62.9 million of a $350 million authorization that expires in 2017. In July the company boosted its quarterly dividend by 11%, from $0.38 to $0.42 per share.

Shares were up about 2% early Tuesday, at $46.95 in a 52-week range of $41.59 to $51.72. Thomson Reuters had a consensus analyst price target of around $46.75 before the results were announced.

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