Paychex Inc (NASDAQ:PAYX) Posts Mixed Result

Paychex Inc (NASDAQ:PAYX) stock fell 1.28% (As on April 3, 11:16:24 AM UTC-4, Source: Google Finance) after the company posted mixed results for the third quarter of FY 24. Management Solutions revenue increased 2% to $1.0 billion for the third quarter primarily impacted by the growth in the number of clients served across our suite of human capital management (“HCM”) solutions; higher product penetration, including HR Solutions and Retirement; and a decline in revenue from ancillary services, primarily due to the winding down of the ERTC Service, which impacted growth by approximately 300 basis points. Professional Employer Organization (“PEO”) and Insurance Solutions revenue increased 8% to $345.5 million for the third quarter primarily due to the growth in the number of average PEO worksite employees; and increase in PEO insurance revenues. Interest on funds held for clients increased 25% to $43.9 million for the third quarter primarily due to higher average interest rates.

PAYX in the third quarter of FY 24 has reported the adjusted earnings per share of $1.38, beating the analysts’ estimates for the adjusted earnings per share of $1.36, according to Zacks Investment Research. The company had reported the adjusted revenue growth of 4 percent to $1.44 billion in the third quarter of FY 24, missing the analysts’ estimates for revenue of $1.46 billion. Operating income grew 6% to $649.8 million for the third quarter. Total expenses increased 3% to $789.5 million for the third quarter primarily due to the higher compensation costs driven by increases in average headcount and wage rates; and Increase in PEO direct insurance costs related to growth in average worksite employees and PEO insurance revenues. Operating margin (operating income as a percentage of total revenue) expanded by approximately 80 basis points to 45.1% for the third quarter compared to 44.3% for the prior year period.  As of February 29, 2024, the company had Cash, restricted cash, and total corporate investments of $1.8 billion, Short-term and long-term borrowings, net of debt issuance costs, of $817.3 million and Cash flow from operations was $1.7 billion for the nine months.

For fiscal 2024, Management Solutions revenue is now anticipated to grow in the range of 3.5% to 4.0%, Total revenue is now anticipated to grow in the range of 5% to 6% and Other income, net is now anticipated to be in the range of $40 million to $45 million.

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