Strong business retention helps Paychex beat Q3 results, stock up +6%
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Shares of Paychex (NASDAQ:PAYX) surged as much as 6.4% to $114.92 on Wednesday after the company reported third quarter results which easily surpassed Wall Street expectations.
The company, which offers payroll services, posted Q3 Non-GAAP EPS of $1.29, beating consensus by 5 cents. Revenue of $1.38 billion was not only +7.8% Y/Y, but also ahead of estimates by at least $30 million.
âThe third fiscal quarter reflected continued growth with 8% in total revenue and double digit adjusted diluted earnings per share. Solid execution throughout our calendar year-end and selling season resulted in growth in new sales and strong retention," President and CEO John Gibson said in a statement.
Q3 Revenue breakdown: Total Service Revenue $1,345.7M (Management solutions $1,024.5M + PEO and insurance solutions $321.2M) + Interest on funds held for clients $35.3M.
Other metrics: Operating expenses $769.1M vs. $713.2M last year, Operating income $611.9M vs. $562.8M, Net income $467.4M vs. $430.7M, EBITDA $655.8M vs. $611.2M.
PAYX had cash and other investments of $1.6 billion as of Feb. 28, 2023, and its cash flow at the end of nine months was $1.3 billion. The company has paid cumulative dividends of $2.37 per share, amounting to about $854.1 million in the last three quarters.
For fiscal 2023, the Rochester, New York-based company said it expects management solutions revenue to grow by about 8%, while anticipating interest on funds held for clients in the range of $100M to $105M.
Other income for 2023 is forecasted in the range of $10 million to $15 million, and adjusted EPS is now expected to grow 13% to 14%. The consensus estimate for 2023 EPS is $4.25.
PAYX fell 13.5% in 2022, while the benchmark S&P 500 index slipped 20% for the year.
Seeking Alpha contributor Daniel Jones recently laid out a "Hold" case for PAYX.