Payroll services giant Paychex, Inc. (PAYX) delivered a solid performance in its fiscal first quarter, sending its stock price higher. The company’s revenue grew by 3% year-over-year to $1.32 billion, aligning with analyst expectations. Even more impressive, its adjusted earnings per share (EPS) came in at $1.16, surpassing the analyst consensus estimate of $1.14.
Paychex’s success can be attributed to strong growth across its core business segments. Management Solutions revenue increased by 1% year-over-year to $961.7 million, driven by the addition of new clients and increased product penetration within its human capital management (HCM) solutions suite. The company’s HR Solutions and Retirement offerings also contributed to this growth. Meanwhile, revenue from Professional Employer Organizations (PEO) and Insurance Solutions climbed by 7% year-over-year to $319.3 million.
While Paychex’s operating income rose by 2% to $546.7 million, its margin slightly decreased by 20 basis points year-over-year to 41.5%. This dip was attributed to the expiration of the Employee Retention Tax Credit (ERTC) program. Despite this, the company’s financial position remains strong, with $1.6 billion in cash and equivalents as of August 31, 2024, and $546.1 million in operating cash flow generated during the quarter.
John Gibson, Paychex’s President and CEO, highlighted the resilience of small and mid-sized businesses, stating that “Small and mid-sized businesses remain resilient as the U.S. labor market gradually returns to its pre-pandemic level and wage inflation continues to moderate.” He also emphasized the company’s continued investment in its products and go-to-market capabilities to drive innovation and meet the evolving needs of the post-pandemic marketplace.
Looking ahead, Paychex reaffirmed its fiscal 2025 guidance, which it initially shared during its fourth-quarter earnings release. The company anticipates revenue growth in the range of 4.0%-5.5%, exceeding the analyst consensus estimate of $5.52 billion. Paychex expects Management Solutions revenue growth to be between 3.0%-4.0%, PEO and Insurance Solutions revenue growth to be between 7.0%-9.0%, and adjusted EPS growth to be between 5%-7%, surpassing the analyst estimate of $4.98.
The positive outlook and strong earnings have fueled investor confidence in Paychex, reflected in its stock performance. PAYX shares have climbed 18% in the past 12 months, and on Tuesday, the stock surged by 4.42% to $140.12.
