Paychex (PAYX 60.18, -0.40) has shed 0.6% despite reporting a slim earnings beat for the third quarter. While the stock trades lower today, it is not far below its record high (63.03) that was notched in the middle of March.
The provider or payroll services, HR solutions, retirement services, and insurance reported above-consensus third quarter earnings of $0.55 per share on a 5.7% year-over-year increase in revenue to $795.80 million, which was just shy of estimates.
The company noted that it is encouraged by a recent increase in confidence among small businesses. Paychex believes it is positioned to respond to potential changes in the political and regulatory landscape.
The increase in revenue was driven by a 12.0% surge in Human Resource Services revenue, which grew to $336 million. Payroll service revenue grew 2.0% to $446.60 million.
Growth in Human Resource Services revenue was due to increases in client base across all major human capital management segments. Increased demand for these services drove an increase in the number of client worksite employees served. Retirement services revenue benefited from an increase in asset fee revenue. Insurance services revenue was boosted by higher revenue from the company's full-service Affordable Care Act product, coupled with higher average premiums.
Paychex' 2.0% growth in payroll service revenue reflected growth in revenue per check and an increase in the company's client base. The increase in revenue per check was due to price increases net of discounts. The third quarter had one fewer processing day when compared to the same period one year ago, which removed a percentage point from the growth rate.
Interest on funds held for clients grew 11.0% to $13.20 million. The growth was due to slightly higher average interest rates earned.
Paychex reaffirmed its guidance for the fiscal year, expecting that payroll service revenue will be up between 3.0% and 4.0% while Human Resource Services revenue is expected to be up between 12.0% and 14.0%. This should translate to total service revenue growth between 7.0% and 8.0%.