Payroll solutions provider Paychex Inc. (PAYX) is due to issue third-quarter results after the financial markets close on Wednesday, March 25. The global meltdown has adversely impacted employment, causing more companies to nip and tuck costs by reducing overtime, freezing salaries, and wielding the axe as a final blow.
Paychex services include payroll processing that involves the calculation, preparation, and delivery of employee payroll checks.
The company derives about three-fourth of its service revenue from the payroll processing business that focuses on small and midsized businesses, and the rest of the service revenue comes from related HR services. The company has more than 100 offices and serves about 572,000 payroll clients nationwide.
Non-farm payroll employment continued to fall sharply by 651 thousand in February, and the unemployment rate rose to 8.1% from 7.6%, according to the Bureau of Labor Statistics of the U.S. Department of Labor, which also says that payroll employment has declined by 2.6 million in the past 4 months. The latest growth echelon of job losses exemplifies that no region is immune to recession that widens and deepens across all major industry sectors.
At this on again, off again economic stance, Paychex believes the stimulus package that has been signed into law recently could have a significant impact on its businesses.
Analysts polled by Thomson Reuters expect the company to report earnings of $0.36 per share on revenues of $536.91 million for the third quarter. Analysts' estimates typically exclude special items. Net income for the year-ago period was $142.5 million or $0.39 per share on revenues of $532.2 million.
Second-quarter net income dropped to $140.2 million or $0.39 per share from $147.1 million or $0.40 per share in the prior year quarter. Revenue grew 3% to $524.2 million from $507.8 million in the same quarter of the previous year.
While announcing second-quarter results, the company lowered its financial growth outlook for fiscal 2009, blaming the current economic and financial conditions. The company said it currently expects 2009 net income to decline in the range of 5% - 7%, and total revenue to increase by 2% - 4%. Earlier, the company had projected earnings growth of 2% - 4%, and total revenue to increase between 6% and 8% for fiscal 2009.
Analysts are looking for earnings of $1.50 per share on revenues of $2.12 billion for fiscal 2009.
Among other players in the sector, Administaff Inc. (ASF), a professional employer organization, reported a decline in fourth-quarter net income, as operating expenses increased on intensified marketing efforts. Net income for the quarter fell 27% to $9.71 million or $0.39 per share, from $13.30 million or $0.50 per share, last year. Quarterly revenues rose 5.9% to $425.99 million from $402.08 million in the year-ago quarter.
Another peer, Automatic Data Processing Inc. (ADP) posted a 3.2% growth in second-quarter profit, helped by higher revenues and benefits from a favorable tax settlement, despite economic headwinds. Weakened selling in Employer Services and PEO Services continued due to market uncertainty about the length and depth of the U.S. recession. The company also reiterated fiscal year 2009 financial targets, riding the strength of its business model. Automatic Data Processing still expects full year earnings per share growth in the range of 10% - 14% from continuing operations and a 2% - 3% revenue growth for fiscal 2009.
Paychex shares, which have been trading between $20.31 and $37.47 in the past 52 weeks, closed Tuesday's trading session at $24.26, up a penny or 0.04% on a volume of 6.28 million shares.
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