Payroll solutions provider Paychex Inc. (PAYX), said Wednesday that its third quarter profit declined 8% from last year, hurt by the worsening economic conditions, with resultant massive job cuts worldwide. The company also lowered its revenue growth outlook for fiscal 2009, adjusted to the prevalent economic and financial conditions.
The Rochester, New York-based company reported third quarter net income of $130.8 million or $0.36 per share, down 8% from $142.5 million or $0.39 per share in the prior year quarter. On average, 14 analysts polled by Thomson Reuters expected the company to earn $0.36 per share for the third quarter. Analysts' estimate typically excludes special items.
Total revenue for the third quarter decreased 1% to $528.6 million from $532.2 million in the same quarter last year. Eleven analysts had a consensus revenue estimate of $536.91 million for the third quarter.
Jonathan Judge, President and CEO of Paychex said, Our financial results continue to be challenged by weakening economic conditions in the third quarter, as many of our key indicators were weaker than on a year-to-date basis.
Payroll service revenue grew 2% to $381.2 million for the latest quarter, due to price increases and growth in the utilization of ancillary payroll services. Human Resource Services revenue rose 9% to $131.0 million over last year.
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.
Checks per client for the third quarter saw a 4.3% decline with lower levels of new hiring.
Operating income declined 6% to $197.4 million from $210.4 million in the previous year quarter. Operating income, net of certain items, grew 5% to $181.0 million from $173.0 million in the year-ago quarter.
For the nine-month period of 2009, Paychex posted net income of $419.7 million or $1.16 per share, down from $440.7 million or $1.18 per share in the previous year period.
Total revenue for the year-to-date period increased 3% to $1.6 billion from $1.5 billion in the preceding year period.
For fiscal 2009, Paychex still expects net income to decline in the range of 7% to 5%. Total revenue is currently expected to grow in the range of 0% to 2%. Earlier, the company anticipated total revenue to increase by 2% to 4%.
Analysts expect the company to report earnings of $1.50 per share on revenue of $2.12 billion for the year.
Commenting on the company's outlook, Paychex CEO said, We expect the difficult economic conditions will continue throughout the remainder of fiscal 2009 and into fiscal 2010.
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.
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.
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.
Automatic Data Processing Inc. (ADP), another outsourcing solutions provider, reported a 3.2% increase in second quarter profit helped by higher revenues and a benefit from favorable tax settlement, despite economic headwinds. However, the company revised its earnings forecast and lowered its revenue growth outlook for fiscal 2009, citing unfavorable foreign exchange rates and pricing pressures amid global meltdown.
Paychex closed Wednesday's regular trading session at $23.62, down 64 cents or 2.64% on a volume of 9.88 million shares. In the after-hours, the shares gained 13 cents.
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