Paychex (NASDAQ:PAYX) reported a slight earnings beat but missed revenue estimates for the third quarter, sending its shares down over 5% premarket. The company posted adjusted earnings per share (EPS) of $1.38, just $0.01 above the analysts' consensus of $1.37. However, revenue for the quarter was $1.44 billion, falling short of the consensus estimate of $1.46 billion.
The company's third-quarter performance was marked by a 4% increase in total revenue compared to the same period last year, attributed to growth across its human capital management solutions and an 8% rise in Professional Employer Organization and Insurance Solutions revenue. Despite the revenue miss, Paychex achieved a 7% growth in adjusted diluted EPS and an operating margin expansion due to disciplined expense management amid a challenging labor market and inflationary pressures.
President and CEO John Gibson highlighted the company's commitment to supporting clients with innovative technology solutions, including new AI models that have improved client retention and upsell efforts. "We also delivered 7% growth in diluted earnings per share and continued operating margin expansion in the quarter due to ongoing expense discipline during a period of moderating small business employment and wage growth," Gibson said.
Looking ahead, Paychex has updated its fiscal 2024 outlook, anticipating Management Solutions revenue growth in the range of 3.5% to 4.0% and total revenue growth between 5% to 6%. This guidance reflects the company's expectations in the current macroeconomic environment, which remains subject to change.
The stock's decline following the earnings release underscores investor concerns over the revenue shortfall, despite the company's strong financial position, which includes $1.8 billion in cash, restricted cash, and total corporate investments, and robust cash flow from operations of $1.7 billion for the first nine months of the fiscal year. During this period, Paychex also returned significant value to shareholders through dividends and stock repurchases.
As Paychex navigates the remainder of the fiscal year, the company's focus on leveraging data, analytics, and AI may continue to drive efficiency and client value, but the immediate market response reflects the weight of the revenue miss in investor sentiment.