On June 26, 2024, Paychex Inc (PAYX, Financial) released its 8-K filing reporting its financial results for the fourth quarter and full fiscal year ended May 31, 2024. Paychex, a leading provider of payroll, human capital management, and insurance solutions, serves over 740,000 clients and pays over 1 in 12 U.S. private-sector workers.
Quarterly and Annual Financial Highlights
For the fourth quarter, Paychex reported total revenue of $1.3 billion, a 5% increase from the prior year, closely aligning with the analyst estimate of $1.295 billion. The company achieved a diluted earnings per share (EPS) of $1.05, an 8% increase from the previous year, slightly below the analyst estimate of $1.10. Adjusted diluted EPS was $1.12, a 15% increase from the prior year.
For the full fiscal year 2024, Paychex reported total revenue of $5.278 billion, a 5% increase from the previous year, aligning with the annual estimate of $5.277 billion. The company achieved a diluted EPS of $4.67, a 9% increase from the previous year, slightly below the annual estimate of $4.71. Adjusted diluted EPS was $4.72, an 11% increase from the prior year.
Performance Analysis
Paychex's revenue growth was driven by a 3% increase in Management Solutions revenue to $930.3 million and a 9% increase in Professional Employer Organization (PEO) and Insurance Solutions revenue to $326.6 million. Interest on funds held for clients increased significantly by 54% to $38.2 million due to higher average interest rates and invested balances.
Total expenses for the fourth quarter increased by 5% to $813.3 million, primarily due to cost optimization initiatives and increased PEO direct insurance costs. Despite these increases, operating income grew by 6% to $481.8 million, and adjusted operating income grew by 15% to $521.3 million. The operating margin for the fourth quarter was 37.2%, with an adjusted operating margin of 40.2%.
Key Financial Metrics
| Metric | Q4 2024 | Q4 2023 | Change |
|---|---|---|---|
| Total Revenue | $1,295.1 million | $1,229.6 million | 5% |
| Operating Income | $481.8 million | $453.3 million | 6% |
| Diluted EPS | $1.05 | $0.97 | 8% |
| Adjusted Diluted EPS | $1.12 | $0.97 | 15% |
Financial Position and Liquidity
As of May 31, 2024, Paychex reported a strong financial position with cash, restricted cash, and total corporate investments of $1.6 billion. The company had short-term and long-term borrowings, net of debt issuance costs, of $817.3 million. Cash flow from operations was $1.9 billion for the fiscal year.
Return to Stockholders
During fiscal 2024, Paychex paid cumulative dividends of $3.65 per share totaling $1.3 billion, resulting in a dividend payout ratio of 78% of net income. The company also repurchased 1.5 million shares of its common stock for $169.2 million.
CEO Commentary
"As we close out the fiscal year, I am pleased to report that Paychex delivered solid financial results, reflecting our ability to navigate changing market conditions by providing innovative HR technology and advisory solutions that deliver value for our clients and their employees and continually finding ways to operate more efficiently as a company. In fiscal 2024, we achieved 5% growth in total revenue, 9% growth in diluted earnings per share and 11% growth in adjusted diluted earnings per share. These results are a testament to the hard work and dedication of our more than 16,000 employees and the investments we have made in our technology and advisory solutions." - John Gibson, President and Chief Executive Officer
Challenges and Outlook
Paychex continues to face challenges such as complex regulations, a tight labor market, and inflationary pressures. Despite these challenges, the company remains committed to helping small and mid-size businesses succeed. For fiscal 2025, Paychex anticipates total revenue growth in the range of 4.0% to 5.5% and adjusted diluted EPS growth in the range of 5% to 7%.
For more detailed information, please refer to the 8-K filing.
Explore the complete 8-K earnings release (here) from Paychex Inc for further details.
