Shares of Paychex Inc. slumped Wednesday, after the human resources services company reported upbeat fiscal fourth-quarter profit and revenue and provided a reassuring view on the economy, but still indicated that revenue growth will slow this year.
The downbeat outlook comes as Chief Executive Martin Mucci said on the post-earnings conference call with analysts that macroeconomic trends for the fiscal year through May 31 have been “positive.” However, he acknowledged that with inflation at a 40-year high, that there are concerns for a potential recession in the near term.
The stock
PAYX,
fell 4.1% in afternoon trading, putting it on track to suffer the first one-day, post-earnings decline in five quarters.
Mucci said that while closely monitoring “key leading indicators” for any changes in the economy, he has “not seen any sign of deterioration” at this time. He said job growth at small businesses remained strong in the face of a tight labor market.
“Typically, the first signs of a macroeconomic recession would be a decline in employment levels at existing clients, an uptick in non-processing clients or a slowdown sales activities,” Mucci said, according to a FactSet transcript. “These indicators continue to trend in a positive direction.”
Also read: The U.S. economy is slowing and likely to soften further, leading indicators show.
But the company’s outlook for fiscal 2023 shows that trend is expected to be less positive than what it was last year.
“In the first half of the year, at this stage, we expect total revenue growth to be in the range of 8% to 9% and with an operating margin of approximately 39%,” Chief Financial Officer Efrain Rivera said on the earnings call. For the second half of the year, “we will see,” he said, citing uncertainties over how the Federal Reserve’s interest rate hikes will impact the latter half of the year.
The revenue growth compares with growth 11.2% in the fiscal fourth quarter and 13.7% for fiscal 2022. Operating margin was 34.4% in the fourth quarter and 39.9% for the year.
Separately, the company reported fourth-quarter net income that rose to $296.4 million, or 82 cents a share, from $263.0 million, or 73 cents a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share increased to 81 cents from 72 cents, and beat the FactSet consensus of 80 cents.
Revenue grew to $1.14 billion from $1.01 billion, topping the FactSet consensus of $1.11 billion.
Paychex’s stock has lost 15.8% year to date, while the S&P 500 index
SPX,
has dropped 20.0%.
