Paychex CEO sees no sign of recession yet, but sales growth expected to slow

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The shares of Paychex Inc. fell on Wednesday after the human resources services company reported optimistic earnings and revenue for the fourth fiscal quarter and provided a reassuring view of the economy, but still indicated that revenue growth will slow. this year.

The negative outlook comes when CEO Martin Mucci said in 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 in the 40-year high, there are concerns about a possible short-term recession.

PAYX shares,
it fell 4.1% in the afternoon, allowing it to suffer its first one-day drop after gains in five quarters.

Mucci said that while he is closely monitoring the “key key indicators” of any change in the economy, “he has not seen any signs of deterioration” at the moment. He said employment growth in small businesses remained strong in the face of a tight labor market.

“In general, the first signs of a macroeconomic recession would be a decline in existing customer employment levels, an increase in unprocessed customers, or a slowdown in sales activities,” Mucci said, according to a transcript from FactSet . “These indicators continue to have a positive trend.”

Also read: The US economy is slowing and is likely to soften further, leading indicators show.

But the company’s outlook for fiscal year 2023 shows that the trend is expected to be less positive than it was last year.

“In the first half of the year, at this stage, we expect total revenue growth to be between 8% and 9% and with an operating margin of approximately 39%,” said CFO Efrain Rivera on the results call. . For the second half of the year, “we’ll see,” he said, citing uncertainties about how Federal Reserve interest rate hikes will affect the second half of the year.

Revenue growth is compared to 11.2% growth in the fourth fiscal quarter and 13.7% for fiscal year 2022. Operating margin was 34.4% in the fourth quarter and 39 , 9% for the year.

Separately, the company posted fourth-quarter net income, which rose to $ 296.4 million, or 82 cents a share, from $ 263.0 million, or 73 cents a share, in the same period. from a year ago. Excluding non-recurring items, earnings adjusted per share increased to 81 cents from 72 cents and exceeded the FactSet consensus of 80 cents.

Revenue rose to $ 1.14 billion from $ 1.01 billion, surpassing FactSet’s consensus of $ 1.1 billion.

Paychex shares have lost 15.8% so far, while the S&P 500 SPX index,
has fallen by 20.0%.

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