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Paychex Profit Rises, Backs Full-Year Outlook

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Paychex Inc. (PAYX) Wednesday reported a 5 percent increase in second-quarter profit, driven largely by strong performance at human resource services business. Earnings for the quarter came in line with analysts' expectations, but revenues fell short of estimates.

Moving ahead, the payroll processor reaffirmed its full-year 2012 earnings and revenue outlook.

Chief Executive Martin Mucci said, "We made solid progress in the second quarter. While payroll services revenue grew modestly at 1.4 percent, impacted by client disruptions from Hurricane Sandy, Human Resource Services revenue grew at a double-digit rate as we continue to experience success in selling value-added solutions to our clients."

Human resource services revenue increased 12 percent to $182.4 on client growth and price increases. Payroll service revenue edged up 1 percent to $377.0 million reflecting a 1.2 growth in checks per payroll and a modest increase in revenue per check. The company said the growth at payroll service was pressurized by Hurricane Sandy.

Paychex, which manages payroll accounting for small to medium sized companies, said total revenues for the second quarter grew 5 percent to $569.4 million from $545.7 million last year. Eighteen analysts had consensus revenue estimate of $573.03 million for the quarter.

Operating income, net of certain items, as a percent of total service revenue advanced to 39.3 percent from 38.7 percent last year.

Rochester, New York-based Paychex's second-quarter profit improved to $147.9 million or $0.41 per share from $140.4 million or $0.39 per share last year. Analysts polled by Thomson Reuters expected earnings of $0.41 per share for the period. Analysts' estimates typically exclude special items.

For the past few quarters, Paychex has been able to improve its profit, however the high unemployment and lower interest rates has tempered its bottom line growth, as it has not been able to grow client base or increase the interest on funds held for clients.

Interest on funds held for clients for the quarter declined 8 percent to $10.0 million.

Looking forward to fiscal year 2013, Paychex continues to estimate net income to grow 5 to 7 percent and total service revenues to grow 5 to 6 percent over 2012.

However, the company lowered its payroll service business revenues estimate to a range of 2 to 3 percent, from its prior estimate of 3 to 4 percent. Paychex anticipates growth in client base to be offset by lower growth in checks per payroll and modest increases in revenue per check.

PAYX closed Wednesday's trading at $33.05, down $0.11 or 0.33%, on the Nasdaq. The stock gained $0.08 or 0.24% in after-hours trade.

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