Payroll services provider Paychex (PAYX.O) reported a rise in second-quarter expenses on Friday. The higher costs overshadowed its upward revision of the annual adjusted earnings forecast. Shares fell 2.6% in early trading and are down around 18% so far this year.
Rising Expenses and Technology Investments
Total expenses for the quarter rose 27% to $985.7 million compared with last year. The increase was driven by higher technology spending and costs tied to integrating payroll processing firm Paycor.
Competitive Market Pressures
Paychex operates in a crowded market alongside Automatic Data Processing (ADP.O), Workday (WDAY.O), and Oracle (ORCL.N). Competition pressures pricing and raises customer acquisition costs. CFO Bob Schrader noted smaller deal sizes and that clients are increasingly cost-conscious, carefully seeking value.
Enhancements to Paychex Flex
The company has upgraded its all-in-one HR management tool, Paychex Flex, to improve usability for employers and employees. These enhancements aim to retain clients and add value amid competitive pressures.
Earnings Forecast and Revenue
Paychex now expects annual adjusted earnings to grow between 10% and 11%, up from a previous range of 9% to 11%. Quarterly revenue ended November 30 at $1.56 billion, slightly below analysts’ $1.57 billion estimate. Adjusted earnings per share came in at $1.26, beating the $1.23 forecast.
