Paychex forecasts upbeat full-year results, but quarterly profit falls

HR software firm Paychex PAYX forecast full-year revenue and profit above Wall Street estimates on Wednesday, but its $4.1 billion acquisition of rival Paycor dragged down fourth-quarter profits.

Shares of the company were down 9%.

High interest rates and a volatile macro economy have pressured growth at human capital management firms such as Paychex that depend on small and midsize businesses.

This has led to increasing consolidation within the payroll industry as enterprises look to use cash reserves to grow operations.

Paychex bought payroll processing firm Paycor in January, looking to broaden its artificial intelligence capabilities and consolidate its market share.

The Paycor integration has expanded Paychex's total addressable market and opened up new cross-sell opportunities, though it also contributed to higher costs during the quarter, the company said on Wednesday.

Paychex's management solutions segment's revenue rose 12% in the quarter, but excluding Paycor, the growth was just 3%.

The company also reported a 22% drop in its fourth-quarter earnings per share.

"The strategic investments we continued to make in AI, technology and our customer experience played a significant role in our growth in revenue and profitability, contributing to strong adjusted operating margin expansion this year," Chief Executive Officer John Gibson said.

Paychex expects full-year revenue to grow between 16.5% and 18.5%, compared with analysts' estimate of 14.31%, according to data compiled by LSEG.

It also forecast adjusted earnings per share to rise 8.5% to 10.5%, compared with estimates of 6.8%.

Total revenue for the quarter ended May 31 rose 10% to $1.43 billion, slightly below estimates of $1.44 billion. Adjusted earnings per share of $1.19 in the quarter met expectations.