Paychex Profit Jumps as Costs Flatten
The payroll processor’s operating margin hit 37.7% after acquisition-related expenses eased.
The human-resources software provider Paychex (PAYX) posted a 43% jump in fourth-quarter earnings per share, as costs held nearly flat and operating leverage returned. Results for the period ended May 31 capped a year in which full-year profit growth accelerated even as revenue gains cooled from the prior quarter’s torrid pace.
The quarter marked a sharp reversal in profitability trends. Operating income climbed 40% from the year-earlier period to $604.7 million, more than twice the 14% growth recorded in the third quarter. The swing was driven by a deceleration in total expenses, which were essentially unchanged year-over-year after rising 24% in the prior quarter. Acquisition-related costs fell, the company said, allowing margins to rebound.
Revenue rose 12% to $1.606 billion, down from 20% growth in the January quarter. Within that total, Management Solutions revenue increased 14% to $1.2 billion, but the contribution from the Paycor acquisition shrank to 8% of the segment’s growth from 19% three months earlier. PEO and Insurance Solutions revenue grew 9% to $369.7 million, matching the prior quarter’s pace. Interest income on client funds climbed 15% to $52.2 million, slowing from 33% growth in the third quarter.
Operating margin expanded to 37.7% from 30.2% a year earlier, reversing a slide from 43.8% in the third quarter. Adjusted operating margin was 42.1%, down from 47.7% in the prior quarter but above the 40.4% recorded in the year-ago period. Diluted earnings per share rose 43% to $1.17, while adjusted earnings per share grew 11% to $1.32, decelerating from 15% growth in the third quarter.
For the full fiscal year, revenue grew 17% to $6.512 billion, accelerating from 6% growth in fiscal 2025. Operating income climbed 14% to $2.511 billion, and adjusted operating income rose 19% to $2.815 billion, both outpacing the prior year’s gains. Full-year operating margin was 38.6%, down from 39.6% in fiscal 2025, while adjusted operating margin improved to 43.2% from 42.5%.
The company reiterated its adjusted diluted earnings-per-share guidance for fiscal 2027 at 10% to 11% growth, unchanged from prior quarters. Interest income on funds held for clients is now expected to reach $200 million to $210 million, up from the $190 million to $200 million range provided in the third quarter.
Paychex also launched WISE, an AI-powered workforce intelligence engine, during the quarter. Separately, the company returned $2.2 billion to shareholders in fiscal 2026, including roughly $700 million in the fourth quarter.