ROCHESTER, N.Y. – The economy took a chunk out of Paychex’s operations for the first quarter ended August 31 as net income fell 17 percent on a 5-percent decline in revenue. However, the company saw signs business is improving as the recently ended period was the first in four sequential quarters in which there was not a decline in checks per clients. Executives were optimistic that the worst is over, given the combination of general economic and internal company indicators.Net income fell to $123.6 million, down from $148.7 million in last year’s corresponding period. Revenue hit $500.2 million, down from $534.1 million in the first quarter of fiscal 2009. The majority of revenue comes from payroll services, which fell to $354.4 million, off 6 percent from a year earlier. Besides facing lost business from continuing jobs cuts, Paychex also was impacted by low interest rates. It received $13.7 million from interest on funds held for clients, down 43 percent, and also by a bad investment environment.
"One might assess that quarter as being pretty drab. We didn’t get a lot better or get a lot worse," CEO Jonathan Judge said an earnings conference call today. However, given the prior quarters, the sharp declines stopped. Judge also said the company faced tough comparisons to a year ago results since last year's August quarter reflected good economic conditions.
Losses from business failures increased slightly, but were "almost flat and hopefully about to turn positive," Judge said. For the fourth quarter of 2009 ended May 31, the number of clients lost due to companies going out of business was up 19 percent; but that figure showed only a 1 percent increase for the August period. Sales to new clients from new business starts were off 27 percent for the fourth quarter, improving to a 13 percent loss for the first.