Paychex Raises PEO Growth Outlook After Advisory Mix Shift
PEO and Insurance Solutions revenue rose 12% to $367.6 million as Management Solutions growth cooled to 4%.
Paychex (PAYX), a provider of HR, payroll, and benefits software, reported first-quarter fiscal 2027 revenue of $1.63 billion, up 6% from a year earlier, as the mix of the business tilted toward professional employer organization and insurance work.
That 6% increase marked a sharp slowdown from 12% growth in the fiscal quarter ended May 31 and 20% growth two quarters earlier. Management Solutions, the larger of the two reportable lines, rose 4% to $1.21 billion. The increase reflected higher revenue per client from price realization and product penetration. Interest on funds held for clients was $49.8 million.
PEO and Insurance Solutions was the inflection. Revenue in that line rose 12% to $367.6 million, after 9% growth in both the immediately preceding fiscal quarter and the quarter before it. The latest increase was primarily due to growth in the number of average PEO worksite employees and increased PEO insurance volumes. President and Chief Executive Officer John Gibson said double-digit PEO and Insurance Solutions revenue and EPS growth underscored the strength of advisory solutions.
Operating income was $619.2 million, up 14% from a year earlier. The increase primarily reflected revenue growth and lower acquisition-related costs. Acquisition-related costs were $65.5 million, including $56.9 million of Paycor intangible amortization and $8.5 million of Paycor integration compensation. Adjusted operating income was $684.7 million. Operating margin was 38.0% and adjusted operating margin was 42.0%.
Diluted earnings were $1.21 a share. Adjusted diluted earnings were $1.34 a share. Net income was $429.7 million. Selling, general and administrative expenses were $581.2 million. Cost of service revenue was $430.1 million.
Cash flow from operations was $413.5 million. The company paid dividends of $1.19 a share, totaling $424.1 million. Cash, restricted cash, and total corporate investments were $1.0 billion as of August 31, 2026. Long-term borrowings, net of debt issuance costs, were $4.6 billion. Funds held for clients were $4.35 billion.
Gibson said Paychex launched WISE Hire, an agentic recruiting solution, and extended AI-enabled automation into Microsoft business applications where clients already work. The company serves approximately 840,000 customers.
For fiscal 2027, Paychex raised its PEO and Insurance Solutions revenue growth outlook to 7% to 8% from 6% to 7%. It also raised interest on funds held for clients guidance to $200 million to $210 million from $195 million to $205 million. Total revenue growth guidance remained 5% to 6%, as did Management Solutions growth guidance of 5% to 6%. Adjusted operating margin guidance remained about 44%, the effective income tax rate about 24%, and adjusted diluted earnings per share growth 7% to 9%.