10:47 AM EDT, 06/26/2024 (MT Newswires) -- Paychex ( PAYX ) expects earnings growth to slow down year over year in fiscal 2025 even as it reported better-than-expected fourth-quarter results.

The company projects per-share adjusted earnings to rise by 5% to 7% for the ongoing 12-month period, compared with the 11% gain it recorded in the fiscal year ended May 31. Revenue is anticipated to increase between 4% and 5.5%, compared with 5% growth in fiscal 2024. The consensus on Capital IQ is for normalized EPS of $4.99 and revenue of $5.54 billion.

"Small and mid-size businesses continue to face a challenging operating environment due to complex regulations, a tight labor market and inflationary pressures," Chief Executive John Gibson said in a statement. "Our purpose remains to help these businesses succeed, and we believe we are well positioned to achieve that mission in the upcoming fiscal year."

Revenue in the firm's management solutions segment is pegged to increase by 3% to 4% for the fiscal year, while professional employer organization and insurance solutions is forecast to climb by 7% to 9%.

For the three-months through May 31, Paychex's ( PAYX ) adjusted EPS jumped 15% to $1.12, topping the Street's view for $1.10. Revenue nudged higher to nearly $1.3 billion from $1.23 billion, just ahead of analysts' $1.29 billion estimate. "Paychex ( PAYX ) delivered solid financial results, reflecting our ability to navigate changing market conditions," according to Gibson.

The topline was impacted by roughly 300 basis points due to a lower contribution from the firm's employee retention tax credit, or ERTC, service, it said. The ERTC is a tax credit related to the COVID-19 pandemic. The stock fell 4.7% in Wednesday's trading session.

Management solutions revenue increased 3% to $930.3 million driven by an increase in the number of clients and higher product penetration. Professional employer organization and insurance solutions advanced 9% to $326.6 million.

Total expenses rose to $813.3 million from $776.3 million in the prior-year quarter, as the company incurred costs to further reduce its geographic presence and optimize headcount, while professional employer organization direct insurance expenses increased. Operating margin expanded to 37.2% from 36.9% reported last year.

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