10:16 AM EDT, 04/02/2024 (MT Newswires) -- Paychex ( PAYX ) lowered its full-year topline growth outlook on Tuesday as the human resources, payroll and benefits management provider's fiscal third-quarter revenue fell short of market estimates.

The company now expects revenue to rise by 5% to 6% for the 2024 fiscal year ending May 31. It previously anticipated revenue to grow by 6% to 7%, Chief Financial Officer Robert Schrader said during a second-quarter earnings call in December.

Revenue in the management solutions segment is now set to increase by 3.5% to 4% for the year, compared with the prior guidance for a 5% to 6% gain. The stock was down 1.8% in Tuesday trading.

For the three months through Feb. 29, revenue inclined 4% to $1.44 billion, but missed the Street's view for $1.46 billion. Adjusted earnings came in at $1.38 per share, up from $1.29 the year before, just ahead of analysts' $1.37 forecast.

"Total revenue growth in the third fiscal quarter reflected a lower contribution from our employee retention tax credit service ('ERTC') as compared with the prior year period," Chief Executive John Gibson said in the earnings statement. The ERTC is a tax credit related to the COVID-19 pandemic. "Excluding this impact, total revenue growth accelerated in the third quarter."

Management solutions revenue edged 2% higher to $1.05 billion driven by an increase in the number of clients, although the winding down of the ERTC service impacted growth by roughly 300 basis points. Professional employer organization and insurance solutions advanced 8% to $345.5 million.

Total expenses widened to $789.5 million from $769.1 million in the prior-year quarter, amid higher compensation costs and an increase in professional employer organization direct insurance costs, according to the company. Operating margin expanded by roughly 80 basis points to 45.1% in the quarter.

"Small- and medium-sized businesses are dealing with a tight job market for qualified workers, reduced access to affordable growth capital and inflationary pressures," Gibson said. "We are continuing to prioritize investments in data, analytics and artificial intelligence to streamline our internal processes."

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