Paychex 2026 Q1 Earnings Beats Expectations, Net Income Drops 10.2%

Paychex (NASDAQ:PAYX) reported mixed fiscal first-quarter 2026 results, with revenue growth exceeding expectations and an upward revision to EPS guidance, though net income and earnings per share declined year-over-year.

Revenue
Paychex's total revenue surged 16.8% year-over-year to $1.54 billion in fiscal 2026 Q1. Service revenue remained the company’s largest contributor at $1.49 billion, driven by Paycor integration and increased client demand. Management Solutions, the fastest-growing segment, delivered $1.16 billion in revenue, reflecting a 21% year-over-year increase, fueled by Paycor’s upmarket client base and expanded HR Solutions offerings. PEO and Insurance Solutions added $329.10 million in revenue, reflecting modest 3% growth, supported by an increase in worksite employees and insurance-related income. Additionally, interest on funds held for clients accounted for $47.60 million, rounding out the revenue picture.

Earnings/Net Income
Paychex’s net income for Q1 2026 fell 10.2% to $383.80 million compared to $427.40 million in the prior year, while EPS declined 10.1% to $1.07 from $1.19. Despite these declines, the company has maintained profitability for over 20 consecutive years in the same quarter, highlighting its operational resilience.

Price Action
Paychex's stock posted a 4.23% gain on the day of the report but fell 1.96% for the week and declined 8.62% month-to-date.

Post-Earnings Price Action Review
Despite strong top-line performance and guidance increases, Paychex shares declined sharply following the earnings release, reflecting investor concerns over the earnings and margin contraction. The stock closed down 5.52% at $121.43, signaling mixed sentiment around earnings quality and forward-looking profitability.

CEO Commentary
CEO John Gibson highlighted strong revenue growth, particularly in Management Solutions and Paycor integration, while emphasizing cross-selling opportunities and AI-driven improvements in client support. He noted optimism around PEO resilience and the broader macroeconomic environment, as well as recognition for Paychex’s workplace culture.

Guidance
Paychex raised its adjusted EPS guidance for 2026 to a range of $5.43–$5.53 (up from $5.40–$5.50) and reaffirmed its revenue outlook of 16.5–18.5% growth. It also expects Management Solutions to grow 20–22%, PEO and Insurance Solutions to rise 6–8%, and interest income to reach $190–$200 million. The effective tax rate is projected at 24–25%.

Additional News
On the same day as the earnings report, Paychex announced its acquisition of Paycor had already begun delivering early cost and revenue synergies, including cross-selling opportunities and increased product penetration. The CEO underscored these synergies as central to the strategic rationale of the deal. Paychex also reported cash, restricted cash, and corporate investments totaling $1.7 billion as of August 31, 2025, alongside $5.0 billion in net borrowings. The company generated $718.4 million in operating cash flow for the first quarter and raised its adjusted EPS guidance, reflecting confidence in its long-term integration progress and operational momentum.