Paychex Inc. (PAYX) reported third quarter 2010 EPS of 34 cents per share, in-line with the Zacks Consensus estimate.

Revenue

The company reported third quarter 2010 revenue of $507.8 million, a decrease of 4% from $528.6 million for the same period last year. This can be attributed to the decline in the Payroll service revenue segments, compared to the year-ago quarter.

As per revenue segments, Payroll service revenue was $358.3 million in the third quarter, down 6.0% compared to the same period last year, as a result of the weak economic environment, which in turn adversely impacted the company’s client base and check volume. Human Resource Services generated $135.5 million, up 3.0% from the same period last year. This segment was positively impacted by a 54% increase in health and benefits service revenue, as well as growth in certain Human Resource Services products that support major market services clients.

Operating Results

In the third quarter, total expense was $339.6 million, up 3.0% compared to the year-ago quarter. This included a litigation expense of $18.7 million. Cost control measures in the form of reduction in headcount were partially offset by increased cost associated with its sales force, customer service and technological infrastructure. This led to an operating income of $168.2 million, a decline of 15% from the year-ago period.

Net income for the quarter was $112.0 million or $0.31 per diluted share, compared to $130.8 million or $0.36 per diluted share in the year-ago quarter. Excluding litigation charges of $0.03 per share, the adjusted EPS for the company stood at $0.34 per share.

Balance Sheet

The company exited the quarter with cash and cash equivalents of $279.3 million and corporate investments of $115.8 million. This apart, during the third quarter, interest on funds held for clients decreased to $14.0 million as a result of lower average interest rates earned and lower average investment balances.

Guidance

For fiscal year 2010, the company expects Payroll service revenue to decline in the range of 5.0% to 7.0%, Human Resource Services revenue to increase in the range of 3.0% to 6.0% and total revenue to decline by 2.0%.
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