A Wake-Up Call for the Payroll King ⏰

Paychex $PAYX just delivered its worst earnings reaction ever, and here’s why it matters.

This $50B HR and payroll giant just posted its first double miss in decades. 

Revenue and earnings both came in below expectations, and the stock cratered in response.

This wasn’t just a bad quarter... It was a sharp deviation from one of the most consistent long-term compounders in the market.

The company has been a steady beneficiary of U.S. job growth and the formation of small businesses. 

But this report revealed cracks.

Client growth is stalling. 

Margins are under pressure. 

And the forward guidance didn’t give investors much reason for optimism.

It’s a tough pill to swallow for a stock known for defensive stability and reliable dividend growth.

The big question now: was this a one-off stumble, or the start of a longer-term deterioration?

We’re watching closely to see how the market digests this one. 

Because when dependable compounders start missing, it’s a signal worth paying attention to.

So what else did we learn from yesterday's earnings reactions? Let’s dive into the details.

Here are the latest earnings stats from the S&P 500 👇

*Click the image to enlarge it

FedEx $FDX had the best reaction score after reporting a double beat.

The company reported revenues of $22.20B, versus the expected $21.74B, and earnings per share of $6.07, versus the expected $5.82. 

Paychex $PAYX had the worst reaction score after reporting a double miss.

The company reported revenues of $1.43B, versus the expected $1.44B, and earnings per share of $1.19, meeting the market's expectations.

Now let's dive into the data and talk about what happened with these reports 👇

FDX has been punished for 4 consecutive earnings reports 📉

FedEx fell 3.3% after this earnings report, and here's why:

• Revenue growth has flatlined, and the management team expects that to continue.
• The Freight segment's operating income declined 6% to $477M, with operating margin declining 40 basis points to 20.8%.
• While they achieved adjusted EPS growth, GAAP diluted earnings per share declined 2% to $16.81 from $17.21 in the prior year.

This company remains one of the largest in the transportation industry, but it is currently experiencing financial struggles.

The consistent negative market reactions to earnings indicate that the fundamentals have deteriorated significantly over the past year.

Price is churning sideways below the VWAP, anchored to the 2022 level.  

We expect to see more new lows and relative weakness for the foreseeable future.

The key level to watch in FDX is 236. The bears are in complete control if the price is below that level.

PAYX had its worst earnings reaction ever 🩸

Paychex fell 9.4% after this earnings report, and here's why:

• GAAP diluted earnings per share dropped 22% to $0.82 compared to $1.05 in the prior year, significantly underperforming expectations.

• GAAP operating margin contracted sharply to 30.2% from 37.2% in the prior year.

• To make the terrible quarter worse, the management team is expecting more weakness in future quarters.

This was one of the worst earnings reports in the S&P 500 we've seen this quarter.

The fact that the market reacted so dramatically to the downside adds to our concerns.

Price is at a key level of interest. This was resistance in the prior cycle, and it has held as support for months.

The bears want to knock the stock below that level to spark a fresh leg lower.

If PAYX closes below 135, the path of least resistance will shift lower for the foreseeable future.

Thank you for reading.

- The Beat Report Team 

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