Insperity Q1 Earnings Beat Ests; Down Y/Y - Analyst Blog

Insperity Inc. NSP reported first-quarter 2014 earnings of 37 cents per share, which came ahead of the Zacks Consensus Estimate by a couple of cents. However, on a year-over-year basis, earnings were down 27.5%.

Quarter Details

Although Insperity's first-quarter revenues of $636.9 million increased 4.1% on a year-over-year basis, it lagged the Zacks Consensus Estimate of $640.0 million. The year-over-year improvement was attributed to higher average paid worksite employees (up 2.3%) and higher revenues per worksite employee (up 1.7%). The company reported average client retention of 87.0% during the quarter. However, net hiring from its clients was low.

Insperity's gross margins were down 100 basis points from the year-ago quarter to 16.7%, primarily due to an increase in benefits cost center deficit.

The company's operating expenses increased 4.0% from the year-ago quarter owing to costs related to training of Business Performance Advisors, higher technology investments and the reform strategy regarding healthcare related costs. Operating margins came in at 2.6% compared with 3.6% in the year-ago period, primarily due to higher operating expenses.

Insperity's net income decreased from $13.1 million or 51 cents per share reported in the year-ago quarter to $9.6 million or 37 cents per share.

Insperity exited the first quarter with cash, marketable securities and restricted cash of $312.6 million compared with $277.7 million in the previous quarter. The company has paid dividends of $4.4 million and repurchased shares worth $13.9 million during the quarter.

Guidance

Insperity expects gross profit per worksite employee per month in the range of $248–$250 for second quarter 2014 and $254–$257 for full year 2014. The company expects operating expenses in the range of $90.2–$91.3 million for the second quarter and $356.5 – $358.5 million for 2014.

For 2014, Insperity expects revenues to be $2.393 billion and earnings per share in the range of 97 cents to $1.18 (mid-point $1.01). The Zacks Consensus Estimate for revenues and earnings is pegged at $2.439 billion and $1.12 per share, respectively.  

Conclusion

Insperity provides human resources as well as business solutions to small and medium business to help them perform better. The company reported mixed first-quarter results wherein the top line lagged the Zacks Consensus Estimate, but the bottom line came ahead of the same. Margins were also impacted by higher-than-expected expenses. Moreover, the company provided a tepid full year guidance.

Nonetheless, we believe management's initiatives to expand the number of Business Performance Advisors and implement a healthcare reform strategy will be beneficial in the long run. Moreover, the company's software-as-a-service and other adjacent business services are also gaining traction and are expected to improve 2014 results.

A debt-free balance sheet, share repurchases and dividend payouts are positives, but increasing expenses and competition from Automatic Data Processing Inc. ADP, Paychex Inc. PAYX and Manpower Group Inc. MAN are concerns.

Currently, Insperity has a Zacks Rank #4 (Sell).