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ADP's Q1 Earnings & Rev Beat Estimates

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Automatic Data Processing Inc. (ADP) reported first-quarter fiscal 2014 earnings from continuing operations of 68 cents per share, which beat the Zacks Consensus Estimate by couple of cents.

Quarter Details

Revenues increased 7.7% year over year to $2.84 billion and were ahead of the Zacks Consensus Estimate of $2.81 billion. The year-over-year revenue growth was driven by strong performance of the Employer Services, PEO Services and Dealer Services segments.

Employer Services revenues increased 8% year over year to $1.97 billion. The number of employees on clients’ payrolls in the United States grew 2.6% in the quarter on a same-store-sales basis.

PEO Services revenues increased 11.8% year over year to $501.9 million in the reported quarter. Dealer Services revenues increased 7.4% on a year-over-year basis to $472.8 million.

Interest on funds held for clients declined 16% year over year to $89.2 million. The decline was primarily due to a 60 basis points drop in average interest yield to 2.0%, which was offset to a certain extent by an increase of 8% in average client funds balances from $16.1 billion to $17.4 billion.

Total expenses in the reported quarter increased 7.4% year over year to $2.37 billion, attributable to higher operating expenses (up 9.1% year over year), selling, general & administrative expense (up 4.4% year over year) and systems development & programming costs (up 9.9% year over year).

ADP reported pre-tax earnings of $497.3 million from continuing operations, up 7% from the year-ago quarter. Net earnings from continuing operations were $328.6 million or 68 cents per share, up 9% from $302.5 million or 62 cents per share in the year-ago quarter.

ADP exited the quarter with cash and cash equivalents of $1.69 billion compared with $1.73 billion in the previous quarter. Long-term debt was $14.2 million versus $14.7 million in the previous quarter.


ADP expects fiscal 2014 revenues to grow 7.0% on a year-over-year basis. Earnings growth is projected in the range of 8% to 10%.

Employer Services revenues are expected to grow approximately 7% with a pre-tax margin expansion of approximately 50 bps to 100 bps. PEO Services revenues are expected to improve 10.0% to 12.0%. Pre-tax margin is expected to grow slightly on a year-over-year basis.

ADP expects Dealer Services revenues to increase 8.0% with a pre-tax margin expansion of approximately 100 bps.

Our Take

The company is expected to perform better on the back of improved execution and higher client retention. Moreover, recovery in the job market will help the company. However, volatile macroeconomic environment and increasing competition from Paychex Inc. (PAYX), Insperity Inc. (NSP) and Equifax Inc (EFX) are the near-term headwinds.

Currently, ADP has a Zacks Rank #2 (Buy).

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