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Automatic Data Processing (ADP) Q1 Earnings Top, Revenues Lag

Zacks Equity Research

Automatic Data Processing, Inc. ADP reported mixed first-quarter fiscal 2020 results, wherein the company’s earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Adjusted earnings per share of $1.34 beat the consensus mark by a penny and improved 12% year over year. Total revenues of $3.49 billion missed the consensus mark by $12.2 million but improved year over year.

So far this year, shares of ADP have returned 24.2% compared with 24.7% rise of the industry it belongs to and 20.2% increase of the Zacks S&P 500 composite.

 

Let’s check out the numbers in detail.

Segments in Detail

Employer Services revenues of $2.44 billion increased 4% year over year on a reported basis and 5% on an organic constant-currency basis. The number of employees on ADP clients' payrolls in the United States rose 2.4%. New business bookings increased 6% in the reported quarter.

PEO Services revenues were up 8% year over year to $1.06 billion. Average worksite employees paid by PEO Services were 563,000, up 7% from the prior-year quarter.

Interest on funds held for clients in the first quarter of fiscal 2020 increased 13% to $134 million. The company’s average client funds balance climbed 7% year over year to $23.7 billion. Average interest yield on client funds was 2.3%, up 10 basis points (bps) on a year-over-year basis.

Automatic Data Processing, Inc. Revenue (TTM)

 

Automatic Data Processing, Inc. Revenue (TTM)

Automatic Data Processing, Inc. revenue-ttm | Automatic Data Processing, Inc. Quote

Margins

Adjusted EBIT came in at $745 million, up 8% on a year-over-year basis. Adjusted EBIT margin rose 60 basis points from the year-ago quarter to 21.3%. Adjusted EBIT margin benefited from continued execution of transformation initiatives and operating efficiencies, which were partially offset by incremental sales and marketing, amortization, and PEO pass-through expenses.

Segment-wise, Employer Services’ margin increased 50 bps on a year-over-year basis. The same for PEO Services declined 70 bps in the quarter.

Automatic Data Processing, Inc. Price, Consensus and EPS Surprise

 

Automatic Data Processing, Inc. Price, Consensus and EPS Surprise

Automatic Data Processing, Inc. price-consensus-eps-surprise-chart | Automatic Data Processing, Inc. Quote

Balance Sheet and Cash Flow

ADP exited first-quarter fiscal 2020 with cash and cash equivalents of $1.40 billion compared with $1.95 billion in the prior quarter. Long-term debt came in at $1.00 billion compared with $2.00 billion in the prior quarter.

The company generated $432.8 million of net cash from operating activities in the reported quarter. Capital expenditures were $56.8 million.

The company paid out dividends worth $343.3 million and repurchased shares worth $309.7 million.

Fiscal 2020 Outlook

ADP reaffirmed its guidance for fiscal 2020. Revenues are expected to register 6-7% growth. Adjusted earnings per share are anticipated to register 12-14% growth. The company expects adjusted EBIT margin growth of 100-125 bps.

Zacks Rank & Upcoming Releases

Currently, ADP carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Zacks Business Services sector are awaiting third-quarter 2019 earnings of key players like Fiserv FISV, ICF International ICFI and FLEETCOR Technologies FLT, each scheduled to release results on Nov 6.

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