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It has been about a month since the last earnings report for Automatic Data Processing (ADP). Shares have added about 4.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is ADP due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Automatic Data Processing Surpasses Q3 Earnings & Revenues Estimates
Automatic Data Processing reported better-than-expected third-quarter fiscal 2021 results.
Adjusted earnings per share of $1.89 beat the Zacks Consensus Estimate by 3.9% but declined 2% year over year. Total revenues of $4.10 billion beat the consensus mark by 0.3% and improved 1.3% year over year on a reported basis and 1% on an organic constant-currency basis.
Segments in Detail
Employer Services revenues of $2.78 billion decreased 1% year over year on a reported and 2% on an organic constant-currency basis. Pays per control decreased 6% year over year. New business bookings increased 7%.
PEO Services revenues were up 7% year over year to $1.32 billion. Average worksite employees paid by PEO Services were 594,000, flat year over year.
Interest on funds held for clients decreased 32% to $107 million. The company’s average client funds balance increased 6% to $33.2 billion. Average interest yield on client funds declined 70 basis points to 1.3%.
Adjusted EBIT decreased 2% year over year to $1.07 billion. Adjusted EBIT margin declined 90 basis points (bps) to 26.3%. The downfall was backed by rise in incentive compensation costs, implementation costs, and other growth investments, which were partially offset by higher revenues.
Employer Services segment margin decreased 120 bps. PEO Services segment margin grew 100 bps.
Balance Sheet and Cash Flow
ADP exited third-quarter fiscal 2021 with cash and cash equivalents of $1.89 billion compared with $1.60 billion in the prior quarter. Long-term debt of $1.99 billion was flat sequentially.
The company generated $1.25 billion of cash from operating activities in the quarter. Capital expenditures were $64.3 million. The company paid out dividends worth $397.8 million and repurchased shares worth $427.4 million.
Fiscal 2021 Outlook
ADP now expects fiscal 2021 revenues to be up 2% to 3%. It had earlier expected revenues to be up 1% to 3%. Adjusted earnings per share are anticipated to be flat to 1%. It had earlier expected adjusted earnings to be down 2% to up 2%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
At this time, ADP has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ADP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Automatic Data Processing, Inc. (ADP) : Free Stock Analysis Report
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