ADP Q1 Earnings, Revenues Surpass Estimates, 2019 View Up

Automatic Data Processing, Inc. (NASDAQ:ADP) reported strong first-quarter fiscal 2019 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Both the metrics also improved on a year-over-year basis.

Adjusted earnings per share (EPS) of $1.20 beat the Zacks Consensus Estimate by 10 cents and improved on year-over-year basis. The bottom line benefited from unplanned tax benefits (5 cents per share) related to stock-based compensation. Notably, ADP enjoyed a lower effective tax rate of 22.2% compared with 27.1% in the year-ago quarter on an adjusted basis

Total revenues of $3.32 billion outpaced the consensus mark by $40.6 million. The top-line figure improved 8% on a reported basis and 7% on a constant-currency basis.

Quarterly results also benefited from growth in new business bookings. The company’s service alignment initiative, client migrations and transformation initiatives have resulted in improvement in its client satisfaction scores and productivity.

So far this year, shares of ADP have gained 17.2%, significantly outperforming the 5.7% rally of the industry it belongs to and 0.4% rise of the Zacks S&P 500 composite.

Let’s check out the numbers in detail.

Segment in Details

Employer Services revenues of $2.33 billion increased 7% year over year on a reported basis and 6% 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 8% in the reported quarter.

PEO Services revenues were up 10% year over year to $987.8 million. Average worksite employees paid by PEO Services were 528,000, up 9% from the prior-year quarter.

Interest on funds held for clients in the fiscal first-quarter 2019 increased 19% to $119 million. The company’s average client funds balance climbed 5% year over year to $22.2 billion. Average interest yield on client funds was 2.1%, up 30 basis points (bps) on a year-over-year basis.

Margins

Adjusted EBIT came in at $686.7 million, up 18.2% on a year-over-year basis. Adjusted EBIT margin increased about 180 bps in the quarter to 20.7%. The margin improvement was driven by benefits from operational efficiencies and transformation initiatives, which, however, were partially offset by around 50 bps of pressure from acquisitions.

Segment-wise, Employer Services segment’s margin increased 260 bps on a year-over-year basis. The same for PEO Services segment improved approximately 110 bps in the quarter.

ADP exited first-quarter fiscal 2019 with cash and cash equivalents of $1.49 billion compared with $2.17 billion in the prior quarter. Long-term debt of $2.00 billion remained flat sequentially.

The company generated $149.20 million of net cash from operating activities in the reported quarter. Capital expenditures were $43.2 million.

The company paid dividends worth $302.6 million and repurchased shares worth $227.1 million.

Fiscal 2019 Outlook

ADP raised its fiscal 2019 guidance for revenue growth and adjusted earnings and reaffirmed the same for adjusted EBIT margin growth.

For fiscal 2019, revenues are now expected to register 6-7% growth compared with the growth range of 5-7% guided earlier. Adjusted earnings per share are expected to register 15-17% growth compared with 13-15% growth guided earlier.

The company continues to expect adjusted EBIT margin growth of 100 to 125 bps.

Adjusted effective tax rate is anticipated around 24.5% compared with 25.1% guided earlier.

Zacks Rank & Upcoming Releases

ADP currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Business Services sector are keenly awaiting third-quarter earnings reports from key players like Genpact (NYSE:G) , Delphi Technologies (NYSE:DLPH) and Green Dot (NYSE:G) . While Genpact will report on Nov 6, Delphi Technologies and Green Dot will release their quarterly results on Nov 7.

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