ADP Q2 Earnings, Revenues Surpass Estimates, 2019 EPS View Up

Automatic Data Processing, Inc. (NASDAQ:ADP) reported strong second-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 $1.34 beat the Zacks Consensus Estimate by 16 cents and improved year over year. Total revenues of $3.50 billion outpaced the consensus mark by $69.1 million and also improved year over year.

Quarterly results benefited from positive impacts of transformation initiatives and operating efficiencies.

Over the past year, shares of ADP have gained 10.9%, significantly outperforming the 1.9% rally of the industry it belongs to. The Zacks S&P 500 composite has however declined 6.5% in the same time frame.

Let’s check out the numbers in detail.

Segment in Details

Employer Services revenues of $2.45 billion increased 7% year over year on a reported and organic constant-currency basis. The number of employees on ADP clients' payrolls in the United States rose 2.3%. New business bookings increased 1% in the reported quarter.

PEO Services revenues were up 12% year over year to $1.06 billion. Average worksite employees paid by PEO Services were 545,000, up 9% from the prior-year quarter.

Interest on funds held for clients in the fiscal second-quarter 2019 increased 21% to $129 million. The company’s average client funds balance climbed 5% year over year to $23.6 billion. Average interest yield on client funds was 2.2%, up 30 basis points (bps) on a year-over-year basis.

Margins

Adjusted EBIT came in at $786.5 million, up 26% on a year-over-year basis. Adjusted EBIT margin increased about 320 bps in the quarter to 22.4%.

Segment-wise, Employer Services segment’s margin increased 460 bps on a year-over-year basis. The same for PEO Services segment improved approximately 70 bps in the quarter.

Balance Sheet and Cash Flow

ADP exited second-quarter fiscal 2019 with cash and cash equivalents of $2.79 billion compared with $1.49 billion in the prior quarter. Long-term debt of $2.00 billion remained flat sequentially.

The company generated $782.3 million of net cash from operating activities in the reported quarter. Capital expenditures were $36.8 million.

The company paid dividends worth $302.4 million and repurchased shares worth $299.5 million.

Fiscal 2019 Outlook

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

For fiscal 2019, revenues are expected to register 6-7% growth.

Adjusted earnings per share are expected to register 17-19% growth compared with 15-17% growth guided earlier. The company expects adjusted EBIT margin growth of 125-150 bps compared with 100 to 125 bps guided earlier. Adjusted effective tax rate is anticipated around 24.4% compared with 24.5% guided earlier.

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 fourth-quarter 2018 earnings reports of key players like Aptiv (NYSE:APTV) , ManpowerGroup (NYSE:MAN) and Gartner (NYSE:IT) . While Aptiv and ManpowerGroup will release results on Jan 31, Gartner is slated to report on Feb 5.

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