Automatic Data Processing (ADP) Q4 Earnings Top, Revenues Lag

Automatic Data Processing, Inc. (NASDAQ:ADP) reported mixed fourth-quarter fiscal 2019 results, wherein the company’s earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Adjusted earnings per share of $1.14 beat the consensus mark by a penny and improved year over year. Total revenues of $3.49 billion missed the consensus mark by $5.1 million but improved year over year.

So far this year, shares of ADP have returned 25.9% compared with 29.8% rise of the industry it belongs to and 18.8% increase of the Zacks S&P 500 composite.

Let’s check out the numbers in detail.

Segment in Details

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 2.8%. New business bookings increased 11% in the reported quarter.

PEO Services revenues were up 9% year over year to $1.06 billion. Average worksite employees paid by PEO Services were 563,000, up 8% from the prior-year quarter.

Interest on funds held for clients in fourth-quarter fiscal 2019 increased 17% to $147 million. The company’s average client funds balance climbed 5% year over year to $26.2 billion. Average interest yield on client funds was 2.3%, up 20 basis points (bps) on a year-over-year basis.

Margins

Adjusted EBIT came in at $669.1 million, up 7% on a year-over-year basis. Adjusted EBIT margin rose to 19.1% from 18.9% in the year-ago quarter. Adjusted EBIT margin benefited from continued execution of transformation initiatives and operating efficiencies, which were partially offset by incremental selling and amortization expense.

Segment-wise, Employer Services segment’s margin decreased 30 bps on a year-over-year basis. The same for PEO Services segment increased 70 bps in the quarter.

Balance Sheet and Cash Flow

ADP exited fourth-quarter fiscal 2019 with cash and cash equivalents of $1.95 billion compared with $1.83 billion in the prior quarter. Long-term debt of $2.00 billion remained flat sequentially.

The company generated $732.3 million of net cash from operating activities in the reported quarter. Capital expenditures were $41.7 million.

The company paid dividends worth $343.4 million and repurchased shares worth $177.1 million.

Fiscal 2020 Outlook

ADP provided its guidance for fiscal 2020. Revenues are expected to register 6-7% growth. Adjusted earnings per share are expected to register 12-14% growth. The company expects adjusted EBIT margin growth of 100-125 bps. Adjusted effective tax rate is anticipated around 23.8%.

Zacks Rank & Upcoming Releases

Currently, ADP carries a Zacks Rank #4 (Sell).

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 second-quarter 2019 earnings of key players like Genpact (NYSE:G) , Green Dot (NYSE:G) and Navigant Consulting (NYSE:NCI) . While Genpact and Green Dot are slated to report on Aug 7, Navigant Consulting is scheduled to release results on Aug 8.

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