Automatic Data Processing Inc.
) reported third quarter 2012 earnings of 92 cents per share, a
penny ahead of the Zacks Consensus Estimate. Earnings increased
8.2% year over year, primarily due to higher share repurchase
activity in the quarter.
Revenues increased 6.7% year over year to $2.92 billion and was
in line with the Zacks Consensus Estimate. Organic growth was 6.0%
in the quarter. The better-than-expected result was driven by
strong new business sales, improving client retention and
incremental revenue from recent acquisitions.
Employer Services revenue increased 7.0% year over year (6.0%
organically) to $2.11 billion. The number of employees on clients'
payrolls in the United States grew 3.3% in the quarter on a
same-store-sales basis. PEO Services revenue spiked 15.0% year over
year to $513.7 million in the third quarter. Dealer Services
revenue climbed 7.0% year over year to $431.9 million.
Interest on funds held for clients declined 10% year over year
to $133.3 million, due to a decline of 40 basis points (bps) in the
average interest yield to 2.5%, partially offset by a 5.0% increase
in average client funds balances to $21.7 billion.
Total expenses in the reported quarter increased 7.1% year over
year to $2.25 billion, attributable to higher operating expenses
(up 8.7% year over year) and selling, general & administrative
expense (up 7.8% year over year).
The company reported pre-tax earnings of $685.6 million, up 5.0%
annually. However, pre-tax margin declined 40 bps year over year to
23.5% in the reported quarter.
Employer Services' pre-tax margin increased 10 bps on a
year-over-year basis. PEO Services pre-tax margin improved 50 bps,
while Dealer Services pre-tax margin enhanced 120 bps on an annual
basis in the reported quarter.
Net income increased 6.7% year over year to $452.4 million. Net
margin, however, remained flat at 15.5% in the quarter.
As of March 31, 2012, cash and cash equivalents (including
short-term marketable securities) were $1.69 billion, compared with
$1.36 billion as of December 31, 2011. Long-term debt decreased to
$17.3 million in the quarter from $25.5 million in the prior
quarter. ADP purchased 8.9 million shares for $445.0 million during
the reported quarter.
For fiscal 2012, ADP expects total revenue to increase in the
range of 7.0%-9.0%. Earnings are expected to increase 8%-9% over
the year-ago level of $2.52. The Zacks Consensus Estimate for
fiscal 2012 is pegged at $2.74 per share.
Employer Services revenue is expected to grow approximately 7%.
However, pre-tax margin is estimated to remain flat. The company
expects pays per control to increase approximately 2.5% to 3.0%
(prior outlook 2.5%) for fiscal 2012.
PEO Services revenue is forecasted to improve 17.0%. Pre-tax
margin is expected to grow slightly on a year-over-year basis. For
fiscal 2012, ADP expects Dealer Services revenue to increase in the
9.0%-10.0% range with a pre-tax margin expansion of at least 50
The company expects interest on funds held for clients to
decline $45.0 million-$55.0 million or 8%-10% from $540.1 million
in fiscal 2011. However, the company expects 6%-7% increase in the
average client fund balances.
We believe that ADP will continue to outperform the broader
market based on strong new business sales, diversified product
portfolio, improving customer retention, accretive acquisitions,
strong balance sheet and shareholder-friendly programs (aggressive
share buybacks, dividend) over the long term. However, increasing
) and a gloomy macro outlook in Europe are major headwinds in the
We have a Neutral recommendation on ADP over the long term.
Currently, ADP has a Zacks #2 Rank, which implies a Buy rating on a
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