Automatic Data Processing Inc.
) reported fourth quarter 2012 earnings of 53 cents per share,
which came in line with the Zacks Consensus Estimate. Earnings
increased 10.4% year over year primarily due to strong revenue
Revenues increased 5.2% year over year to $2.64 billion, which
marginally missed the Zacks Consensus Estimate of $2.65 billion.
Organic growth was 4.0% in the quarter. The better-than-expected
revenue was driven by strong new business sales and better sales
execution in the Employer Services and PEO Services segments.
Employer Services revenue increased 7.0% year over year (5.0%
organically) to $1.88 billion. The number of employees on clients'
payrolls in the United States grew 3.2% in the quarter on a
PEO Services revenue expanded 12.0% year over year to $443.3
million in the reported quarter. Dealer Services revenue climbed
7.0% year over year to $431.4 million.
Interest on funds held for clients declined 11.3% year over year
to $120.3 million, due to a decline of 40 basis points (bps) in the
average interest yield to 2.5%, partially offset by a 4.0% increase
in average client funds balances to $19.2 billion.
Total expenses in the reported quarter increased 4.0% year over
year to $2.27 billion, attributable to higher operating expenses
(up 4.2% year over year), selling, general & administrative
expense (up 2.6% year over year) and systems development &
programming costs (up 8.0% year over year).
The company reported pre-tax earnings of $397.5 million, up
10.8% from the year-ago quarter. Pre-tax margin increased 80 bps
year over year to 15.1%, driven by higher Employer Services'
pre-tax margin, PEO Services pre-tax margin and Dealer Services
pre-tax margin, which increased 40 bps, 130 bps and 70 bps,
respectively, in the reported quarter.
Net income increased 6.9% year over year to $258.4 million. Net
margin increased by 20 bps to 9.8% in the quarter.
ADP exited the quarter with cash and cash equivalents (including
short-term marketable securities) of $1.59 billion, compared with
$1.69 billion in the previous quarter. Long-term debt decreased to
$16.8 million in the quarter from $17.3 million in the prior
quarter. ADP purchased 6.4 million shares for $342.0 million during
the reported quarter.
For fiscal 2013, ADP expects total revenue to increase in the
range of 5.0%-7.0% year over year. This includes unfavorable
foreign exchange rates, expected decline in interest on client
funds and year-over-year comparisons relating to sale of assets and
expiration of certain employment tax credits. For fiscal 2013,
earnings are expected to increase 5.0%-7.0% over the year-ago level
of $2.74 per share.
Employer Services revenue is expected to grow approximately
6%-7% with a pre-tax margin expansion of approximately 50bps. PEO
Services revenue is forecasted to improve 13.0%-15.0%. Pre-tax
margin is expected to grow slightly on a year-over-year basis. ADP
expects Dealer Services revenue to increase in the 7.0%-9.0% range
with a pre-tax margin expansion of at least 50 bps.
The company expects interest on funds held for clients to
decline $65.0 million-$75.0 million or 13.0%-15.0% from $493.3
million in fiscal 2012. However, the company expects 5%-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
Paychex Inc. (
and a gloomy macroeconomic condition are the major headwinds in the
We have a Neutral recommendation on ADP over the long term.
Currently, ADP has a Zacks #3 Rank, which implies a Hold rating on
a short-term basis.
AUTOMATIC DATA (ADP): Free Stock Analysis
PAYCHEX INC (PAYX): Free Stock Analysis Report
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