A month has gone by since the last earnings report for Automatic Data Processing (ADP). Shares have lost about 2.8% in that time frame, underperforming the S&P 500.
But investors have to be wondering, will the recent negative trend continue leading up to its next earnings release, or is ADP due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
ADP's Q1 Earnings Beat Estimates
ADP has reported impressive first-quarter fiscal 2026 results, wherein earnings and revenues outpaced the Zacks Consensus Estimate.
ADP’s earnings per share of $2.49 beat the consensus estimate by 2.1% and increased 6.9% from the year-ago quarter. Total revenues of $5.2 billion surpassed the consensus estimate by a slight margin and grew 7.1% on a year-over-year basis.
ADP’s Segmental Results
Employer Services’ revenues of $3.5 billion increased 7% on a reported basis and 5% on an organic constant-currency basis, surpassing our estimate of $3.4 billion. Pays per control remained flat with the year-ago quarter.
PEO Services’ revenues gained 7% from the year-ago quarter to $1.7 billion and met our projection. Average worksite employees paid by PEO Services were 754,000, rising 2% from the year-ago quarter.
Interest on funds held for clients grew 13% from the year-ago quarter to $287 million and missed our estimate of $342.4 million. ADP’s average client funds balance rose 7% to $34.9 billion. The average interest yield on client funds expanded 20 basis points (bps) to 3.3%.
Automatic Data Processing’s Margins
Adjusted EBIT increased 7% on a year-over-year basis to $1.3 billion. The adjusted EBIT margin remained flat at 25.5%. The margin of Employer Services decreased 50 bps, while PEO Services declined 140 bps from the year-ago quarter.
Balance Sheet & Cash Flow of ADP
Automatic Data Processing exited first-quarter fiscal 2026 with cash and cash equivalents of $2.5 billion compared with $3.3 billion at the end of the preceding quarter. The long-term debt of $4 billion remained flat with the preceding quarter. The company generated $642.3 billion in cash from operating activities in the quarter.
Automatic Data Processing’s FY26 Outlook
For fiscal 2026, ADP expects year-over-year revenue growth of 5-6%. The adjusted EPS growth guidance is kept at 8-10%. The adjusted effective tax rate is estimated to be 23%. The guidance for the adjusted EBIT margin is 50-70 bps. Automatic Data Processing’s Employer Services’ revenue growth expectations to 5-6%. The guidance for PEO Services is kept at 5-7%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, ADP has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock has a score of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ADP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
