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ADP Tops Q2 Earnings & Revenue Estimates, Raises '18 View

Automatic Data ProcessingADP reported second-quarter fiscal 2018 adjusted earnings of 99 cents per share, which beat the Zacks Consensus Estimate by a dime. The figure increased 13.8% from the year-ago quarter.

Moreover, revenues of $3.24 billion beat the Zacks Consensus Estimate of $3.18 billion and improved 8.3% on a year-over-year basis. Organically, revenues increased 7% year over year.

Worldwide new business bookings increased 6%. The company reiterated new business bookings guidance, which was in the range of 5-7%.

Recently, ADP acquired WorkMarket, a provider of cloud-based freelance management solutions.

Quarter Details

Employer Services revenues in the quarter increased 6% year over year to $2.44 billion. The number of employees on ADP clients' payrolls in the United States increased 2.4% on a same-store-sales basis. Client revenues retention increased 160 basis points (bps) on a year-over-year basis.

PEO Services revenues increased 15% year over year to $945.3 million. Average worksite employees paid by PEO Services were about 498,000. The company ended the quarter with almost 504,000 worksite employees.

Interest on funds held for clients in the quarter increased 16% to $107 million. The company's average client funds balance climbed 7% year over year to $22.5 billion in the quarter, while average interest yield of 1.9% was up 10 bps on a year-over-year basis.

Automatic Data Processing, Inc. Price, Consensus and EPS Surprise

Automatic Data Processing, Inc. Price, Consensus and EPS Surprise | Automatic Data Processing, Inc. Quote

Adjusted EBIT margin declined almost 120 bps to 18.6% primarily due to higher pass-through revenues and expenses related to acquisitions.

Employer Services segment margin fell approximately 50 bps on a year-over-year basis. PEO Services segment margin declined approximately 30 bps in the quarter.

Guidance

ADP anticipates fiscal 2018 revenue growth in the range of 7-8%, up from previous range of 6-8%. Acquisitions and the impact from foreign currency translation are projected to add approximately one percentage point of growth to revenues.

Adjusted EBIT margin is anticipated to decline almost 50 bps for the fiscal year.

ADP expects adjusted earnings to grow in the range of 12-13%, up from 5-7%. The forecast reflects the ongoing estimated benefits from the enactment of the Tax Cuts and Jobs Act. Currently, ADP expects an adjusted effective tax rate of 26.9% compared with previous forecast of 31.7% for fiscal 2018.

Employer Services segment revenues is still expected to grow in the range of 4-5%. Margin is projected to decline in the range of 50-75 bps for the year.

ADP expects pays per control to increase 2.5% for fiscal 2018. For the PEO Services segment, management anticipates revenue growth of 11% to 13%. Margin is now expected to be flat or decline 25 bps for the year compared with previous forecast of a growth of 25-50 bps.

Interest on funds held for clients is expected to increase $55-$65 million or about 16%. This is based on anticipated growth in average client funds balances of approximately 4-5% from $23.0 billion in fiscal 2017 and an average yield which is projected to increase about 20 bps to 1.9%. The total contribution from the client funds extended investment strategy is expected to be up $45-$55 million over fiscal 2017.

Zacks Rank & Key Picks

Currently, ADP carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector are Micron Technology MU , Lam Research LRCX and The Trade Desk TTD , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Long-term earnings growth rate for Micron, Lam Research and The Trade Desk is projected at 10%, 14.85% and 25%, respectively.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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