Automatic Data Processing, Inc. ADP reported better-than-expected second-quarter fiscal 2023 results.
Adjusted earnings per share of $1.96 beat the Zacks Consensus Estimate by 0.5% and grew 19% from the year-ago fiscal quarter’s reading. Total revenues of $4.4 billion beat the Zacks Consensus Estimate by 0.3% and improved 9.1% from the year-ago fiscal quarter’s reading on a reported basis and 10% on an organic constant-currency basis.
Over the past year, shares of ADP have gained 21.1% compared with 12.1% growth of the industry it belongs to.
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Let’s check out the numbers in detail:
Segments in Detail
Employer Services’ revenues of $2.9 billion increased 8% on a reported basis and 10% on an organic constant-currency basis. Pays per control increased 5% from the year-ago fiscal quarter’s reading.
PEO Services’ revenues were up 11% year over year to $1.5 billion. Average worksite employees paid by PEO Services were 711,000, up 8% from the year-ago fiscal quarter’s reading.
Interest on funds held for clients increased 77% to $187 million. ADP’s average client funds balance increased 4% to $33.4 billion. Average interest yield on client funds expanded 90 basis points to 2.2%.
Automatic Data Processing, Inc. Price, Consensus and EPS Surprise
Automatic Data Processing, Inc. price-consensus-eps-surprise-chart | Automatic Data Processing, Inc. Quote
Margins
Adjusted EBIT increased 15% from the year-ago fiscal quarter’s reading to $1.1 billion. Adjusted EBIT margin grew 120 basis points to 24.3%.
Margin of Employer Services and PEO Services increased 170 bps and 130 bps, respectively.
Balance Sheet and Cash Flow
ADP exited second-quarter fiscal 2022 with cash and cash equivalents of $1.35 billion compared with $1.21 billion in the prior fiscal quarter. Long-term debt of $2.99 billion was flat sequentially.
Automatic Data Processing generated $900 million of cash from operating activities in the quarter. Capital expenditures were $49.7 million. ADP paid out dividends worth $432.6 million and repurchased shares worth $220.2 million in the reported quarter.
Fiscal 2023 Outlook
ADP still expects revenues to register 8-9% growth. Adjusted EPS is still expected to register 15-17% growth. Adjusted effective tax rate is estimated to be approximately at 23%.
Automatic Data Processing expects Employer Services revenues to grow at a rate of about 8-9% (prior view: 7-8%), while PEO Services revenues are still expected to grow at 8-9% rate (prior view: 10-12%).
Currently, ADP carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
Some better-ranked stocks worth considering in the broader Zacks Business Services sector are Paychex, Inc. PAYX and DocuSign, Inc. DOCU.
Paychex carries a Zacks Rank #2 (Buy) at present. PAYX has a long-term earnings growth expectation of 7.5%.
Paychex delivered a trailing four-quarter earnings surprise of 5.9%, on average.
DocuSign is currently Zacks #1 Ranked. DOCU has a long-term earnings growth expectation of 13.7%.
DOCU delivered a trailing four-quarter earnings surprise of 6.6%, on average.
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