Automatic Data Processing, Inc. ADP reported strong second-quarter fiscal 2019 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Both the metrics also improved on a year-over-year basis.
Adjusted earnings per share (EPS) of $1.34 beat the Zacks Consensus Estimate by 16 cents and improved year over year. Total revenues of $3.50 billion outpaced the consensus mark by $69.1 million and also improved year over year.
Quarterly results benefited from positive impacts of transformation initiatives and operating efficiencies.
Over the past year, shares of ADP have gained 10.9%, significantly outperforming the 1.9% rally of the industry it belongs to. The Zacks S&P 500 composite has however declined 6.5% in the same time frame.
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Let’s check out the numbers in detail.
Segment in Details
Employer Services revenues of $2.45 billion increased 7% year over year on a reported and organic constant-currency basis. The number of employees on ADP clients' payrolls in the United States rose 2.3%. New business bookings increased 1% in the reported quarter.
PEO Services revenues were up 12% year over year to $1.06 billion. Average worksite employees paid by PEO Services were 545,000, up 9% from the prior-year quarter.
Interest on funds held for clients in the fiscal second-quarter 2019 increased 21% to $129 million. The company’s average client funds balance climbed 5% year over year to $23.6 billion. Average interest yield on client funds was 2.2%, up 30 basis points (bps) on a year-over-year basis.
Margins
Adjusted EBIT came in at $786.5 million, up 26% on a year-over-year basis. Adjusted EBIT margin increased about 320 bps in the quarter to 22.4%.
Segment-wise, Employer Services segment’s margin increased 460 bps on a year-over-year basis. The same for PEO Services segment improved approximately 70 bps in the quarter.
Automatic Data Processing, Inc. Price, Consensus and EPS Surprise
Automatic Data Processing, Inc. Price, Consensus and EPS Surprise | Automatic Data Processing, Inc. Quote
Balance Sheet and Cash Flow
ADP exited second-quarter fiscal 2019 with cash and cash equivalents of $2.79 billion compared with $1.49 billion in the prior quarter. Long-term debt of $2.00 billion remained flat sequentially.
The company generated $782.3 million of net cash from operating activities in the reported quarter. Capital expenditures were $36.8 million.
The company paid dividends worth $302.4 million and repurchased shares worth $299.5 million.
Fiscal 2019 Outlook
ADP raised its fiscal 2019guidance for adjusted earnings and adjusted EBIT margin growthwhile reaffirming the same for revenue growth.
For fiscal 2019, revenues are expected to register 6-7% growth.
Adjusted earnings per share are expected to register 17-19% growth compared with 15-17% growth guided earlier. The company expects adjusted EBIT margin growth of 125-150 bps compared with 100 to 125 bps guided earlier. Adjusted effective tax rate is anticipated around 24.4% compared with 24.5% guided earlier.
Zacks Rank & Upcoming Releases
Currently, ADP carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Investors interested in the broader Zacks Business Services sector are awaiting fourth-quarter 2018 earnings reports of key players like Aptiv APTV, ManpowerGroup MAN and Gartner IT. While Aptiv and ManpowerGroup will release results on Jan 31, Gartner is slated to report on Feb 5.
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