Automatic Data Processing (ADP) Q2 Earnings Beat, '22 View Up

Zacks Equity Research
·4 min read

Automatic Data Processing, Inc.ADP reported better-than-expected second-quarter fiscal 2022 results.

Adjusted earnings per share of $1.65 beat the Zacks Consensus Estimate by 1.2% and grew 9% year over year. Total revenues of $4.03 billion beat the consensus mark by 1.1% and improved 9% year over year on a reported basis as well as on an organic constant-currency basis.

So far this year, shares of ADP have gained 31.8% compared with 26.6% growth of the industry it belongs to and 14.8% surge of the Zacks S&P 500 composite.

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Let’s check out the numbers in detail:

Segments in Detail

Employer Services revenues of $2.67 billion increased 6% on a reported basis and 7% on an organic constant-currency basis. Pays per control increased 6% year over year.

PEO Services revenues were up 15% year over year to $1.36 billion. Average worksite employees paid by PEO Services were 660,000, up 16% year over year.

Interest on funds held for clients increased 1% to $106 million. The company’s average client funds balance increased 28% to $32.2 billion. Average interest yield on client funds declined 40 basis points to 1.3%.

Margins

Adjusted EBIT increased 10% year over year to $930 million. Adjusted EBIT margin grew 20 basis points to 23.1%. The uptick was backed by higher operating revenues, which were partially offset by the effect of increased expenses related to implementation and service, and higher PEO pass-through expenses.

Employer Services segment margin increased 40 bps. PEO Services segment margin fell 10 bps.

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

Automatic Data Processing, Inc. price-consensus-eps-surprise-chart | Automatic Data Processing, Inc. Quote

Balance Sheet and Cash Flow

ADP exited second-quarter fiscal 2022 with cash and cash equivalents of $1.75 billion compared with $1.60 billion in the prior quarter. Long-term debt of $2.99 billion was flat sequentially.

The company generated $1.09 billion of cash from operating activities in the quarter. Capital expenditures were $39.9 million. The company paid out dividends worth $393.8 million and repurchased shares worth $462.5 million.

Fiscal 2022 Outlook

ADP raised its fiscal 2022 outlook. The company now expects revenues to register 8-9% growth compared with the prior-expected growth rate of 7-8%. Adjusted EPS is now expected to register 12-14% growth compared with 11-13% predicted earlier.

The company now expects Employer Services revenues to grow at a rate of about 6% compared with the prior-expected growth rate of 5% to 6% and PEO Services revenues at a rate of 13-15% compared with the earlier-provided guidance of 11% to 13%.

Currently, ADP carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Upcoming Releases

Investors interested in the broader Zacks Business Services sector can consider stocks like Waste Connections WCN, Waste Management WM and Republic Services RSG,which will report their fourth-quarter 2021 numbers soon.

Waste Connections will release results on Feb 16. The stock has an expected earnings growth rate of 15.3% for the current year.

Waste Connections’ shares have surged 20% in the past year. The company has a long-term earnings growth of 13.6%.

Waste Management will report quarterly numbers on Feb 2. The stock has an expected earnings growth rate of 12.2% for the current year.

Waste Management’s shares have surged 29.9% in the past year. The company has a long-term earnings growth of 12.6%.

Republic Services will report results on Feb 10. The stock has an expected earnings growth rate of 11.1% for the current year.

Republic Services’ shares have surged 33.8% in the past year. The company has a long-term earnings growth of 10.9%.


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