ADP Delivers Strong Bookings Growth, but Forex Continues to Take a Toll

Image Source: ADP

Automatic Data Processing (ADP 0.09%) reported second-quarter fiscal 2016 results on Wednesday. The payroll and human resources company is winning new business at an impressive clip, but foreign currency fluctuations are denting its results.

ADP results: The raw numbers

Data source: ADP Q2 2016 earnings press release.

What happened with ADP this quarter?

• Worldwide new business bookings grew 15%.
• Revenue increased 6% year-over-year to $2.8 billion, and 8% on a constant-dollar basis.
• Employer services revenue rose 3% to $2.2 billion, with the number of employees on ADP clients' payrolls in the U.S. increasing 2.5%.
• PEO (professional employer organization) services revenue jumped 18% to $737 million, with average worksite employees paid by PEO services increasing 14% to approximately 403,000.
• ADP's adjusted pre-tax earnings, which exclude divestiture-related gains, grew 2% to $506 million, and 4% on a constant-dollar basis. Adjusted pre-tax margins, however, declined about 70 basis points to 18%.
• Adjusted EPS from continuing operations increased 4% to $0.72 (and 6% on a constant-dollar basis), aided by share buybacks and a lower effective tax rate.

What management had to say
"ADP's revenue growth in the quarter was solid despite continued headwinds from foreign currency translation," said CFO Jan Siegmund. "As previously communicated, ADP made additional investments in the second quarter to increase operational resources in support of our service and implementation teams. These investments were ahead of recurring revenue which is expected to contribute to ADP's growth in the second half of fiscal 2016."

Looking forward
ADP boosted its full-year 2016 bookings guidance, and now anticipates growth in worldwide new business bookings of at least 12% over $1.6 billion sold in fiscal 2015, compared to the company's prior forecast of at least 10%. 

"We continue to experience strong momentum in new business bookings, reflecting the confidence our clients have in ADP's ability to assist with their human capital management needs," said CEO Carlos Rodriguez.

However, management lowered its projections for revenue growth to 7% -- down from its earlier estimates of a 7% to 8% range -- due to expectations of a larger negative impact from foreign currency translations.

ADP also reduced its earnings outlook due to those foreign exchange headwinds, as well as higher expected selling expenses related to its increased bookings forecast. Management now expects adjusted EPS growth of 11% to 13%, down from its prior guidance for growth of 12% to 14%.