ACA Services Growth Drives Automatic Data Processing Earnings Higher

Image source: ADP.com.

Automatic Data Processing (ADP -0.06%) reported 2016 fiscal fourth-quarter results on July 28. The leading provider of human capital management solutions benefited from strong adoption of its Affordable Care Act services.

ADP results: The raw numbers

Data source: ADP Q4 2016 earnings press release. YOY = year over year.

What happened with ADP this quarter?

Revenue grew 8% year over year to $2.9 billion, and worldwide new business bookings rose 6%.

Employer Services revenue increased 6% to $2.3 billion, with the number of employees on ADP clients' payrolls in the U.S. increasing 2.5%. Employer Services client revenue retention decreased 80 basis points, compared to the fourth quarter of fiscal 2015, to 90.5%. Segment margin, however, increased 350 basis points primarily because of lower selling expenses relative to the prior-year period.

PEO Services revenue jumped 13% to $768 million, with average worksite employees paid increasing 13% to approximately 432,000. In addition, PEO Services segment margin increased by 60 basis points year over year, mostly because of operating and sales efficiencies.

All told, ADP's adjusted pre-tax earnings jumped 28% to $485 million, as pre-tax margin improved 270 basis points to 16.8%.

What management had to say

CEO Carlos Rodriguez said in a press release:

Our results reflect our continued ability to adapt across the HCM product and service spectrum to the dynamic and ever changing needs of our clients. We were very pleased with our strong new business bookings and the contribution from products that assist businesses in complying with the Affordable Care Act, or ACA. We believe our investments in the business to drive innovation, our efforts to simplify the product portfolio, and our future plans to invest in better alignment of our service model are essential for our long-term success.

Looking forward

ADP issued its outlook for 2017, including:

• Full-year revenue growth of 7% to 9% compared to fiscal 2016 revenue of $11.7 billion.
• Growth in worldwide new business bookings of 4% to 6% compared to the $1.75 billion sold in fiscal 2016.
• Growth in adjusted EPS from continuing operations of 10% to 12% compared with $3.26 per share in fiscal 2016.
• Fiscal 2017 share repurchases of $1.0 to $1.4 billion funded by existing balance sheet cash.

"ADP's results in fiscal 2016 were solid and reflect the impact of investments in implementation and operational resources that were made during the fiscal year as we supported our clients through the first year of the ACA-related reporting requirements," added CFO Jan Siegmund. "Beginning in fiscal 2017, we are making investments in support of our service alignment initiative, which is expected to enhance the client service model and drive operational efficiencies over the longer-term."