Person pushing button for human resources.

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Automatic Data Processing (NASDAQ:ADP) reported second-quarter financial results on Feb. 1. The leading provider of human capital management services delivered solid profit growth, but management warned that new business bookings would be lower than previously expected in the year ahead.

ADP results: The raw numbers

MetricQ2 2017Q2 2016Year-Over-Year Change
Revenue $2.987 billion $2.807 billion 6%
Net earnings from continuing operations $511 million $341 million 50%
EPS from continuing operations $1.13 $0.74 53%

Data Source: ADP Q2 2017 earnings press release.

What happened with ADP this quarter? 

Revenue rose 6% year over year, to $3 billion, and 7% on a constant-dollar basis. However, worldwide new business bookings fell 5%.

CFO Jan Siegmund said that the decline was driven by "an elevated level of buyer uncertainty around the November U.S. elections," as well as difficult comparisons to fiscal 2016 results that were boosted by sales related to the Affordable Care Act. "While below our expectations for the second quarter, we believe this new business bookings pressure will begin to subside as the year progresses," said Siegmund in a press release.

Employer services, which includes ADP's human resources and outsourcing businesses, saw revenue increase 4%, to $2.3 billion, with the number of employees on ADP clients' payrolls in the U.S. increasing 2.3%. Client revenue retention improved 10 basis points year over year, and segment margin increased 150 basis points, to 29.5%, due mainly to improved operational efficiencies. That helped drive employer-services earnings from continuing operations higher by 10%, to $682 million.

PEO services, which is ADP's co-employment division, delivered a 12% increase in revenue, to $823 million. Average worksite employees paid increased 12%, to approximately 452,000. And PEO services earnings from continuing operations leapt 22%, to $115 million, as segment margin improved by 120 basis points, to 13.9%.

All told, ADP's pre-tax earnings -- adjusted for gains related to the sale of a business and other special items -- increased 17% year over year, to $593 million, with pre-tax margin improving 180 basis points, to 19.8%. And adjusted earnings per share from continuing operations, which benefited from the $422 million in share buybacks ADP conducted during the quarter, jumped 20%, to $0.87. 

Looking forward

ADP cut its fiscal 2017 sales and bookings guidance in response to its second-quarter results, including:

  • Full-year revenue growth of 6% compared to its prior forecast of 7% to 8% growth.
  • Worldwide new business bookings similar to the $1.75 billion sold in fiscal 2016 versus previous projections for growth of 4% to 6%.

ADP did, however, reiterate its guidance for adjusted diluted earnings-per-share growth of 11% to 13%.

"Despite the recent uncertainty in the U.S. business environment, we continue to believe that change will be beneficial to us, as we are well-positioned to help our clients navigate the complexities of HCM [human capital management]," said CEO Carlos Rodriguez during a conference call with analysts. "I remain confident in ADP's future and in the success of our strategic initiatives."

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Automatic Data Processing. The Motley Fool has a disclosure policy.