Automatic Data Processing (NASDAQ:ADP) reported fiscal third-quarter financial results on May 3. The leading provider of human capital management services delivered continues to deliver steady gains in revenue and earnings, but sluggish new business bookings suggest growth may be slowing.

ADP results: The raw numbers


Q3 2017

Q3 2016

Year-Over-Year Change


$3.411 billion

$3.249 billion


Net earnings from continuing operations

$588 million

$533 million


EPS from continuing operations




Data source: ADP Q3 2017 earnings press release.

Affordable Care Act document

Image source: Getty Images.

What happened with ADP this quarter?

Revenue grew 5% year over year to $3.4 billion, and 6% on an organic basis. Worldwide new business bookings, however, fell 7%.

CEO Carlos Rodriguez said the decline was largely due to challenging comparisons to fiscal 2016 results that were boosted by sales related to the Affordable Care Act.

"I'd like to remind you that the Affordable Care Act factor was quite unique in that it helped accelerate various buying decisions across our mid- and upmarkets both from new client share and our existing base," Rodriguez said during a conference call with analysts.

Employer Services, which includes ADP's human capital management and human resources outsourcing businesses, saw revenue increase 2% (3% organically) to $2.6 billion, with the number of employees on ADP clients' payrolls in the U.S. increasing 2.5%. Client revenue retention, though, fell 170 basis points year over year. And segment margin decreased 40 basis points, to 36.7%, as ADP continued to invest in the business despite slower revenue growth. In turn, employer services earnings from continuing operations rose less than 1%, to $964 million.

Commenting on the retention rate decline, Rodriguez said:

The losses that contributed to this decline were concentrated on our legacy platforms, and we believe some of these losses were triggered by our upgrade activities in the mid- and upmarket. We maintain our core belief that these migrations are the right thing to do for our clients as well as for ADP.

PEO Services, which is ADP's co-employment division, delivered a 12% increase in revenue, to $974 million. Average worksite employees paid increased 12% to approximately 471,000. And PEO services earnings from continuing operations jumped 23% to $120 million, as segment margin improved by 100 basis points to 12.3%.

All told, ADP's pre-tax earnings rose 4% year over year to $828 million, with pre-tax margin decreasing 20 basis points to 24.3%. And earnings per share from continuing operations -- which were boosted by tax benefits and share buybacks -- rose 12% to $1.31. 

Looking forward

Recent booking trends prompted ADP to cut its fiscal 2017 full-year bookings guidance. ADP now expects worldwide new business bookings to decrease 5% to 7% from the $1.75 billion sold in fiscal 2016. That's down from the guidance ADP issued in the second quarter, which called for bookings to be about flat versus fiscal 2016's results, and the 4% to 6% year-over-year growth ADP had anticipated back in the first quarter.

ADP did, however, reiterate its guidance for full-year revenue growth of 6%. It also raised its profit outlook, as it now expects adjusted EPS to increase 13% to 14% -- up from 11% to 13% -- due to an anticipated lower effective tax rate.

"We were disappointed with this quarter's 7% decline in new business bookings but we remain otherwise pleased with the underlying performance and continued resilience of our overall business and accordingly are reaffirming our full year revenue and margin guidance," said CFO Jan Siegmund in a press release.

"Despite the pressure on new business bookings and retention, we remain confident in the enduring qualities of our business," added Rodriguez.

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