Automatic Data Processing Boosts Its Outlook

Automatic Data Processing (ADP 0.55%) delivered fiscal first-quarter results that were impacted by asset sales, technology investments, and difficult comparisons to its Affordable Care Act-fueled growth in past quarters. But the leading global provider of human capital management solutions says that it's still on track to hit -- and even exceed -- its revenue and profit forecast for the year ahead.

ADP results: The raw numbers

Data source: ADP Q1 2018 earnings press release.

What happened with ADP this quarter?

Worldwide new business bookings declined 3% year over year, yet CEO Carlos Rodriguez said during ADP's earnings call that the company remains on track to hit its full-year bookings growth target:

This performance was in line with our expectations as we begin to realize the benefits of our fiscal 2017 headcount investments, while we continue to manage through the effects of the regulatory uncertainty that has prevailed since last year's U.S. elections. ... [W]e continue to expect our bookings growth to gradually expand back to pre-ACA growth levels as we progress through the year. As a result, we continue to anticipate full-year fiscal 2018 new business bookings growth of 5% to 7%.

ADP says it will hit its full-year growth targets. Image source: Getty Images.

PEO (Professional Employer Organization) services, ADP's co-employment segment, delivered a 14% increase in revenue, to $904 million, as average worksite employees paid rose 10% to 484,000. However, this was partially offset by a decline of 60 basis points in segment margin, to 12.9%. In turn, PEO services earnings increased 9% to $117 million.

ADP's employer services segment, which includes its human capital management and human resources outsourcing businesses, saw revenue rise 2% (3% on an organic basis) to $2.3 billion, as the number of employees on ADP clients' payrolls in the U.S. increased 2.4%. Moreover, client revenue retention improved 160 basis points compared to the year-ago quarter. Employer services segment margin, however, decreased 110 basis points, to 27.9%, as ADP continues to invest heavily in its cloud platforms and client service initiatives.

"Having upgraded more than 83% of ADP clients to strategic cloud platforms, we continue to anticipate our clients' future needs through investments in next-generation solutions that will enable us to deliver agile country, industry and client-specific applications that will serve to further differentiate ADP in the market," Rodriguez said in a press release.

All told, ADP's earnings before interest and taxes (EBIT) -- adjusted to exclude restructuring charges and other non-recurring items -- fell 3% to $564 million, as adjusted EBIT margin declined to 18.3%, down from 19.8% in the prior-year period. Adjusted net earnings, which benefited from a lower effective tax rate, rose 3% to $406 million. And adjusted earnings per share -- boosted by stock buybacks -- increased 6% to $0.91.

Looking forward

ADP updated its financial guidance for fiscal 2018. Full-year revenue is now expected to rise 6% to 8% -- up from a prior estimate of 5% to 6% -- thanks in part to the expected impact from ADP's recent $490 million acquisition of digital payments company Global Cash Card. Management also raised its adjusted EPS growth forecast to a range of 5% to 7%, up from one of 2% to 4%.

"ADP performed well in the quarter, posting good revenue growth despite the headwinds from our fiscal 2017 bookings performance and the disposition of our CHSA [Consumer Health Spending Account] and COBRA businesses," added CFO Jan Siegmund. "We continue to anticipate pressure on our revenue growth and margins to be concentrated in the first half of the fiscal year as we accelerate our revenue and bookings growth toward the latter half of fiscal 2018."