Automatic Data Processing (NASDAQ:ADP) announced slightly better-than-expected fiscal third-quarter 2018 results on Wednesday morning, including strong growth in global business bookings. The HR management software specialist also increased its quarterly dividend and full-year earnings guidance.

Let's take a closer look at what Automatic Data Processing had to say as it kicked off the second half of its fiscal year, as well as what investors should expect looking forward.

ADP letter logo in red

IMAGE SOURCE: AUTOMATIC DATA PROCESSING.

Advanced Data Processing results: The raw numbers

Metric

Fiscal Q3 2018

Fiscal Q3 2017

Year-Over-Year Growth

Revenue

$3.693 billion

$3.411 billion

8.3%

GAAP net income

$643.1 million

$587.9 million

9.4%

GAAP earnings per share (diluted)

$1.45

$1.31

10.7%

DATA SOURCE: AUTOMATIC DATA PROCESSING. 

What happened with ADP this quarter?

  • The change in revenue included 6% organic growth at constant currency.
  • Worldwide new business bookings grew 9%.
  • Employer services revenue rose 7% year over year as reported (4% at constant currency) to $2.804 billion. Employer services client revenue retention rates increased 170 basis points year over year
  • PEO Services revenue went up 10% year over year, to $1.071 billion, driven mostly by a 9% increase in average worksite employees paid by PEO services, to roughly 512,000.
  • In early March, ADP announced a voluntary early retirement program to certain U.S.-based employees to support business transformation initiatives. The move will result in a special termination charge in the current (fiscal fourth) quarter, which will be largely funded by the surplus in ADP's defined benefit plan. Starting in fiscal 2019, it should also begin to significantly reduce pre-tax operating expenses.
  • Subsequent to the end of the quarter, on April 11, 2018, ADP boosted its quarterly dividend by 10% to $0.69 per share, representing a portion of the company's tax windfall from the enactment of the U.S. Tax Cuts and Jobs Act late last calendar year. ADP still expects to hike its dividend again in November 2018, extending its 43-year record of annual dividend increases.

What management had to say

CEO Carlos Rodriguez called it a "successful" quarter, pointing to growth in new business bookings and improved Employer Services retention, in particular.

"Our results reflect the fundamental strength of our business model," Rodriguez stated, "and demonstrate that our strategy to drive sustainable long-term growth is working."

CFO Jan Siegmund added, "Our transformation initiatives continue to drive positive changes in how we are doing business, and we were pleased to build on our momentum this quarter by raising our full year adjusted EPS guidance."

Looking ahead

More specifically, while ADP reiterated its full fiscal-year 2018 outlook for revenue to rise 7% to 8%, it also expects full-year earnings per diluted share to surge 11% to 12% (up from previous guidance for 8% to 9% growth). ADP further adjusted its outlook for growth in worldwide new business bookings to be in the range of 6% to 7%, up from 5% to 7% previously.

All things considered, there was little not to like about this performance, from the relative strength of ADP's two primary business segments, its continued efforts to responsibly manage costs, its shareholder-friendly capital returns policies, and its freshly boosted earnings guidance. So it was no surprise to see the stock up almost 3% and flirting with a fresh 52-week high in response.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Automatic Data Processing. The Motley Fool has a disclosure policy.