Automatic Data Processing (NASDAQ:ADP) released mixed fiscal third-quarter 2019 results earlier this month -- at least relative to Wall Street's expectations -- and the stock initially fell around 4% in response. But that's not to say investors should be displeased with what the company had to say.

To that end, ADP shares have all but recouped their post-earnings losses since. Now that the dust has settled, let's look at what drove the leader in human resources management software over the past few months.

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Automatic Data Processing results: The raw numbers


 Q3 2019

 Q3 2018*

Year-over-Year Growth 


$3.847 billion

$3.696 billion


GAAP net income

$753.7 million

$661.0 million


GAAP earnings per share (diluted)




Data source: Automatic Data Processing. *Quarter ended March 31, 2018.   

What happened with ADP this quarter?

  • On an adjusted (non-GAAP) basis, which excludes one-time tax items and ongoing business-transformation expenses, ADP's earnings increased 11% year over year to $770.9 million and -- thanks to stock repurchases -- rose 13% on a per-share basis to $1.77.
  • Analysts on average were expecting adjusted earnings of $1.68 per share on slightly higher revenue.
  • Employer-services segment bookings increased 10%, and segment revenue climbed 3% as reported (4% on a constant-currency basis) to $2.719 billion.
  • Professional employer organizations (PEO) services revenue rose 6% to $1.135 billion, as average work site employees paid by PEO services increased 8% to roughly 554,000 (up from 545,000 last quarter).
  • Interest on funds held for clients rose 24% to $167 million, and average client fund balances grew 4% to $30 billion.

What management had to say

CEO Carlos Rodriguez said: "The world of work is changing, and our new brand campaign represents an exciting step in our journey to continue expanding our efforts to help not only our clients, but also their workers. We continue to drive momentum throughout our businesses through a combination of transformation initiatives and ongoing investments into product, service, and the overall ADP experience."

"I am pleased with our progress in driving robust margin performance from our transformation initiatives," CFO Kathleen Winters added. "As we look ahead, we remain focused on delivering against our commitments while also continuing to reinvest into the business to drive sustained long-term growth and shareholder value."

Looking ahead

With a single quarter left in fiscal 2019, ADP now expects revenue to arrive near the lower end of its guidance for 6% to 7% growth. This top-line range assumes employer-services revenue growth will be near the low end of ADP's prior 5% to 6% estimate -- a reduction primarily driven by the incremental negative impact of foreign-exchange rates -- but continues to expect PEO revenue growth of 9% to 10%.

ADP also raised its outlook for growth in employee-services segment new bookings of 8% to 9%, up from 6% to 8% before. During the subsequent conference call, management credited the increase to a recently completed agreement with an unnamed midsize regional payroll services provider.

Given a combination of transformation initiatives continuing to yield fruit and a slight positive adjustment to its expected tax rate, ADP simultaneously increased its outlook for full-year adjusted EPS to jump 19% to 20% (from $4.53 in fiscal 2018), up from 17% to 19% previously.

All told, putting aside the modest negative impact of foreign exchange, there was little not to like about ADP's start to the second half of its fiscal year. And I think the stock is a compelling long-term play even as it hovers near its all-time high today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.