Automatic Data Processing (ADP +0.24%) announced fiscal fourth-quarter 2019 results early Wednesday, highlighting the progress of its ongoing business-transformation initiatives and continued investments in its suite of HR-centric software solutions.
Shares in initially jumped 4% on the news to touch a fresh all-time high but ended the week by pulling back modestly along with the broader markets, on escalating concerns over trade and a potential macroeconomic slowdown.
Let's dig deeper, then, to better understand what ADP accomplished over the past few months, as well as what investors can expect as it kicks off the new fiscal year.
Automatic Data Processing results: The raw numbers
| Metric |
Fiscal Q4 2019* |
Fiscal Q4 2018 |
Year-over-Year Growth |
|---|---|---|---|
|
Revenue |
$3.499 billion |
$3.316 billion |
5.5% |
|
GAAP net income |
$475.5 million |
$140.9 million | 237.5% |
|
GAAP earnings per share (diluted) |
$1.09 |
$0.32 |
240.6% |
Data source: Automatic Data Processing. *For the quarter ended June 30, 2019.
IMAGE SOURCE: ADP.
What happened with ADP this quarter?
- Analysts, on average, were expecting slightly lower quarterly adjusted earnings of $1.13 per share on roughly the same revenue.
- Adjusted for one-time items like tax charges and the cost of business-transformation initiatives, ADP's (non-GAAP) net income climbed 13% to $498 million, and rose 15% on a per-share basis to $1.14.
- For the full fiscal year, revenue climbed 6.4% year over year to $14.175 billion -- slightly favorable relative to guidance provided in May for full-year growth near the low end of ADP's 6% to 7% target range. Full fiscal-year 2019 earnings arrived at $5.45 per share, also slightly above the midpoint of guidance at $5.41 per share.
- Employer Services segment revenue climbed 4% (or 5% on an organic constant-currency basis) to $2.435 billion. The segment's new business bookings increased 11%.
- Professional employer organizations (PEO) services revenue grew 9% year over year to $1.062 billion. Average worksite employees paid by PEO Services climbed to 563,000, up 8% year over year and an increase from 554,000 at the end of last quarter.
- Interest on funds held for clients grew 17% to $147 million. Average client funds balances rose 5% to $26.2 billion.
What management had to say
ADP CEO Carlos Rodriguez stated:
This quarter represented a solid finish to a strong year. We are pleased that we have balanced our financial growth objectives with a number of operational priorities. We continued to successfully execute on our transformation initiatives, launched a new brand campaign, and made significant progress on our next generation platforms as we stay focused on creating long-term shareholder value.
"ADP remains committed to reinvesting in its product, distribution, and service to drive sustainable growth," added ADP CFO Kathleen Winters. "And we are moving forward with our transformation initiatives as we look to both simplify the organization and enhance our competitive positioning."
Looking ahead
For the new full fiscal-year 2020, ADP anticipates revenue growth to remain consistent at a range of 6% to 7%, translating to an increase in adjusted earnings per share of 12% to 14%. Based on the midpoints of those ranges, that would equate to fiscal 2020 revenue of roughly $15.1 billion (roughly in line with consensus estimates), and adjusted earnings of $6.16 per share (above estimates for $6.06 per share).
Of course, you may not know it might watching the seemingly negative reaction to ADP's report, but zooming out shows the stock rightly hovering within reach of its all-time high because the company effectively ended fiscal 2019 positioned exactly where it wants to be. As ADP combines the fruits of its steady growth, transformation initiatives, and responsibly moving to reinvest resources in its products to sustain and take market share from competitors, I suspect the stock will only continue to rise over the long term.
