Shares of Automatic Data Processing (ADP -1.33%) fell 9.2% on Wednesday after the human resources management software and services company announced mixed quarterly results (relative to Wall Street's expectations) to kick off its new fiscal year.
Automatic Data Processing's strong quarter wasn't strong enough
For its fiscal first quarter of 2024 (ended Sept. 30, 2023), revenue grew 7% year over year to $4.51 billion, translating to an 11% increase in non-GAAP (adjusted) net income to $860 million, or $2.08 per share. Analysts, on average, were expecting lower earnings of $2.02 per share but on slightly higher revenue of $4.52 billion.
Even so, ADP CEO Maria Black insisted the company had kicked off its fiscal year "with strong financial performance and meaningful progress across our strategic priorities."
Management added that revenue growth and margins both exceeded ADP's internal projections, helped by growth in new business bookings, strong client revenue retention, and higher interest revenue on funds held for clients.
What's next for ADP stock?
Looking ahead to the remainder of the fiscal year, ADP reiterated its outlook for consolidated revenue growth of 6% to 7% and for growth in adjusted earnings per share of 10% to 12%.
So why the drop today? It's clear that while the company is more than pleased with its performance, ADP's fiscal first quarter simply didn't live up to analysts' expectations. That certainly doesn't mean it's a broken business; ADP remains well positioned, after all, to benefit from an incremental improvement to trends for hiring and HR outsourcing demand. For now, however, until we see more tangible signs of a reacceleration in growth, I suspect ADP stock will remain under pressure.
