ADP Beats on Lower Revenues

Automatic Data Processing, Inc. (ADP - Snapshot Report) reported first quarter 2010 EPS of 56 cents, exceeding the Zacks Consensus Estimate of 50 cents.

Revenue

First quarter 2010 revenue of $2.1 billion was down 4.0% from the year-ago quarter. Revenue declined across all segments except PEO (Professional Employer Organization) services, negatively impacted by the severe economic conditions that prevailed during the past year. Unfavorable foreign exchange comparisons comprised two percentage points of the quarter’s revenue decline.

Revenue by Segment

Employer Services revenue was $1.49 billion, down 3% compared to the year-ago quarter. Within this segment, the United States traditional payroll revenues and payroll tax filing business declined 7.0%, while the beyond-payroll revenues grew 3%. Number of employees under clients payroll declined 6.5% in the U.S., measured on the basis of same-store sales.

PEO Services revenue was $296.2 million, up 6.0% compared to the year-ago quarter. This can be attributed to the higher benefits pass-through revenues that resulted from increases in both benefit rates and the number of worksite employees.

Dealer Services revenue was $313.5 million, down 4.0% compared to the year-ago quarter. This decline can be attributed to continued dealership closings and consolidations, as well as lower transactional revenues related to lower car-sales volumes.

Other revenues were $1.1 million in the quarter.

Operating Results

Total expenses for the quarter reached $1.68 billion, down 5.23% compared to the year-ago quarter, as the company has implemented cost-control measures from the fourth quarter of last year. Pretax earnings from continuing operations were $447.3 million, down 1. 4% from the year-ago quarter, while net earnings from continuing operations was $284.1 million, up 2.2% from the year ago quarter. Provision for taxes remained flat.

Net Income for the first quarter was $284.1 million or 56 cents per share, up 3.0% from $276.9 million or 54 cents per share reported in the year-ago quarter.

Balance Sheet

Cash, cash equivalents and marketable securities (including long-term marketable securities) for the quarter was $1.7 billion, down from $2.4 billion reported in the previous quarter. Long-term debt for the quarter was $42.2 million, almost flat compared to $42.7 million reported in the previous quarter. During the quarter, the company acquired over 360,000 shares of its stock at a cost of about $13.7 million.

Guidance

Management believes that the U.S. economy has reached the bottom of its economic downturn, and that now the economy will slowly stabilize. For the fiscal year 2010, the company expects a revenue decline of 1.0% to 2.0%, while diluted earnings per share is expected to be in the range of $2.34 to $2.39, compared to $2.39 per share earnings from continuing operations reported in fiscal 2009 (excluding favorable tax settlement).

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