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ADP (ADP) Up 9.3% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Automatic Data Processing (ADP - Free Report) . Shares have added about 9.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is ADP due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Automatic Data Processing reported strong fourth-quarter fiscal 2018 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.
Adjusted earnings per share of 92 cents beat the Zacks Consensus Estimate by 2 cents and increased 39.4% year over year. The bottom line benefited from lower effective tax rate and fewer shares outstanding. Notably, ADP enjoyed a lower effective tax rate of 28.7% compared with 32.2% in the year-ago quarter, on an adjusted basis
Total revenues of $3.32 billion outpaced the consensus mark by $31.1 million. The top-line figure improved 8% on a reported basis and 6% on a constant-currency basis.
Segment in Details
Employer Services revenues of $2.49 billion increased 7% year over year on a reported basis and 4% on an organic constant-currency basis. The number of employees on ADP clients' payrolls in the United States rose 3.1% on a same-store sales basis. Worldwide new business bookings increased 18% in the quarter.Client revenue retention however declined 120 basis points (bps) on a year-over-year basis.
PEO Services revenues were up 10% year over year to $976.7 million. The upside was driven by 8% increase in average worksite employees for the reported quarter. Average worksite employees paid by PEO Services were roughly 523,000.
Interest on funds held for clientsin the fiscal fourth quarter increased 20% to $126 million. The company’s average client funds balances climbed 4% year over year and 3% on a constant currency basis to $24.9 billion. Average interest yield on client funds was 2%, up 30 bps on a year-over-year basis.
Margins
Adjusted EBIT came in at $575.6 million, up 31.2% on a year-over-year basis. Adjusted EBIT margin increased about 300 bps in the quarter to 17.3%. The margin improvement was driven by benefits from operational efficiencies and transformation initiatives, which was, however, offset in part by acquisition-related expenses.
Segment-wise, Employer Services segment’s margin increased 200 bps on a year-over-year basis. The same for PEO Services segment improved approximately 60 bps in the quarter.
Balance Sheet and Cash Flow
ADP exited fourth-quarter fiscal 2018 with cash and cash equivalents of $2.17 billion compared with $2.29 billion in the prior quarter. Long-term debt of $2 billion remained flat with the prior quarter.
The company generated $2.52 billion of cash from operating activities in the reported quarter.
The company paid dividends worth $1.06 billion and repurchased shares worth $989.3 million in fiscal 2018.
Fiscal 2019 Outlook
ADP provided outlook for fiscal 2019. The company expects revenue growth of 5% to 7% and adjusted EBIT increase of 100 to 125 bps. Adjusted earnings per share are expected to register growth of 13% to 15%. Adjusted effective tax rate is anticipated around 25.1%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, ADP has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ADP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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ADP (ADP) Up 9.3% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Automatic Data Processing (ADP - Free Report) . Shares have added about 9.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is ADP due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
ADP Q4 Earnings & Revenues Surpass Estimates, Rise Y/Y
Automatic Data Processing reported strong fourth-quarter fiscal 2018 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.
Adjusted earnings per share of 92 cents beat the Zacks Consensus Estimate by 2 cents and increased 39.4% year over year. The bottom line benefited from lower effective tax rate and fewer shares outstanding. Notably, ADP enjoyed a lower effective tax rate of 28.7% compared with 32.2% in the year-ago quarter, on an adjusted basis
Total revenues of $3.32 billion outpaced the consensus mark by $31.1 million. The top-line figure improved 8% on a reported basis and 6% on a constant-currency basis.
Segment in Details
Employer Services revenues of $2.49 billion increased 7% year over year on a reported basis and 4% on an organic constant-currency basis. The number of employees on ADP clients' payrolls in the United States rose 3.1% on a same-store sales basis. Worldwide new business bookings increased 18% in the quarter.Client revenue retention however declined 120 basis points (bps) on a year-over-year basis.
PEO Services revenues were up 10% year over year to $976.7 million. The upside was driven by 8% increase in average worksite employees for the reported quarter. Average worksite employees paid by PEO Services were roughly 523,000.
Interest on funds held for clientsin the fiscal fourth quarter increased 20% to $126 million. The company’s average client funds balances climbed 4% year over year and 3% on a constant currency basis to $24.9 billion. Average interest yield on client funds was 2%, up 30 bps on a year-over-year basis.
Margins
Adjusted EBIT came in at $575.6 million, up 31.2% on a year-over-year basis. Adjusted EBIT margin increased about 300 bps in the quarter to 17.3%. The margin improvement was driven by benefits from operational efficiencies and transformation initiatives, which was, however, offset in part by acquisition-related expenses.
Segment-wise, Employer Services segment’s margin increased 200 bps on a year-over-year basis. The same for PEO Services segment improved approximately 60 bps in the quarter.
Balance Sheet and Cash Flow
ADP exited fourth-quarter fiscal 2018 with cash and cash equivalents of $2.17 billion compared with $2.29 billion in the prior quarter. Long-term debt of $2 billion remained flat with the prior quarter.
The company generated $2.52 billion of cash from operating activities in the reported quarter.
The company paid dividends worth $1.06 billion and repurchased shares worth $989.3 million in fiscal 2018.
Fiscal 2019 Outlook
ADP provided outlook for fiscal 2019. The company expects revenue growth of 5% to 7% and adjusted EBIT increase of 100 to 125 bps. Adjusted earnings per share are expected to register growth of 13% to 15%. Adjusted effective tax rate is anticipated around 25.1%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, ADP has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, ADP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.