It has been about a month since the last earnings report for Automatic Data Processing (
ADP Quick Quote ADP - Free Report) . Shares have added about 5.3% 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 drivers.
Automatic Data Processing Surpasses Q2 Earnings & Revenues Estimates
Automatic Data Processing reported better-than-expected second-quarter fiscal 2021 results.
Adjusted earnings per share of $1.52 beat the Zacks Consensus Estimate by 17.8% but were flat year over year. Total revenues of $3.69 billion beat the consensus mark by 3.2% and improved 0.7% year over year on a reported basis as well as on an organic constant-currency basis.
Segments in Detail Employer Services revenues of $2.51 billion decreased 1% year over year on a reported and 2% on an organic constant-currency basis. Pays per control decreased 6% year over year. New business bookings decreased 7%. PEO Services revenues were up 5% year over year to $1.18 billion. Average worksite employees paid by PEO Services were 571,000, down 2% from the prior-year quarter. Interest on funds held for clients decreased 23% to $105 million. The company’s average client funds balances remained flat at $25.1 billion. Average interest yield on client funds declined 50 basis points to 1.7%. Margins
Adjusted EBIT decreased 1% year over year to $848 million. Adjusted EBIT margin declined 30 basis points to 22.9%.
Balance Sheet and Cash Flow
ADP exited second-quarter fiscal 2021 with cash and cash equivalents of $1.60 billion compared with $1.61 billion in the prior quarter. Long-term debt of $1.99 billion was flat sequentially.
The company generated $706.4 million of cash from operating activities in the quarter. Capital expenditures were $37.5 million. The company paid out dividends worth $390.7 million and repurchased shares worth $261.5 million.
Fiscal 2021 Outlook
ADP expects fiscal 2021 revenues to be up 1% to 3%. It had earlier expected revenues to be down 1% to up 1%. Adjusted earnings per share are anticipated to be down 2% to up 2% compared with the prior guidance of a decline of 3-7%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 5.95% due to these changes.
At this time, ADP has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, ADP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.