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Automatic Data Processing (ADP) Q2 Earnings Beat, '22 View Up

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Automatic Data Processing, Inc.(ADP - Free Report) reported better-than-expected second-quarter fiscal 2022 results.

Adjusted earnings per share of $1.65 beat the Zacks Consensus Estimate by 1.2% and grew 9% year over year. Total revenues of $4.03 billion beat the consensus mark by 1.1% and improved 9% year over year on a reported basis as well as on an organic constant-currency basis.

So far this year, shares of ADP have gained 31.8% compared with 26.6% growth of the industry it belongs to and 14.8% surge of the Zacks S&P 500 composite.

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Let’s check out the numbers in detail:

Segments in Detail

Employer Services revenues of $2.67 billion increased 6% on a reported basis and 7% on an organic constant-currency basis. Pays per control increased 6% year over year.

PEO Services revenues were up 15% year over year to $1.36 billion. Average worksite employees paid by PEO Services were 660,000, up 16% year over year.

Interest on funds held for clients increased 1% to $106 million. The company’s average client funds balance increased 28% to $32.2 billion. Average interest yield on client funds declined 40 basis points to 1.3%.

Margins

Adjusted EBIT increased 10% year over year to $930 million. Adjusted EBIT margin grew 20 basis points to 23.1%. The uptick was backed by higher operating revenues, which were partially offset by the effect of increased expenses related to implementation and service, and higher PEO pass-through expenses.

Employer Services segment margin increased 40 bps. PEO Services segment margin fell 10 bps.

Balance Sheet and Cash Flow

ADP exited second-quarter fiscal 2022 with cash and cash equivalents of $1.75 billion compared with $1.60 billion in the prior quarter. Long-term debt of $2.99 billion was flat sequentially.

The company generated $1.09 billion of cash from operating activities in the quarter. Capital expenditures were $39.9 million. The company paid out dividends worth $393.8 million and repurchased shares worth $462.5 million.

Fiscal 2022 Outlook

ADP raised its fiscal 2022 outlook. The company now expects revenues to register 8-9% growth compared with the prior-expected growth rate of 7-8%. Adjusted EPS is now expected to register 12-14% growth compared with 11-13% predicted earlier.

The company now expects Employer Services revenues to grow at a rate of about 6% compared with the prior-expected growth rate of 5% to 6% and PEO Services revenues at a rate of 13-15% compared with the earlier-provided guidance of 11% to 13%.

Currently, ADP carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Upcoming Releases

Investors interested in the broader Zacks Business Services sector can consider stocks like Waste Connections (WCN - Free Report) , Waste Management (WM - Free Report) and Republic Services (RSG - Free Report) ,which will report their fourth-quarter 2021 numbers soon.

Waste Connections will release results on Feb 16. The stock has an expected earnings growth rate of 15.3% for the current year.

Waste Connections’ shares have surged 20% in the past year. The company has a long-term earnings growth of 13.6%.

Waste Management will report quarterly numbers on Feb 2. The stock has an expected earnings growth rate of 12.2% for the current year.

Waste Management’s shares have surged 29.9% in the past year. The company has a long-term earnings growth of 12.6%.

Republic Services will report results on Feb 10. The stock has an expected earnings growth rate of 11.1% for the current year.

Republic Services’ shares have surged 33.8% in the past year. The company has a long-term earnings growth of 10.9%.