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Why Is ADP (ADP) Down 5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Automatic Data Processing (ADP - Free Report) . Shares have lost about 5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ADP due for a breakout? 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 Q3 Earnings & Revenues Beat

Automatic Data Processing reported better-than-expected third-quarter fiscal 2022 results. Adjusted earnings per share of $2.21 beat the Zacks Consensus Estimate by 6.8% and grew 16.9% year over year. Total revenues of $4.51 billion beat the consensus mark by 1.2% and improved 10% year over year on a reported basis and 11% on an organic constant-currency basis.

Segments in Detail

Employer Services revenues of $3 billion increased 8% on a reported basis and 9%on an organic constant-currency basis. Pays per control increased 7% year over year.

PEO Services revenues were up 14% year over year to $1.51 billion. Average worksite employees paid by PEO Services were 688,000, up 16% year over year.

Interest on funds held for clients increased 10% to $118 million. The company’s average client funds balance increased 15% to $38.1 billion. Average interest yield on client funds declined 10 basis points to 1.2%.


Adjusted EBIT increased 12% year over year to $1.2 billion. Adjusted EBIT margin grew 50 basis points to 26.8%. The uptick was backed by higher revenues, which were partially offset by the effect of increased expenses related to selling, implementation and service, and higher PEO pass-through expenses.

Employer Services segment margin increased 120 bps. PEO Services segment margin was flat.

Balance Sheet and Cash Flow

ADP exited third-quarter fiscal 2022 with cash and cash equivalents of $1.63 billion compared with $1.75 billion in the prior quarter. Long-term debt of $2.99 billion was flat sequentially.

The company generated $971 million of cash from operating activities in the quarter. Capital expenditures were $51 million. The company paid out dividends worth $437.7 million and repurchased shares worth $491.4 million.

Fiscal 2022 Outlook

ADP raised its fiscal 2022 outlook. The company now expects revenues to register 9-10% growth compared with the expected prior growth rate of 8-9%. Adjusted EPS is now expected to register 15-17% growth compared with the expected prior growth rate of 12-14%. The company now expects Employer Services revenues to grow at a rate of about 7% compared with the expected prior growth rate of about 6% and PEO Services revenues at a rate of 14-15% compared with the expected prior growth rate of 13% to 15%.


How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

Currently, ADP has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, 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 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 indicates a downward shift. It comes with little surprise ADP has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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