It has been about a month since the last earnings report for Automatic Data Processing (ADP Quick QuoteADP - Free Report) . Shares have added about 1.6% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

ADP's Q1 Earnings Beat Estimates

Automatic Data Processing, Inc. reported impressive second-quarter fiscal 2024 results, wherein earnings and revenues beat the respective Zacks Consensus Estimate.

Adjusted earnings per share (EPS) of $2.13 beat the consensus estimate by 1.4% and grew 8.7% from the year-ago fiscal quarter’s figure.

Total revenues of $4.67 billion surpassed the consensus estimate by 0.2% and improved 6.3% from the year-ago fiscal quarter’s reading on a reported basis as well on an organic constant-currency basis.

Segments:

Employer Services’ revenues of $2.9 billion increased 8% on a reported basis and 7% on an organic constant-currency basis and matched our estimate. Pays per control increased 2% from the year-ago fiscal quarter’s reading.

PEO Services’ revenues were up 3% year over year to $1.54 billion and beat our estimate of $1.53 billion for the first quarter. Average worksite employees paid by PEO Services were 725,000, up 2% from the year-ago fiscal quarter’s figure.

Interest on funds held for clients increased 20% to $225 million and exceeded our estimated $222 million. ADP’s average client funds balance decreased 2% to $32.6 billion. Average interest yield on client funds expanded 50 basis points to 2.8%.

Margins:

Adjusted EBIT increased 7% from the year-ago fiscal quarter’s reading to $1.1 billion. Adjusted EBIT margin grew 20 basis points (bps) to 24.6%.  

The margin of Employer Services increased 170 bps while PEO Services declined 50 bps.

Balance Sheet and Cash Flow

ADP exited second-quarter fiscal 2024 with cash and cash equivalents of $1.64 billion compared with $2.08 billion in the prior fiscal quarter. Long-term debt of $2.99 billion was flat sequentially.

Automatic Data Processing generated $1.03 billion in cash from operating activities in the quarter. Capital expenditures were $54.8 million.

Fiscal 2024 Outlook

ADP still expects revenues to register 6-7% growth. Adjusted EPS is expected to register 10-12% growth. The adjusted effective tax rate is estimated to be approximately 23%. Adjusted EBIT margin is expected to grow 60-70 bps, down from the previously guided 60-80 bps.

Automatic Data Processing expects Employer Services revenues to grow at a rate of about 7-8%, while PEO Services revenues are expected to grow 3-4%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, 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.

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.