A month has gone by since the last earnings report for Automatic Data Processing (ADP Quick QuoteADP - Free Report) . Shares have added about 3.7% 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 Q3 Earnings Beat Estimates

Automatic Data Processing posted third-quarter fiscal 2026 adjusted earnings per share of $3.37, beating the Zacks Consensus Estimate of $3.28 by 2.7%. The metric increased 10.1% from the year-ago quarter.

Total revenues came in at $5.94 billion, topping the consensus mark of $5.86 billion by 1.4% and rising 7% year over year. Operationally, Employer Services client revenue retention and overall client satisfaction reached record highs for the third quarter.

ADP Posts Broad-Based Top-Line Growth

ADP’s revenue performance reflected gains across its two operating segments. Employer Services revenues increased 7% year over year to $4.04 billion, whereas PEO Services revenues rose 7% to $1.91 billion.

Client funds tailwinds also remained supportive. Interest on funds held for clients increased 14% year over year to $403.9 million, driven by average client funds balances that rose 9% to $48.3 billion and an average yield of 3.3%, up 10 basis points.

Automatic Data Processing Sees Employer Services Lift

Employer Services continued to be a key growth engine in the quarter. Management cited solid business booking growth, while retention and client satisfaction set record highs for the third quarter.

Profitability improved meaningfully in the segment. Employer Services’ margin expanded 130 basis points year over year, with ADP pointing to operational productivity improvements alongside growth in client funds interest revenues as notable contributors.

ADP’s PEO Segment Mix Weighs on Margin

PEO Services turned in another quarter of revenue expansion, but profitability moved the other way. Segment margin declined 120 basis points year over year, reflecting a combination of business mix and cost items within the segment.

ADP noted that zero-margin benefits pass-through growth was a key factor behind the margin pressure. Higher state unemployment insurance costs and higher selling expenses also contributed. On an operating metric basis, average worksite employees increased 2% year over year to about 762,000.

Automatic Data Processing Expands Adjusted Operating Profit

ADP converted its revenue growth into higher operating profit. Adjusted EBIT increased 10% year over year to $1.79 billion and the adjusted EBIT margin improved to 30.2%, representing an 80-basis-point expansion.

Below the operating line, ADP’s effective tax rate for the quarter was 23.7% on both a reported and adjusted basis. On a GAAP basis, net earnings increased 9% year over year to $1.36 billion, while diluted earnings per share rose 10% to $3.38.

ADP’s Balance Sheet Shows Higher Client Fund Levels

Automatic Data Processing ended March 31, 2026, with cash and cash equivalents of $3.23 billion. Funds held for clients totaled $46.41 billion, matched by client funds obligations of $46.77 billion, underscoring the scale of client funds activity in the quarter.

On leverage, long-term debt stood at $3.98 billion. Through the first nine months of fiscal 2026, ADP generated $4.01 billion in cash from operating activities. Capital returns remained sizable, with $1.46 billion used for share repurchases and $1.94 billion paid out in dividends over the same nine months.

Automatic Data Processing Raises FY26 Outlook

ADP raised its fiscal 2026 outlook following the quarter’s results. The company expects total revenue growth of 6-7% and an adjusted EBIT margin expansion of 70-80 basis points. It also lifted its adjusted diluted earnings per share growth view to 10-11%.

Within the outlook, ADP updated expectations for client funds contribution, projecting interest on funds held for clients of $1.340 billion to $1.350 billion, and total contribution from the client funds extended investment strategy of $1.300 billion to $1.310 billion. Strategically, ADP highlighted continued investment in AI across products and service delivery, including further deployment of ADP Assist agents and an expanded agentic AI ecosystem through ADP Marketplace, alongside scaling GenAI capabilities across service operations via “The Zone.”

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, ADP has a average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a score of C on the value side, putting it in the middle 20% for value investors.

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.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, ADP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

ADP belongs to the Zacks Internet - Software industry. Another stock from the same industry, F5 Networks (FFIV Quick QuoteFFIV - Free Report) , has gained 18.4% over the past month. More than a month has passed since the company reported results for the quarter ended March 2026.

F5 reported revenues of $811.7 million in the last reported quarter, representing a year-over-year change of +11%. EPS of $3.90 for the same period compares with $3.42 a year ago.

F5 is expected to post earnings of $3.98 per share for the current quarter, representing a year-over-year change of -4.3%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.9%.

F5 has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.