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ADP (ADP) Up 7.9% Since Last Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Automatic Data Processing (ADP - Free Report) . Shares have added about 7.9% in that time frame, outperforming the S&P 500.
But investors have to be wondering, 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 latest earnings report in order to get a better handle on the important drivers.
ADP's Q4 Earnings Beat Estimates
ADP has reported fourth-quarter fiscal 2026 adjusted earnings of $2.64 per share, beating the Zacks Consensus Estimate of $2.59 by 1.9%. The metric increased 17% from the year-ago quarter.
Revenues of $5.47 billion surpassed the consensus mark of $5.42 billion by 0.9% and rose 7% year over year. Results benefited from broad-based segment growth, stronger client funds income and operating productivity. Employer Services client retention remained strong at 92.1% for the year.
ADP Posts Broad-Based Revenue Growth
Employer Services revenues increased 7% year over year to $3.7 billion in the quarter. Organic constant-currency growth was 6%, while U.S. pays per control increased 1%.
The segment also benefited from an 8% increase in average client funds balances. The average yield on those balances rose to 3.5% from 3.2% in the prior-year period, supporting higher interest-related revenues.
Automatic Data Processing Expands Employer Margin
Employer Services’ margin improved 90 basis points to 34.4%. Management attributed the increase to operating productivity gains and the contribution from higher client funds interest revenues.
For fiscal 2026, Employer Services business bookings increased 6% to $2.2 billion. Client satisfaction scores reached record highs, while the number of clients live on ADP Lyric HCM increased 94%.
ADP's PEO Revenues Rise as Margin Contracts
PEO Services revenues advanced 7% year over year to $1.78 billion. Revenues excluding zero-margin benefits pass-throughs increased 5%, while average worksite employees rose 2% to about 775,000.
The segment margin fell 100 basis points to 12.2%. Faster growth in zero-margin pass-through revenues, along with higher workers' compensation and selling expenses, weighed on profitability.
Automatic Data Processing Lifts Adjusted Profit
Adjusted EBIT increased 13% year over year to $1.37 billion. The adjusted EBIT margin expanded 140 basis points to 25.1%, showing that ADP converted its revenue growth into stronger operating leverage.
Adjusted net earnings rose 14% to $1.05 billion. On a GAAP basis, net earnings increased 7% to $978.6 million, while earnings per share rose 10% to $2.45.
ADP Sees Stronger Client Funds Contribution
Interest on funds held for clients increased 15% year over year to $355.4 million. The net impact from the client funds strategy rose 24% to $355.5 million, reflecting higher portfolio income and a more favorable financing spread.
For fiscal 2026, average client funds balances were $40.4 billion, up 7% year over year. The average portfolio yield increased 20 basis points to 3.4%, while total client funds interest revenues reached $1.355 billion.
Automatic Data Processing Generates Solid Cash Flow
ADP generated $5.44 billion in operating cash flow during fiscal 2026, up from $4.94 billion a year earlier. The company used $2.08 billion for share repurchases and paid out $2.63 billion in dividends.
Cash and cash equivalents totaled $4.23 billion as of June 30, 2026. Long-term debt stood at $4.96 billion, while funds held for clients were $43.96 billion against client funds obligations of $44.42 billion.
Automatic Data Processing Targets Higher Fund Income
ADP expects client funds interest revenues of $1.54-$1.56 billion in fiscal 2027. The outlook assumes 3-4% growth in average client funds balances and an average portfolio yield of 3.7%.
The company also projects a total contribution of $1.55-$1.57 billion from its client funds extended investment strategy. Management said that AI tools embedded across products, services and sales are enhancing quality and productivity as ADP enters the new fiscal year.
ADP Issues FY27 Growth Outlook
For fiscal 2027, ADP expects year-over-year consolidated revenue growth of 5-6%. The adjusted EBIT margin is projected to expand 70-90 basis points, while adjusted diluted earnings per share are expected to grow 9-11%.
Employer Services revenues are forecast to rise 5-6%, with business booking growth of 4-7%. PEO Services revenues are expected to increase 5-7%, while average worksite employees are projected to grow 2%.
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 subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock has a score of D on the value side, putting it in the bottom 40% for value investors.
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 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.
Performance of an Industry Player
ADP is part of the Zacks Internet - Software industry. Over the past month, AppFolio (APPF - Free Report) , a stock from the same industry, has gained 31.8%. The company reported its results for the quarter ended June 2026 more than a month ago.
AppFolio reported revenues of $281.12 million in the last reported quarter, representing a year-over-year change of +19.3%. EPS of $1.71 for the same period compares with $1.38 a year ago.
AppFolio is expected to post earnings of $1.78 per share for the current quarter, representing a year-over-year change of +35.9%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.5%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for AppFolio. Also, the stock has a VGM Score of C.
View the Zacks #1 Rank List
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ADP (ADP) Up 7.9% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Automatic Data Processing (ADP - Free Report) . Shares have added about 7.9% in that time frame, outperforming the S&P 500.
But investors have to be wondering, 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 latest earnings report in order to get a better handle on the important drivers.
ADP's Q4 Earnings Beat Estimates
ADP has reported fourth-quarter fiscal 2026 adjusted earnings of $2.64 per share, beating the Zacks Consensus Estimate of $2.59 by 1.9%. The metric increased 17% from the year-ago quarter.
Revenues of $5.47 billion surpassed the consensus mark of $5.42 billion by 0.9% and rose 7% year over year. Results benefited from broad-based segment growth, stronger client funds income and operating productivity. Employer Services client retention remained strong at 92.1% for the year.
ADP Posts Broad-Based Revenue Growth
Employer Services revenues increased 7% year over year to $3.7 billion in the quarter. Organic constant-currency growth was 6%, while U.S. pays per control increased 1%.
The segment also benefited from an 8% increase in average client funds balances. The average yield on those balances rose to 3.5% from 3.2% in the prior-year period, supporting higher interest-related revenues.
Automatic Data Processing Expands Employer Margin
Employer Services’ margin improved 90 basis points to 34.4%. Management attributed the increase to operating productivity gains and the contribution from higher client funds interest revenues.
For fiscal 2026, Employer Services business bookings increased 6% to $2.2 billion. Client satisfaction scores reached record highs, while the number of clients live on ADP Lyric HCM increased 94%.
ADP's PEO Revenues Rise as Margin Contracts
PEO Services revenues advanced 7% year over year to $1.78 billion. Revenues excluding zero-margin benefits pass-throughs increased 5%, while average worksite employees rose 2% to about 775,000.
The segment margin fell 100 basis points to 12.2%. Faster growth in zero-margin pass-through revenues, along with higher workers' compensation and selling expenses, weighed on profitability.
Automatic Data Processing Lifts Adjusted Profit
Adjusted EBIT increased 13% year over year to $1.37 billion. The adjusted EBIT margin expanded 140 basis points to 25.1%, showing that ADP converted its revenue growth into stronger operating leverage.
Adjusted net earnings rose 14% to $1.05 billion. On a GAAP basis, net earnings increased 7% to $978.6 million, while earnings per share rose 10% to $2.45.
ADP Sees Stronger Client Funds Contribution
Interest on funds held for clients increased 15% year over year to $355.4 million. The net impact from the client funds strategy rose 24% to $355.5 million, reflecting higher portfolio income and a more favorable financing spread.
For fiscal 2026, average client funds balances were $40.4 billion, up 7% year over year. The average portfolio yield increased 20 basis points to 3.4%, while total client funds interest revenues reached $1.355 billion.
Automatic Data Processing Generates Solid Cash Flow
ADP generated $5.44 billion in operating cash flow during fiscal 2026, up from $4.94 billion a year earlier. The company used $2.08 billion for share repurchases and paid out $2.63 billion in dividends.
Cash and cash equivalents totaled $4.23 billion as of June 30, 2026. Long-term debt stood at $4.96 billion, while funds held for clients were $43.96 billion against client funds obligations of $44.42 billion.
Automatic Data Processing Targets Higher Fund Income
ADP expects client funds interest revenues of $1.54-$1.56 billion in fiscal 2027. The outlook assumes 3-4% growth in average client funds balances and an average portfolio yield of 3.7%.
The company also projects a total contribution of $1.55-$1.57 billion from its client funds extended investment strategy. Management said that AI tools embedded across products, services and sales are enhancing quality and productivity as ADP enters the new fiscal year.
ADP Issues FY27 Growth Outlook
For fiscal 2027, ADP expects year-over-year consolidated revenue growth of 5-6%. The adjusted EBIT margin is projected to expand 70-90 basis points, while adjusted diluted earnings per share are expected to grow 9-11%.
Employer Services revenues are forecast to rise 5-6%, with business booking growth of 4-7%. PEO Services revenues are expected to increase 5-7%, while average worksite employees are projected to grow 2%.
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 subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock has a score of D on the value side, putting it in the bottom 40% for value investors.
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 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.
Performance of an Industry Player
ADP is part of the Zacks Internet - Software industry. Over the past month, AppFolio (APPF - Free Report) , a stock from the same industry, has gained 31.8%. The company reported its results for the quarter ended June 2026 more than a month ago.
AppFolio reported revenues of $281.12 million in the last reported quarter, representing a year-over-year change of +19.3%. EPS of $1.71 for the same period compares with $1.38 a year ago.
AppFolio is expected to post earnings of $1.78 per share for the current quarter, representing a year-over-year change of +35.9%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.5%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for AppFolio. Also, the stock has a VGM Score of C.