A month has gone by since the last earnings report for Automatic Data Processing (ADP Quick QuoteADP - Free Report) . Shares have lost about 1.3% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

Automatic Data Processing Q3 Earnings In Line, Revenues Top Estimates

Automatic Data Processing third-quarter fiscal 2020 earnings came in line with the Zacks Consensus Estimate and revenues surpassed the same.

Adjusted earnings per share of $1.92 improved 8.5% year over year. Total revenues of $4.04 billion beat the consensus mark by 0.2% and improved 6% year over year on a reported basis as well as on an organic constant-currency basis.

Segments in Detail

Employer Services revenues of $2.81 billion increased 3% year over year on a reported basis and 4% on organic constant-currency basis. Pays per control rose 1.9% year over year. New business bookings decreased 9%.

PEO Services revenues were up 11% year over year to $1.24 billion. Average worksite employees paid by PEO Services were 595,000, up 7% from the prior-year quarter.

Interest on funds held for clientsdecreased 5% to $159 million. The company’s average client funds balances climbed 4% year over year to $31.3 billion. Average interest yield on client funds declined 20 basis points to 2%

Margins

Adjusted EBIT came in at $1.09 billion, up 8% on a year-over-year basis. Adjusted EBIT margin rose 60 basis points from the year-ago quarter to 27.1%. Adjusted EBIT margin benefited from continued execution of transformation initiatives and operating efficiencies, which were partially offset by the cost of a one-time global associate assistance payment related to COVID-19 and incremental amortization and PEO pass-through expenses.

Balance Sheet and Cash Flow

ADP exited third-quarter fiscal 2020 with cash and cash equivalents of $1.71 billion compared with $1.5 billion in the prior quarter. Long-term debt of $1 billion was flat year over year.

The company generated $1.12 billion of cash from operating activities in the quarter. Capital expenditures were $38.6 million. The company paid out dividends worth $392.9 million and repurchased shares worth $391.2 million.

Fiscal 2020 Outlook

ADP expects revenues to register about 3% growth compared with the prior growth rate of 6%. Adjusted earnings per share are anticipated to register 4-7% growth compared with the prior growth rate of 12-14%. The company expects adjusted EBIT margin to be down 25 to up 25 basis points compared to the prior growth guidance of 100-125 basis points. Adjusted effective tax rate is anticipated to be 22.9% compared with the prior rate of 23.2%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -17.91% due to these changes.

VGM Scores

Currently, ADP has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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 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.