It has been about a month since the last earnings report for Automatic Data Processing (ADP). Shares have lost about 1.7% in that time frame, underperforming the S&P 500.
But investors have to be wondering, 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.
ADP's Q3 Earnings Beat Estimates
ADP has reported impressive fourth-quarter fiscal 2025 results, wherein earnings and revenues outpaced the Zacks Consensus Estimate.
ADP’s earnings per share of $2.26 beat the consensus estimate by 1.8% and increased 8.1% from the year-ago quarter. Total revenues of $5.1 billion surpassed the consensus estimate by 1.5% and grew 5.7% on a year-over-year basis.
ADP’s Segmental Results
Employer Services’ revenues of $3.5 billion increased 8% on a reported basis and 6% on an organic constant-currency basis, missing our estimate of $3.8 billion. Pays per control increased 1% from the year-ago quarter.
PEO Services’ revenues gained 9% from the year-ago quarter to $1.2 billion and missed our estimate of $1.7 billion for the fourth quarter of fiscal 2025. Average worksite employees paid by PEO Services were 761,000, rising 3% from the year-ago quarter.
Interest on funds held for clients grew 11% from the year-ago quarter to $308 million and missed our estimate of $342.4 million. ADP’s average client funds balance rose 6% to $38.1 billion. The average interest yield on client funds expanded 20 basis points (bps) to 3.2%.
Automatic Data Processing’s Margins
Adjusted EBIT increased 9% on a year-over-year basis to $5.3 billion. The adjusted EBIT margin rose 50 bps to 26%. The margin of Employer Services increased by 50 bps, while PEO Services decreased 20 bps from the year-ago quarter.
Balance Sheet & Cash Flow of ADP
Automatic Data Processing exited fourth-quarter fiscal 2025 with cash and cash equivalents of $3.3 billion compared with $2.7 billion at the end of the preceding quarter. The long-term debt of $4 billion compared with $3 billion in the preceding quarter. The company generated $1.4 billion in cash from operating activities in the quarter.
Automatic Data Processing’s FY25 Outlook
For fiscal 2025, ADP lowered the revenue growth guidance to 5-6% from the preceding quarter’s view of 6-7%. The adjusted EPS growth guidance is updated to 8-10% from the preceding quarter’s view of 8-9%. The adjusted effective tax rate is estimated to be 23%. The guidance for the adjusted EBIT margin is hiked to 50-70 bps from the previous quarter’s view of 40-50 bps.
Automatic Data Processing lowered Employer Services’ revenue growth expectations to 5-6% from the 6-7% provided in the preceding quarter. The guidance for PEO Services is updated to 5-7% from the 6-7% provided in the preceding quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
Currently, ADP has a average Growth Score of C, a score with the same score on the momentum front. 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, ADP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Automatic Data Processing, Inc. (ADP): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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