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ADP (ADP) Up 5.6% 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 5.6% 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 reported mixed first-quarter fiscal 2024 results, wherein earnings beat the Zacks Consensus Estimate but revenues missed the same.
Adjusted EPS of $2.08 beat the consensus estimate by 2.5% and grew 11.8% from the year-ago fiscal quarter’s figure. Total revenues of $4.51 billion missed the consensus estimate by 0.2% but improved 7% from the year-ago fiscal quarter’s reading on a reported basis and 7% on an organic constant-currency basis.
Segments
Employer Services’ revenues of $2.84 billion increased 9% on a reported and 8% on an organic constant-currency basis and missed our estimate by 6.3%. Pays per control increased 2% from the year-ago fiscal quarter’s reading. PEO Services’ revenues were up 3% year over year to $1.47 billion and missed our estimate of $1.48 billion for the first quarter. Average worksite employees paid by PEO Services were 717,000, up 2% from the year-ago fiscal quarter’s figures. Interest on funds held for clients increased 43% to $201.7 million and exceeded our estimated $201.6 million. ADP’s average client funds balance increased 6% to $31.1 billion. Average interest yield on client funds expanded 70 basis points to 2.6%.
Margins
Adjusted EBIT increased 7% from the year-ago fiscal quarter’s reading to $1.1 billion. Adjusted EBIT margin grew 10 basis points to 24.2%. The margin of Employer Services increased 220 bps while PEO Services declined 90 bps.
Balance Sheet and Cash Flow
ADP exited first-quarter fiscal 2022 with cash and cash equivalents of $2.08 billion compared with $1.83 billion in the prior fiscal quarter. Long-term debt of $2.99 billion was flat sequentially. ADP generated $1.19 billion in cash from operating activities in the quarter. Capital expenditures were $60.9 million.
Reaffirming 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 60-80 bps. The company expects Employer Services revenues to grow at a rate of about 7-8%, while PEO Services revenues are expected to grow at 3-5%.
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 an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. 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. Notably, 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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ADP (ADP) Up 5.6% 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 5.6% 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 reported mixed first-quarter fiscal 2024 results, wherein earnings beat the Zacks Consensus Estimate but revenues missed the same.
Adjusted EPS of $2.08 beat the consensus estimate by 2.5% and grew 11.8% from the year-ago fiscal quarter’s figure. Total revenues of $4.51 billion missed the consensus estimate by 0.2% but improved 7% from the year-ago fiscal quarter’s reading on a reported basis and 7% on an organic constant-currency basis.
Segments
Employer Services’ revenues of $2.84 billion increased 9% on a reported and 8% on an organic constant-currency basis and missed our estimate by 6.3%. Pays per control increased 2% from the year-ago fiscal quarter’s reading. PEO Services’ revenues were up 3% year over year to $1.47 billion and missed our estimate of $1.48 billion for the first quarter. Average worksite employees paid by PEO Services were 717,000, up 2% from the year-ago fiscal quarter’s figures. Interest on funds held for clients increased 43% to $201.7 million and exceeded our estimated $201.6 million. ADP’s average client funds balance increased 6% to $31.1 billion. Average interest yield on client funds expanded 70 basis points to 2.6%.
Margins
Adjusted EBIT increased 7% from the year-ago fiscal quarter’s reading to $1.1 billion. Adjusted EBIT margin grew 10 basis points to 24.2%. The margin of Employer Services increased 220 bps while PEO Services declined 90 bps.
Balance Sheet and Cash Flow
ADP exited first-quarter fiscal 2022 with cash and cash equivalents of $2.08 billion compared with $1.83 billion in the prior fiscal quarter. Long-term debt of $2.99 billion was flat sequentially. ADP generated $1.19 billion in cash from operating activities in the quarter. Capital expenditures were $60.9 million.
Reaffirming 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 60-80 bps. The company expects Employer Services revenues to grow at a rate of about 7-8%, while PEO Services revenues are expected to grow at 3-5%.
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 an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. 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. Notably, ADP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.