01—Abstract
Summary
Summary of the 10-K filed September 21, 1995. Cited figures are marked; the original filing is the authoritative source.
Automatic Data Processing, Inc. (ADP) closed fiscal 1995 (year ended June 30, 1995) with record results: revenue rose 17% to $2.89 billiona, net earnings grew 18% to $394.8 million, and earnings per share increased 17% to $2.77.
This marked the company's 46th consecutive year of revenue and earnings growth and its 34th consecutive year of double-digit EPS growth. Pretax margin widened to 18.5% from 18.1%, and after-tax margin reached 13.6%. Return on average equity was about 21%, and the dividend was raised 17% to $0.70b per share effective July 1, 1995.
Growth was broad-based. Employer Services (about 56%c of revenue, payroll and HR outsourcing for roughly 300,000 employers) grew 13%, and Dealer Services grew 32%, aided by acquisitions such as Turbodata and V-Crest. Brokerage Services grew a more modest 8%, reflecting capacity investments.
Growth came mainly from market penetration, new products, and acquisitions, with pricing playing a minor role. Management guided to roughly 15% revenue and EPS growth for fiscal 1996 and pending the acquisition of GSI, a French payroll and HR services company valued at about $460 milliond. The balance sheet remains very strong.
Cash and marketable securities reached about $1.3 billion, shareholders' equity exceeded $2.1 billion, and the long-term debt-to-equity ratio was 19%. Operating cash flow was $478.8 million, and capital expenditures were $118 million.
ADP also holds about $4.6 billion of client payroll tax funds, which generate float income. Its largest risks are the cyclicality of auto-industry demand for Dealer Services, the modest growth of Brokerage Services, and the execution risk of the GSI acquisition, which management says may be slightly dilutive to earnings per share.
02—Key points
Key Highlights
- Revenue grew 17% to $2.89 billion, and net earnings rose 18% to $394.8 million, marking the 46th consecutive year of revenue and earnings growth.
- EPS rose 17% to $2.77, and the company completed its 136th consecutive quarter of double-digit EPS growth.
- Dealer Services revenue grew 32% to $440 million, with operating margin around 20%, while Employer Services grew 13% to $1.6 billion.
- Brokerage Services grew 8% to $657 million, with operating margin falling to about 15% due to capacity and disaster-recovery investments.
- Strong balance sheet: about $1.3 billion in cash and marketable securities, shareholders' equity above $2.1 billion, and a debt-to-equity ratio of 0.19.
- Quarterly dividend increased to $0.70 per share annually (from $0.60), effective July 1, 1995, the 21st consecutive annual increase.
- Pending acquisition of GSI (Paris, France) for about $460 million in cash; management guides to roughly 15% revenue and EPS growth in fiscal 1996.
03—Questions
Frequently Asked Questions
How did ADP perform financially in fiscal 1995?
ADP reported record fiscal 1995 results: revenue of $2.89 billion (up 17%), net earnings of $394.8 million (up 18%), and EPS of $2.77 (up 17%). Pretax margin improved to 18.5%, and after-tax margin was 13.6%. Return on average equity was about 21%.
Which business segments drive ADP's revenue?
Employer Services is the largest segment at about 56% of revenue ($1.615 billion), providing payroll, tax filing, and HR services. Brokerage Services contributed $657 million (about 23%), and Dealer Services contributed $440 million (about 15%). The remaining revenue came from Claims Services and other businesses.
What is the GSI acquisition and how might it affect investors?
ADP agreed to acquire GSI, a Paris-based European payroll and HR services company with revenue above $400 million and over 3,000 employees, for about $460 million in cash. Subject to shareholder and government approvals, the deal was expected to close by calendar year-end 1995 and may be slightly dilutive to EPS.
Is ADP's balance sheet strong enough to support growth and shareholder returns?
Yes. ADP had about $1.3 billion in cash and marketable securities, equity above $2.1 billion, and a debt-to-equity ratio of 0.19. Operating cash flow was $478.8 million, which funded $118 million in capex, $107 million in acquisitions, and $89 million in dividends, with about 6.7 million shares still authorized for repurchase.
What are the main risks and outlook for fiscal 1996?
Key risks include the cyclicality of auto-industry demand affecting Dealer Services, the slower growth of Brokerage Services, and integration and dilution risk from the GSI acquisition. Management expects roughly 15% growth in both revenue and EPS for fiscal 1996 and planned capital spending of about $150 million.
04—Continue