10-QPeriod: Q1 FY2009

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q1 Ended Sep 30, 2008

Filed November 7, 2008For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported a solid performance for the quarter ended September 30, 2008, with total revenues increasing by 10% year-over-year to $2.18 billion. This growth was driven by strong performance in its Employer Services and PEO Services segments. Net earnings from continuing operations saw a significant increase of 16% to $278.0 million, resulting in diluted earnings per share from continuing operations of $0.54, up from $0.45 in the prior year period. The company demonstrated effective expense management, with Selling, general and administrative expenses decreasing slightly, and a focus on share repurchases contributing to the EPS growth. The company highlighted its continued strong liquidity position despite volatile global financial markets. Cash flows from operations were robust at $398.2 million, and the company maintained a healthy balance of cash and marketable securities. ADP also addressed potential market risks, noting its diversified investment portfolio and conservative approach to credit quality, with approximately 90% of its available-for-sale securities rated AAA or AA. A notable event was a $3.3 million loss recognized due to the company's investment in the Reserve Fund, impacted by Lehman Brothers' bankruptcy, which was managed within "Other income, net."

Financial Highlights

28 data points
Beta

Revenue

$2.17B

43.3% Gross Margin

Net Income

$276.90M

12.7% Net Margin

EPS (Diluted)

$0.54

Cash & Equivalents

$1.40B

Free Cash Flow

$398.20M

Financial Statements
Beta
Revenue$2.17B
Cost of Revenue$1.23B
Gross Profit$941.60M
SG&A Expenses$526.70M
Operating Expenses$1.78B
Interest Expense$19.20M
Net Income$276.90M
EPS (Basic)$0.55
EPS (Diluted)$0.54
Shares Outstanding (Basic)507.50M
Shares Outstanding (Diluted)513.50M

Key Highlights

  • 1Total revenues increased by 10% to $2.18 billion, driven by Employer Services and PEO Services growth.
  • 2Net earnings from continuing operations grew by 16% to $278.0 million.
  • 3Diluted earnings per share from continuing operations increased by 20% to $0.54.
  • 4Operating expenses increased by 13%, largely due to revenue growth and higher PEO pass-through costs, but SG&A expenses decreased by 1%.
  • 5The company maintained a strong liquidity position with $398.2 million in net cash flows from operating activities.
  • 6ADP repurchased approximately 5.4 million shares of its common stock during the quarter.
  • 7A $3.3 million loss was recognized due to exposure to the Reserve Fund, impacted by Lehman Brothers' bankruptcy.

Frequently Asked Questions

ADP reported a 10% increase in total revenues, reaching $2.18 billion. The primary drivers of this growth were the Employer Services segment, which grew by 8%, and the PEO Services segment, which saw an impressive 18% increase.

Despite the volatile global financial markets, ADP stated that its liquidity position remains strong. The company generated $398.2 million in net cash flows from operating activities and maintained substantial cash and marketable securities. They also highlighted their ability to access short-term funding through commercial paper and reverse repurchase agreements.

Yes, ADP recognized a $3.3 million loss related to its investment in the Reserve Fund, which was negatively impacted by the bankruptcy of Lehman Brothers. This loss was recorded in "Other income, net." The company emphasized that its investment portfolio is diversified and largely composed of high-quality, investment-grade securities, with approximately 90% rated AAA or AA, and does not hold sub-prime mortgage-related assets or other complex structured products.

While total costs of revenues increased by 13% driven by higher operating expenses (up 15%) associated with revenue growth and PEO pass-through costs, Selling, General, and Administrative (SG&A) expenses actually decreased by 1%. This indicates a focus on controlling overheads as revenue grew, contributing to a wider operating margin.