10-QPeriod: Q2 FY2011

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q2 Ended Dec 31, 2010

Filed February 9, 2011For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported solid revenue growth for the second quarter of fiscal year 2011, with total revenues increasing by 9% year-over-year to $2.4 billion. This growth was driven by strong performance across all segments, particularly in Dealer Services, which saw a 26% revenue increase. The company's underlying business model, characterized by recurring revenues and strong client retention, continues to demonstrate resilience despite economic pressures. ADP also continued its commitment to shareholder returns, raising its dividend for the 36th consecutive year and actively repurchasing shares. While expenses also rose due to increased operating costs, acquisitions, and investments in client-facing associates, the company managed to maintain its earnings from continuing operations before income taxes, albeit with a slightly reduced margin. Investments in systems development and programming were also up, reflecting ongoing technological advancements. The company's financial position remains robust, supported by significant client fund balances and strong liquidity. Acquisitions, including Cobalt, are strategically integrated to support long-term growth, with management expecting them to not materially impact overall earnings for the fiscal year.

Financial Highlights

53 data points
Beta

Revenue

$2.41B

42.6% Gross Margin

Net Income

$310.10M

12.9% Net Margin

EPS (Diluted)

$0.62

Total Assets

$32.66B

Cash & Equivalents

$1.31B

Free Cash Flow

$425.00M

Financial Statements
Beta
Revenue$2.41B
Gross Profit$1.03B
SG&A Expenses$570.10M
Operating Expenses$1.95B
Interest Expense$2.80M
Net Income$310.10M
EPS (Basic)$0.63
EPS (Diluted)$0.62
Shares Outstanding (Basic)492.00M
Shares Outstanding (Diluted)496.90M

Key Highlights

  • 1Total revenues increased by 9% to $2.4 billion for the three months ended December 31, 2010, compared to $2.2 billion in the prior year period.
  • 2Employer Services revenue grew 7%, PEO Services revenue grew 15%, and Dealer Services revenue grew 26%, indicating broad-based growth across segments.
  • 3Net earnings from continuing operations saw a slight decrease of 2% to $310.1 million for the quarter, while diluted EPS from continuing operations remained flat at $0.62.
  • 4The company completed six acquisitions in the first half of fiscal 2011, including Cobalt, to support its long-term growth strategies.
  • 5ADP raised its dividend for the 36th consecutive year, demonstrating a consistent commitment to returning capital to shareholders.
  • 6Client fund balances increased by 9% year-over-year, contributing to both revenue and the company's overall financial stability.
  • 7Operating expenses increased by 12% due to higher pass-through costs in PEO Services, acquired businesses, and investments in client-facing associates.

Frequently Asked Questions

ADP's total revenues increased by 9% to $2.41 billion for the three months ended December 31, 2010, compared to $2.20 billion for the same period in the prior year. This growth was driven by increases across all segments: Employer Services (7%), PEO Services (15%), and Dealer Services (26%).

ADP completed the acquisition of six businesses in the first half of fiscal 2011, including Cobalt. While these acquisitions contributed to revenue growth (estimated at 5% for total revenue without acquisitions), management expected them not to have a material impact on the company's earnings for fiscal year 2011. Acquired businesses also contributed to increased operating expenses and systems development costs.

Total expenses increased by 12% to $1.95 billion for the three months ended December 31, 2010, driven by higher operating expenses (including pass-through costs in PEO services), increased selling, general, and administrative expenses, and higher systems development costs, partly due to acquisitions. Despite the rise in expenses, earnings from continuing operations before income taxes saw a slight increase of 1% to $484.6 million, though the overall margin decreased from 22% to 20%.

Client fund balances increased by 9% to $14.7 billion on average for the quarter. The company invests these funds conservatively, prioritizing safety and liquidity. Interest income on these funds was $129.0 million, a slight increase from the prior year, reflecting higher balances but offset by lower average interest rates.