10-QPeriod: Q3 FY2011

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q3 Ended Mar 31, 2011

Filed May 6, 2011For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported strong performance for the nine months ended March 31, 2011, demonstrating revenue growth across its key segments: Employer Services, PEO Services, and Dealer Services. Total revenues increased by 9% year-over-year for the nine-month period, driven by a combination of client retention, increased client fund balances, and strategic acquisitions. Net earnings from continuing operations saw a modest increase of 1% to $1.01 billion, with diluted EPS from continuing operations rising to $2.03. The company highlighted a stable business model characterized by recurring revenues, healthy margins, strong client retention, and low capital expenditure requirements. ADP continued to return value to shareholders through dividends, marking the 36th consecutive year of dividend payout increases, and share repurchases. The company also emphasized its prudent investment strategy for client funds, prioritizing safety, liquidity, and diversification. Investments in technology and headcount, alongside eight acquisitions including Cobalt, contributed to expense growth but are expected to support long-term strategies.

Financial Highlights

53 data points
Beta

Revenue

$2.74B

44.4% Gross Margin

Net Income

$423.80M

15.5% Net Margin

EPS (Diluted)

$0.85

Total Assets

$41.60B

Cash & Equivalents

$1.60B

Free Cash Flow

$573.00M

Financial Statements
Beta
Revenue$2.74B
Gross Profit$1.22B
SG&A Expenses$577.30M
Operating Expenses$2.10B
Interest Expense$1.40M
Net Income$423.80M
EPS (Basic)$0.85
EPS (Diluted)$0.85
Shares Outstanding (Basic)496.20M
Shares Outstanding (Diluted)501.30M

Key Highlights

  • 1Total revenues increased by 9% to $7.37 billion for the nine months ended March 31, 2011, compared to the prior year period.
  • 2Net earnings from continuing operations grew 1% to $1.01 billion for the nine months ended March 31, 2011.
  • 3Diluted earnings per share from continuing operations increased to $2.03 for the nine months ended March 31, 2011, up from $1.98 in the prior year.
  • 4Employer Services, the largest segment, saw revenue growth of 7% to $5.15 billion for the nine months, driven by payroll/tax filing and 'beyond payroll' services.
  • 5PEO Services and Dealer Services also exhibited strong revenue growth of 16% and 22%, respectively, for the nine-month period.
  • 6The company completed eight acquisitions, including Cobalt, investing approximately $369.3 million during the nine months ended March 31, 2011.
  • 7ADP continued to return capital to shareholders, with dividends declared increasing and share repurchases made during the period.

Frequently Asked Questions

ADP reported a 9% increase in total revenues to $7.37 billion for the nine months ended March 31, 2011, compared to $6.74 billion for the same period in the prior year. This growth was driven by increases across all major segments: Employer Services, PEO Services, and Dealer Services.

Net earnings from continuing operations increased by 1% to $1.01 billion for the nine months ended March 31, 2011. Diluted earnings per share from continuing operations rose to $2.03 from $1.98 in the prior year period, indicating a modest improvement in profitability on a per-share basis.

ADP completed eight acquisitions during the nine months ended March 31, 2011, including the significant acquisition of Cobalt for $405.4 million. These acquisitions contributed to revenue growth, particularly in Dealer Services, and also increased expenses. Management noted that total revenues would have grown approximately 5% without the impact of recent acquisitions, suggesting that organic growth remained positive.

ADP invests client funds with safety of principal, liquidity, and diversification as primary goals, seeking to maximize interest income while minimizing volatility. The client funds portfolio is invested in highly liquid, investment-grade marketable securities. The company employs a laddering strategy for maturities and utilizes short-term financing to meet short-term obligations, ensuring it can satisfy all client fund obligations.