10-QPeriod: Q2 FY2012

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q2 Ended Dec 31, 2011

Filed February 7, 2012For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported solid financial results for the three and six months ended December 31, 2011, demonstrating resilience amidst a mixed economic environment. The company saw revenue growth across its key segments, Employer Services, PEO Services, and Dealer Services, driven by new business sales, client retention, and strategic acquisitions. Despite a decline in high-margin client interest revenues due to lower interest rates, ADP's strong recurring revenue model, healthy margins, and consistent cash flow generation remain key strengths. Net earnings saw a significant increase, up 21% for the quarter and 15% for the year-to-date period, bolstered by operational improvements and a notable gain from the sale of assets related to an expense management platform. Diluted earnings per share also showed robust growth, reflecting both the earnings improvement and the positive impact of the company's ongoing share repurchase program. ADP's financial position remains solid, with ample liquidity and a strong balance sheet, supporting its continued investment in strategic acquisitions and shareholder returns.

Financial Highlights

53 data points
Beta

Revenue

$2.57B

41.1% Gross Margin

Net Income

$375.00M

14.6% Net Margin

EPS (Diluted)

$0.76

Total Assets

$32.48B

Cash & Equivalents

$1.33B

Free Cash Flow

$431.60M

Financial Statements
Beta
Revenue$2.57B
Gross Profit$1.06B
SG&A Expenses$574.90M
Operating Expenses$2.09B
Interest Expense$2.10M
Net Income$375.00M
EPS (Basic)$0.77
EPS (Diluted)$0.76
Shares Outstanding (Basic)486.70M
Shares Outstanding (Diluted)492.40M

Key Highlights

  • 1Total revenues increased by 7% to $2.6 billion for the three months and 10% to $5.1 billion for the six months ended December 31, 2011, compared to the prior year periods.
  • 2Net earnings grew significantly, by 21% to $375.0 million for the quarter and 15% to $677.7 million for the six months, indicating strong operational performance.
  • 3Diluted earnings per share rose by 23% to $0.76 for the quarter and 16% to $1.38 for the six months, demonstrating improved profitability on a per-share basis.
  • 4The company recognized a significant gain of $66.0 million from the sale of assets related to a third-party expense management platform, contributing to the increase in 'Other income, net'.
  • 5Operating expenses increased across all segments, driven by revenue growth, acquisitions, and increased headcount, with a notable 11% rise in operating expenses for the quarter.
  • 6ADP continued to return capital to shareholders through share repurchases, buying back approximately 6.2 million shares in the first six months of fiscal year 2012.
  • 7The average interest rate earned on funds held for clients decreased to 3.0% for the quarter and 3.1% for the six months, impacting interest income despite an increase in client funds balance.

Frequently Asked Questions

Revenue growth was primarily driven by increases in Employer Services, PEO Services, and Dealer Services segments. This growth was attributed to new business sales, improved client retention, an increase in the number of employees on clients' payrolls, price increases, and the impact of recent acquisitions.

The decline in interest rates led to lower interest income on funds held for clients. While the average client funds balance increased, the lower average interest rate earned resulted in a decrease in interest revenue compared to the prior year periods.

The sale of assets related to rights and obligations to resell a third-party expense management platform resulted in a $66.0 million gain recognized in 'Other income, net' for both the three and six months ended December 31, 2011. This significantly boosted net earnings and diluted earnings per share for the period.

ADP maintained a solid financial condition with approximately $1.5 billion in cash and marketable securities at December 31, 2011. The company generated positive cash flows from operations and has access to significant credit facilities, including a commercial paper program and revolving credit facilities, to meet short-term funding requirements and support general corporate purposes.