10-QPeriod: Q1 FY2017

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q1 Ended Sep 30, 2016

Filed November 3, 2016For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported a solid performance for the first quarter of fiscal year 2017, ending September 30, 2016. Total revenues increased by 7% to $2.9 billion, with constant dollar revenue growth of 8%, driven by strong performance in both Employer Services and PEO Services segments. Net earnings from continuing operations grew 9% to $368.7 million, resulting in diluted EPS of $0.81, a 13% increase year-over-year. The company also highlighted its ongoing commitment to innovation and client service, while managing a strategic Service Alignment Initiative expected to incur $100-125 million in pre-tax charges through fiscal year 2018. Financially, ADP maintained a strong balance sheet with cash and cash equivalents of $2.8 billion. The company continued its shareholder-friendly capital allocation strategy, returning over $350 million through share repurchases and approximately $240 million via dividends during the quarter. A significant subsequent event noted is the agreement to sell its Consumer Health Spending Account (CHSA) and COBRA businesses for $235 million, expected to close in Q2 FY17, which will allow ADP to further sharpen its focus on core Human Capital Management (HCM) solutions.

Financial Highlights

52 data points
Beta

Revenue

$2.92B

40.2% Gross Margin

Net Income

$368.70M

12.6% Net Margin

EPS (Diluted)

$0.81

Total Assets

$34.34B

Cash & Equivalents

$2.78B

Free Cash Flow

$329.80M

Financial Statements
Beta
Revenue$2.92B
Gross Profit$1.17B
SG&A Expenses$647.70M
Operating Expenses$2.41B
Interest Expense$19.90M
Net Income$368.70M
EPS (Basic)$0.82
EPS (Diluted)$0.81
Shares Outstanding (Basic)452.30M
Shares Outstanding (Diluted)455.30M

Key Highlights

  • 1Total revenues increased 7% to $2.92 billion, with 8% growth on a constant dollar basis.
  • 2Net earnings from continuing operations rose 9% to $368.7 million, with diluted EPS increasing 13% to $0.81.
  • 3The company recorded a $39.9 million pre-tax charge for its Service Alignment Initiative, with total expected charges between $100-125 million through FY2018.
  • 4Employer Services segment revenue grew 6%, while PEO Services segment revenue increased 13%.
  • 5ADP returned over $590 million to shareholders through share repurchases ($350 million) and dividends ($240 million) in the quarter.
  • 6Cash and cash equivalents stood at $2.78 billion, indicating a strong liquidity position.
  • 7An agreement to sell the CHSA and COBRA businesses for $235 million was signed in November 2016, expected to generate a $200 million pre-tax gain.

Frequently Asked Questions

Revenue growth was driven by increases in both the Employer Services and PEO Services segments. The Employer Services segment saw growth from new business bookings, price increases, and higher 'pays per control' (employees on payroll), while the PEO Services segment benefited from a 13% increase in the average number of worksite employees due to new and existing client growth.

The Service Alignment Initiative is a strategic effort to simplify ADP's service organization and align operations with its strategic platforms. In the reported quarter, ADP incurred a pre-tax charge of $39.9 million related to this initiative. The company anticipates total pre-tax charges ranging from $100 million to $125 million through fiscal year 2018, primarily for employee separation benefits and other one-time costs.

ADP maintains a strong financial position with significant cash and cash equivalents. During the quarter, the company returned over $590 million to shareholders through share repurchases (approximately $350 million) and dividend payments (approximately $240 million), reflecting its commitment to shareholder value.

The agreement to sell the CHSA and COBRA businesses for $235 million, expected to close in the second quarter of fiscal year 2017, signifies ADP's strategic focus on its core Human Capital Management (HCM) solutions. This divestiture will allow the company to further concentrate on its primary offerings and is expected to result in a pre-tax gain of approximately $200 million.