10-QPeriod: Q2 FY2017

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q2 Ended Dec 31, 2016

Filed February 1, 2017For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported solid financial performance for the six months ended December 31, 2016. Total revenues increased by 7% to $5.9 billion, driven by growth in both its Employer Services and PEO Services segments. Net earnings from continuing operations rose significantly by 30% to $879.6 million, bolstered by a substantial pre-tax gain of $205.4 million from the sale of its CHSA and COBRA businesses. Diluted earnings per share from continuing operations increased from $1.47 to $1.94, reflecting this strong operational performance and strategic asset divestiture. The company continued its commitment to shareholder returns, repurchasing approximately $765 million of its stock and paying out $482 million in dividends. ADP's strong business model, characterized by a high percentage of recurring revenues, healthy margins, and consistent cash flow generation, positions it well for future growth. Investments in product innovation and sales force expansion are key strategic priorities as ADP navigates an increasingly complex Human Capital Management landscape.

Financial Highlights

52 data points
Beta

Revenue

$2.99B

40.8% Gross Margin

Net Income

$510.90M

17.1% Net Margin

EPS (Diluted)

$1.13

Total Assets

$40.00B

Cash & Equivalents

$2.71B

Free Cash Flow

$511.30M

Financial Statements
Beta
Revenue$2.99B
Gross Profit$1.22B
SG&A Expenses$640.80M
Operating Expenses$2.43B
Interest Expense$20.50M
Net Income$510.90M
EPS (Basic)$1.14
EPS (Diluted)$1.13
Shares Outstanding (Basic)447.90M
Shares Outstanding (Diluted)450.30M

Key Highlights

  • 1Total revenues grew 7% to $5.9 billion for the six months ended December 31, 2016.
  • 2Net earnings from continuing operations increased 30% to $879.6 million.
  • 3Diluted earnings per share from continuing operations increased 32% to $1.94.
  • 4Recorded a significant pre-tax gain of $205.4 million from the sale of the CHSA and COBRA businesses.
  • 5Returned over $765 million to shareholders through share repurchases and $482 million through dividends.
  • 6PEO Services and Employer Services segments both demonstrated strong revenue growth of 12% and 5% respectively for the six-month period.

Frequently Asked Questions

The most significant driver of the increase in net earnings was the pre-tax gain of $205.4 million realized from the sale of Automatic Data Processing, Inc.'s (ADP) Consumer Health Spending Account (CHSA) and Consolidated Omnibus Reconciliation Act (COBRA) businesses in November 2016. This one-time gain substantially boosted the reported net earnings from continuing operations.

Both of ADP's core business segments demonstrated positive revenue growth. The Employer Services segment saw a 5% increase in revenue for the six months ended December 31, 2016, compared to the prior year, driven by new business bookings, price increases, and higher payroll volumes. The PEO Services segment experienced a strong 12% revenue increase over the same period, primarily due to a 12% rise in the average number of worksite employees.

ADP maintains a shareholder-friendly capital return strategy. During the six months ended December 31, 2016, the company repurchased approximately $765 million of its common stock and paid approximately $482 million in dividends. This demonstrates a continued commitment to enhancing shareholder value through both buybacks and regular dividend payments.

Yes, ADP is executing a multi-year Service Alignment Initiative aimed at simplifying its service organization and aligning operations with strategic platforms. The company incurred $41.1 million in charges related to this initiative in the first six months of fiscal 2017 and anticipates total pre-tax charges of $100 million to $125 million through fiscal year 2018. These charges primarily consist of employee separation benefits and other related costs.