10-QPeriod: Q1 FY2019

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q1 Ended Sep 30, 2018

Filed November 1, 2018For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported solid financial results for the three months ended September 30, 2018, demonstrating robust revenue and earnings growth. Total revenues increased by 8% year-over-year, reaching $3,323.2 million, driven by strong performance across its Employer Services and PEO Services segments. This growth was supported by increased new business bookings and a rise in the average number of worksite employees. Net earnings saw a significant increase of 22% to $505.4 million, with diluted earnings per share rising from $0.93 to $1.15. This improvement was aided by an 8% increase in revenue and a lower effective tax rate, influenced by the Tax Cuts and Jobs Act. The company also continued its commitment to shareholder returns, repurchasing approximately $227 million in stock and paying out $303 million in dividends during the quarter, underscoring a healthy financial position and confidence in future growth.

Financial Highlights

52 data points
Beta

Revenue

$3.31B

41.8% Gross Margin

Net Income

$505.40M

15.3% Net Margin

EPS (Diluted)

$1.15

Total Assets

$37.42B

Cash & Equivalents

$1.49B

Free Cash Flow

$149.20M

Financial Statements
Beta
Revenue$3.31B
Cost of Revenue$1.93B
Gross Profit$1.38B
SG&A Expenses$713.90M
Operating Expenses$2.68B
Interest Expense$35.90M
Net Income$505.40M
EPS (Basic)$1.16
EPS (Diluted)$1.15
Shares Outstanding (Basic)436.80M
Shares Outstanding (Diluted)439.90M

Key Highlights

  • 1Total Revenues increased by 8% to $3,323.2 million, driven by strong performance in Employer Services and PEO Services.
  • 2Net Earnings grew by 22% to $505.4 million.
  • 3Diluted Earnings Per Share (EPS) increased to $1.15 from $0.93 in the prior year period.
  • 4Employer Services segment revenues grew 7%, and PEO Services segment revenues grew 10%, reflecting new business bookings and increased employee counts.
  • 5The company returned approximately $530 million to shareholders through dividends ($303 million) and share repurchases ($227 million) during the quarter.
  • 6The effective tax rate decreased significantly to 21.9% from 27.0% due to the Tax Cuts and Jobs Act.

Frequently Asked Questions

ADP's revenue growth of 8% was primarily driven by new business bookings across its Employer Services and PEO Services segments. An increase in the average number of worksite employees and improved interest income on funds held for clients also contributed to the revenue increase.

The Tax Cuts and Jobs Act had a positive impact, primarily by lowering the U.S. federal corporate income tax rate. This resulted in a significant decrease in ADP's effective tax rate to 21.9% for the quarter, compared to 27.0% in the prior year, which in turn boosted net earnings and EPS.

Funds held for clients represent assets that ADP holds on behalf of its clients to satisfy payroll, tax, and other payee obligations. These are essential for ADP's operational model, allowing it to manage client funds and generate interest income. The corresponding 'Client funds obligations' are recognized as liabilities.

ADP acquired Celergo Holdings, Inc. in July 2018, a provider of multi-country payroll management services. While previous acquisitions like Global Cash Card and Work Market were mentioned as strategic, Celergo's acquisition was highlighted as recent and contributing to ADP's global HCM capabilities.