10-QPeriod: Q3 FY2019

AUTOMATIC DATA PROCESSING INC Quarterly Report for Q3 Ended Mar 31, 2019

Filed May 3, 2019For Securities:ADP

Summary

Automatic Data Processing, Inc. (ADP) reported solid financial results for the third quarter and first nine months of fiscal year 2019, demonstrating consistent revenue growth and improved profitability. Total revenues increased by 4% in the third quarter and 7% for the nine-month period, driven by strong performance in both Employer Services and PEO Services segments. The company also saw an increase in interest income on funds held for clients due to higher rates and larger client fund balances. Profitability metrics showed significant improvement, with Earnings Before Income Taxes (EBIT) increasing by 12% for the quarter and 17% for the nine-month period. Diluted Earnings Per Share (EPS) also saw a healthy rise, up 16% for the quarter and 6% year-to-date. Management highlighted operational efficiencies, benefits from transformation initiatives, and successful acquisitions as key drivers of margin expansion and continued growth. The company remains committed to returning value to shareholders through dividends and share repurchases, reinforcing its stable financial position and positive outlook.

Financial Highlights

52 data points
Beta

Revenue

$3.83B

45.3% Gross Margin

Net Income

$753.70M

19.7% Net Margin

EPS (Diluted)

$1.73

Total Assets

$48.20B

Cash & Equivalents

$1.83B

Free Cash Flow

$1.02B

Financial Statements
Beta
Revenue$3.83B
Cost of Revenue$2.09B
Gross Profit$1.74B
SG&A Expenses$750.40M
Operating Expenses$2.86B
Interest Expense$21.70M
Net Income$753.70M
EPS (Basic)$1.74
EPS (Diluted)$1.73
Shares Outstanding (Basic)434.10M
Shares Outstanding (Diluted)436.60M

Key Highlights

  • 1Total revenues grew 4% year-over-year to $3.85 billion for the third quarter and 7% to $10.68 billion for the first nine months of fiscal 2019.
  • 2Earnings Before Income Taxes (EBIT) increased by 12% to $984.5 million for the quarter and 17% to $2.37 billion for the nine-month period.
  • 3Diluted Earnings Per Share (EPS) rose 16% to $1.73 for the third quarter and 6% to $4.15 for the nine-month period.
  • 4Employer Services segment revenue increased 3% for the quarter and 6% for the nine months, with EBIT up 11% and 17% respectively.
  • 5PEO Services segment revenue increased 6% for the quarter and 9% for the nine months, with EBIT up 6% and 14% respectively.
  • 6Interest on funds held for clients increased significantly, reflecting higher average interest rates and larger client fund balances.
  • 7The company returned approximately $950 million in dividends and $760 million in share repurchases during the nine-month period.

Frequently Asked Questions

Revenue growth was primarily driven by new business bookings in both the Employer Services and PEO Services segments, coupled with strong client retention. Additionally, increased interest income on funds held for clients, attributed to higher average interest rates and an increase in client fund balances, also contributed to the overall revenue growth.

Profitability showed significant improvement. Earnings Before Income Taxes (EBIT) increased by 12% for the third quarter and 17% for the nine-month period. This was supported by operational efficiencies, successful transformation initiatives, benefits from acquisitions, and growth in higher-margin areas.

ADP continued its commitment to shareholder returns through both dividends and share repurchases. For the nine months ended March 31, 2019, the company returned approximately $950 million through dividends and approximately $760 million through share repurchases, demonstrating a consistent strategy to enhance shareholder value.

Yes, ADP adopted ASC 606, 'Revenue from Contracts with Customers,' and ASU 2017-07, 'Compensation - Retirement Benefits,' effective July 1, 2018. These adoptions were applied retrospectively for comparative periods and primarily impacted revenue recognition disclosures and the presentation of net periodic pension cost, without materially affecting net earnings or cash flows.