How strong were ADP's fiscal 2024 results overall?

Results were solid. Revenue grew 7% to $19.2 billion, net earnings grew 10% to $3.8 billion, and adjusted diluted EPS grew 12% to $9.18. Adjusted EBIT margin improved 70 basis points to 25.5%, showing operating leverage on top of revenue growth.

What is driving the segment performance differences?

Employer Services, the largest segment at about $13.0 billion in revenue, delivered 8% growth and a 210 basis point margin improvement, supported by new business bookings of $2.0 billion. PEO Services grew revenue 4% but saw margin compress 150 basis points to 14.8%, partly due to a higher cost base and the effects of workforce and benefit costs.

How much of ADP's earnings growth comes from interest on client funds, and is that sustainable?

Client funds interest is a significant contributor, with net impact from the client funds strategy rising 20% to $879 million for the year. It is sensitive to interest rates. Management's fiscal 2025 guidance expects interest on client funds of $1.125 to $1.145 billion, which depends on continued higher rates and anticipated balance growth of 3% to 4%, so a rate decline would reduce this tailwind.

What are the main risks or one-time items investors should consider?

Fiscal 2024 included about $42 million of pre-tax workforce optimization severance charges, which ADP excluded from adjusted results, and a $4 million legal reserve reversal. Investors should weigh whether these costs recur, and monitor client revenue retention, which declined slightly to 92.0%, along with the expected PEO margin decline of 90 to 110 basis points in fiscal 2025.

What does the fiscal 2025 outlook imply for investors?

ADP expects revenue growth of 5% to 6%, adjusted EBIT margin expansion of 60 to 80 basis points, and adjusted diluted EPS growth of 8% to 10%. The guidance assumes continued Employer Services margin expansion of 100 to 120 basis points, offset partly by PEO margin pressure, and an adjusted effective tax rate of about 23%.

ADP 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed July 31, 2024. Cited figures are marked; the original filing is the authoritative source.

ADP reported a strong close to fiscal 2024 (year ended June 30, 2024), with full-year revenues up 7% to $19.2 billion^a (6% organic constant currency), net earnings up 10% to $3.8 billion, and diluted EPS up 11% to $9.10 (adjusted diluted EPS up 12% to $9.18).

Adjusted EBIT rose 9% to $4.9 billion^b, with adjusted EBIT margin expanding 70 basis points to 25.5%. Employer Services, the core segment, grew revenue 8% for the year and expanded segment margin by 210 basis points to 35.1%, while new business bookings rose 7% to $2.0 billion. PEO Services was a weaker spot, with segment margin down 150 basis points to 14.8% and fourth-quarter margin down 240 basis points, though segment revenue still grew 4%.

Interest income on client funds was a major contributor, rising 26% to $1.0 billion^c for the year as the average yield climbed to 2.9%. Investors should note that this tailwind is rate-sensitive, and the company's own outlook assumes that yield rises further to about 3.1% in fiscal 2025. Fiscal 2024 results also included about $42 million of pre-tax severance charges tied to a company-wide workforce optimization effort, which were excluded from adjusted figures, and client revenue retention edged down to 92.0% from 92.2%.

For fiscal 2025, ADP guided to revenue growth of 5%^d to 6%, adjusted EBIT margin expansion of 60 to 80 basis points, and adjusted diluted EPS growth of 8% to 10%. Employer Services revenue growth is expected at 5% to 6% with margin up 100 to 120 basis points, while PEO Services margin is expected to decline 90 to 110 basis points. Management's outlook implies continued solid growth with margin expansion, though the guidance for client funds interest income and the PEO margin pressure are key items to monitor.

02—Key points

Key Highlights

Full-year fiscal 2024 revenue rose 7% to $19.2 billion (6% organic constant currency), and net earnings rose 10% to $3.8 billion.
Diluted EPS increased 11% to $9.10; adjusted diluted EPS increased 12% to $9.18.
Adjusted EBIT margin expanded 70 basis points to 25.5%, with Employer Services segment margin up 210 basis points to 35.1%.
Employer Services new business bookings grew 7% to $2.0 billion, at the high end of management's expectations; client revenue retention slipped to 92.0% from 92.2%.
PEO Services segment margin fell 150 basis points for the year to 14.8% (down 240 basis points in Q4), a notable area of pressure.
Interest on client funds rose 26% to $1.0 billion, but fiscal 2025 guidance assumes this income grows to $1.125 to $1.145 billion, supported by a higher expected portfolio yield of about 3.1%.
Fiscal 2025 outlook calls for 5% to 6% revenue growth, 60 to 80 basis points of adjusted EBIT margin expansion, and 8% to 10% adjusted diluted EPS growth.

03—Questions

Frequently Asked Questions

How strong were ADP's fiscal 2024 results overall?
Results were solid. Revenue grew 7% to $19.2 billion, net earnings grew 10% to $3.8 billion, and adjusted diluted EPS grew 12% to $9.18. Adjusted EBIT margin improved 70 basis points to 25.5%, showing operating leverage on top of revenue growth.
What is driving the segment performance differences?
Employer Services, the largest segment at about $13.0 billion in revenue, delivered 8% growth and a 210 basis point margin improvement, supported by new business bookings of $2.0 billion. PEO Services grew revenue 4% but saw margin compress 150 basis points to 14.8%, partly due to a higher cost base and the effects of workforce and benefit costs.
How much of ADP's earnings growth comes from interest on client funds, and is that sustainable?
Client funds interest is a significant contributor, with net impact from the client funds strategy rising 20% to $879 million for the year. It is sensitive to interest rates. Management's fiscal 2025 guidance expects interest on client funds of $1.125 to $1.145 billion, which depends on continued higher rates and anticipated balance growth of 3% to 4%, so a rate decline would reduce this tailwind.
What are the main risks or one-time items investors should consider?
Fiscal 2024 included about $42 million of pre-tax workforce optimization severance charges, which ADP excluded from adjusted results, and a $4 million legal reserve reversal. Investors should weigh whether these costs recur, and monitor client revenue retention, which declined slightly to 92.0%, along with the expected PEO margin decline of 90 to 110 basis points in fiscal 2025.
What does the fiscal 2025 outlook imply for investors?
ADP expects revenue growth of 5% to 6%, adjusted EBIT margin expansion of 60 to 80 basis points, and adjusted diluted EPS growth of 8% to 10%. The guidance assumes continued Employer Services margin expansion of 100 to 120 basis points, offset partly by PEO margin pressure, and an adjusted effective tax rate of about 23%.

04—Continue

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