01—Abstract
Summary
Summary of the 8-K filed October 29, 2025. Cited figures are marked; the original filing is the authoritative source.
ADP reported first quarter fiscal 2026 results (quarter ended September 30, 2025) that met management's expectations and showed steady top-line growth.
Total revenues rose 7% year over year to $5.2 billiona (6% organic constant currency), net earnings rose 6% to $1.0 billion, and diluted EPS increased 6% to $2.49 (adjusted diluted EPS up 7% to $2.49). Adjusted EBIT grew 7% to $1.3 billion, with the adjusted EBIT margin flat at 25.5%. Management attributed the beat versus its own expectations to new business bookings growth, strong client revenue retention, and higher client funds interest revenue.
The quality of growth is mixed under the surface. Employer Services revenue grew 7%b reported (5% organic constant currency) but its segment margin fell 50 basis points to 35.2%, and U.S. pays per control was roughly flat versus a 2% gain a year earlier. PEO Services revenue rose 7% but segment margin compressed 140 basis points to 13.0%, and segment earnings declined 3%.
Interest on funds held for clients rose 13% to $287 millionc, helped by a higher average yield of 3.3% and a 7% increase in average client balances. That interest income is a meaningful contributor to earnings and is sensitive to rate movements. ADP maintained its fiscal 2026 consolidated outlook: revenue growth of 5% to 6%, adjusted EBIT margin expansion of 50 to 70 basis points, and adjusted diluted EPS growth of 8% to 10%.
Within the outlook, management raised the client funds interest revenue forecast to $1.300 to $1.320 billiond and the net client funds extended strategy contribution to $1.260 to $1.280 billion, while lowering the U.S. pays per control expectation to roughly flat from 0% to 1%. Cash flow from operations was $642 million, down from $824 million a year earlier, and commercial paper borrowings rose to $5.2 billion. This filing is an earnings release furnished under Item 2.02 and does not itself contain new financial statements requiring Item 4 or other disclosures.
02—Key points
Key Highlights
- Total revenues increased 7% to $5.2 billion (6% organic constant currency); net earnings rose 6% to $1.0 billion.
- Diluted EPS rose 6% to $2.49 (adjusted diluted EPS up 7% to $2.49), with adjusted EBIT up 7% to $1.3 billion and adjusted EBIT margin flat at 25.5%.
- Employer Services revenue grew 7% reported, but segment margin declined 50 bps to 35.2% and U.S. pays per control was approximately flat (vs. +2% a year ago).
- PEO Services revenue grew 7% with average worksite employees up 2% to about 754,000, yet segment margin fell 140 bps to 13.0% and segment earnings declined 3%.
- Interest on funds held for clients rose 13% to $287 million on a 7% increase in average balances to $34.9 billion and a 20 bps higher yield of 3.3%.
- Fiscal 2026 consolidated outlook maintained (5–6% revenue growth, 50–70 bps adjusted EBIT margin expansion, 8–10% adjusted diluted EPS growth); client funds interest revenue guidance raised to $1.300–$1.320 billion.
- Operating cash flow was $642 million versus $824 million a year earlier, and commercial paper borrowings increased to $5.2 billion.
03—Questions
Frequently Asked Questions
Did ADP change its fiscal 2026 guidance?
ADP maintained its consolidated fiscal 2026 outlook for revenue growth (5% to 6%), adjusted EBIT margin expansion (50 to 70 bps), and adjusted diluted EPS growth (8% to 10%). It raised the client funds interest revenue forecast to $1.300 to $1.320 billion and the net client funds extended strategy contribution to $1.260 to $1.280 billion, and it lowered the U.S. pays per control expectation to approximately flat from 0% to 1%.
How much of ADP's earnings growth depends on interest income from client funds?
Interest on funds held for clients was $287 million in the quarter, up 13%, and the net client funds strategy impact was $263.7 million versus $203.8 million a year earlier. Because this income depends on interest rates and client balances, it is a meaningful, rate-sensitive driver of results, and management's guidance assumes a blended investment rate of 3.9% for the remainder of the year.
Why did segment margins decline even though revenue grew?
Employer Services margin fell 50 bps to 35.2% and PEO Services margin fell 140 bps to 13.0%, while total pretax margin declined to 25.3% from 25.6%. The filing does not provide a detailed explanation, but management points to continued strategic investments to support long-term growth, and the PEO segment's pass-through revenue mix also affects its margin profile.
Is ADP's growth coming from price, volume, or acquisitions?
Growth was driven by a mix of factors. Management cited solid new business bookings, strong client revenue retention, and higher client funds interest revenue. Acquisitions contributed about 1 percentage point of reported revenue growth and foreign currency added about 1 point, so organic constant currency growth was 6%. U.S. pays per control, a measure of employment levels at clients, was roughly flat, indicating limited contribution from employment growth in the U.S.
What is the significance of the cash flow and balance sheet changes?
Operating cash flow fell to $642 million from $824 million, largely due to changes in operating assets and liabilities, including higher other assets and lower accrued expenses. Commercial paper borrowings rose to $5.2 billion from $4.8 billion, and total stockholders' equity increased to $6.4 billion. Share repurchases of $366 million and dividends of $627 million were paid during the quarter, which investors may want to weigh against the lower operating cash flow.
04—Continue