It has been about a month since the last earnings report for Automatic Data Processing (ADP). Shares have added about 6.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is ADP due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
ADP's Q1 Earnings Beat Estimates
Automatic Data Processing, Inc. has reported impressive first-quarter fiscal 2025 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate.
ADP’s earnings per share of $2.3 beat the consensus estimate by 5.9% and increased 12% from the year-ago quarter. Total revenues of $4.8 billion beat the consensus estimate by 1.5% and grew 7.1% on a year-over-year basis.
ADP's Segments Results
Employer Services’ revenues of $3.3 billion increased 7% on a reported basis and 7% at constant currency, beating our estimate of $3.2 billion. Pays per control increased 2% from the year-ago quarter.
PEO Services’ revenues rose 7% from the year-ago quarter to $1.6 billion and surpassed our projection of $1.5 billion for the first quarter of fiscal 2025. Average worksite employees paid by PEO Services were 737,000, gaining 3% from the year-ago quarter.
Interest on funds held for clients grew 26% from the year-ago quarter to $253 million and outpaced our estimate of $252 million. ADP’s average client funds balance rose 5% to $32.8 billion. Average interest yield on client funds expanded 50 basis points to 3.1%.
Automatic Data Processing's Margins
Adjusted EBIT rose 13% on a year-over-year basis to $1.2 billion. The adjusted EBIT margin grew 130 basis points (bps) to 25.5%.
The margin of Employer Services increased by 200 bps, while PEO Services decreased by 80 bps.
Balance Sheet and Cash Flow of ADP
ADP exited first-quarter fiscal 2025 with cash and cash equivalents of $2.1 billion compared with $2.9 billion at the end of the preceding quarter. The long-term debt of $3 billion was flat with the preceding quarter.
The company generated $824.4 billion in cash from operating activities in the quarter.
Automatic Data Processing's FY25 Outlook
For fiscal 2025, ADP has updated its guidance for revenue growth to 6-7% from the 5-6% rise mentioned in the previous quarter. The adjusted EPS growth guidance is lowered to 7-9% from the 8-10% stated in the previous quarter. The adjusted effective tax rate is estimated to be 23%. The adjusted EBIT margin is reduced to 30-50 bps from the 60-80 bps provided in the preceding quarter.
Automatic Data Processing has updated its guidance for Employer Services revenue growth to 6-7% from the 5-6% rise mentioned in the previous quarter. The guidance for PEO Services’ revenue growth is updated to 5-6% from the 4-6% provided in the preceding quarter.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
At this time, ADP has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise ADP has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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