ADP Matches Estimates in 2Q - Analyst Blog
25 Janeiro 2012 - 10:45AM
Zacks
Automatic Data Processing
Inc. (ADP) reported second quarter 2012 earnings of 68
cents per share, in line with the Zacks Consensus Estimate.
Earnings per share increased 9.7% year over year on the back of
strong revenue growth.
Revenue
Revenues increased 7.4% year over
year to $2.58 billion and was in line with the Zacks Consensus
Estimate. Organic growth was 6.0% in the quarter. The
better-than-expected result was driven by strong new business
sales, improving client retention and incremental revenue from
recent acquisitions.
Employer Services revenue increased
7.0% year over year (5.0% organically) to $1.83 billion. The number
of employees on clients' payrolls in the United States grew 2.8% in
the quarter on a same-store-sales basis.
PEO Services revenue spiked 15.5%
year over year to $413.8 million in the second quarter. Dealer
Services revenue climbed 6.9% year over year to $412.6 million.
Interest on funds held for clients
declined 9% year over year to $117.9 million, due to a decline of
50 bps in the average interest yield to 3.0%, partially offset by a
6.0% increase in average client funds balances to $15.6
billion.
Operating
Performance
Total expenses in the reported
quarter increased 7.5% year over year to $2.10 billion, due to
higher operating expenses (up 11.4% year over year) and selling,
general & administrative expense (up 1.3% year over year).
The company reported pre-tax
earnings of $513.7 million, up 6.0% on year-over-year basis.
However, pre-tax margin declined 20 basis points (bps) year over
year to 19.9% in the reported quarter.
Employer Services' pre-tax margin
declined 120 bps on a year-over-year basis. PEO Services pre-tax
margin improved 20 bps, while Dealer Services pre-tax margin
enhanced 220 bps year over year in the reported quarter.
Net income increased 7.6% year over
year to $333.8 million. Net margin, however, remained flat at 12.9%
in the quarter.
Balance Sheet
As of December 31, 2011, cash and
cash equivalents (including short-term marketable securities) were
$1.36 billion, compared with $1.27 billion as of September 30,
2011. Long-term debt decreased to $25.5 million at the end of
second quarter from $26.0 million in the prior quarter. ADP
purchased 6.3 million shares for $305.0 million during the reported
quarter.
Guidance
For fiscal 2012, ADP expects total
revenue to increase in the range of 7.0%-9.0%. EPS is expected to
increase 8%-9% over the year-ago earnings per share of $2.52. The
Zacks Consensus Estimate for fiscal 2012 is pegged at $2.74 per
share.
Employer Services is expected to
grow approximately 7% and pre-tax margins to expand 30 bps. The
company expects pays per control to increase approximately 2.5%
(prior outlook 2.0%) for fiscal 2012.
PEO Services revenue is forecasted
to improve 17.0%. Pre-tax margin is expected to grow slightly on a
year-over-year basis. For fiscal 2012, ADP expects Dealer Services
revenue to increase in the 9.0%-10.0% range (prior forecast 8%-9%)
with a pre-tax margin expansion of at least 50 bps.
The company expects interest on
funds held for clients to decline $45.0 million-$55.0 million or
8%-10% from $540.1 million in fiscal 2011. However, the company
expects 6%-7% increase in the average client fund balances.
Our
Recommendation
We believe that ADP will continue
to outperform the broader market based on strong new business
sales, diversified product portfolio, improving customer retention,
accretive acquisitions, strong balance sheet and
shareholder-friendly programs (aggressive share buybacks, dividend)
over the long term.
However, increasing competition
from Paychex Inc. (PAYX) and
Insperity Inc. (NSP) and a gloomy
macro outlook in North America and Europe are major headwinds in
the near term. Additionally, higher unemployment rates and low
interest rates remain concerns for the company’s payroll processing
business.
We have a Neutral recommendation on
ADP over the long term. Currently, ADP has a Zacks #4 Rank, which
implies a Sell rating on a short-term basis.
AUTOMATIC DATA (ADP): Free Stock Analysis Report
INSPERITY INC (NSP): Free Stock Analysis Report
PAYCHEX INC (PAYX): Free Stock Analysis Report
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