Automatic Data Processing : ADP 4th-Quarter Net Up 6.9% on Employer-Services Growth
08/01/2012| 12:30pm US/Eastern
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--Profit rises as the company gains market share with small businesses
--Earnings projection for the year falls short of estimates
--Revenue rises 5.2%
(Updates to add comments from executive interview throughout)
By Victoria Stilwell
Automatic Data Processing Inc.'s (ADP) fiscal fourth-quarter profit rose 6.9% as the payroll-service firm gained market share with small businesses and saw a double-digit increase in new business sales.
ADP, recognized for its stamp on employee paychecks, offer services ranging from payroll management to benefits administration. The company said its strongest growth has come from small businesses that can outsource human resource duties or run their payroll from a mobile phone through ADP.
While the latest quarter's results improved, ADP'S full-year guidance fell short of analysts estimates and was weighed down by a negative interest-related impact on client funds amid low interest rates.
The company expects fiscal 2013 per-share earnings growth of 5% to 7% on the $2.74 a share earned in 2012, below the 9% analysts surveyed by Thomson Reuters recently expected. The growth range factors in the interest-related drag, which is expected to lower earnings by 10 cents to 11 cents a share.
"The good news of all of that is even with that drag, our margins in the core business is still doing very well," Chief Financial Officer Christopher Reidy said.
The company expects revenue growth of 5% to 7%, while analysts were looking for 8% growth. ADP expects employer services revenue to grow 6% to 7%, and sees 8% to 10% growth in new business sales for employer services and professional employer organizations.
ADP ended the year with 600,000 clients, up about 5% from the year before. A big chunk of that increase came from the small business space, Mr. Reidy said. ADP's human capital management services, which aim to help small businesses handle their human resources needs such as recruitment to compensation planning, helped boost results.
New-business sales for employer services and professional employer organizations services--a key metric of future revenue for ADP--grew 20% in the fourth quarter from the year before. Mr. Reidy said the increase was driven by product improvement and better traction in the marketplace.
For the quarter ended June 30, ADP reported a profit of $258.4 million, or 53 cents a share, up from a year-earlier profit of $241.8 million, or 48 cents a share. Total revenue rose 5.2% to $2.64 billion.
Analysts surveyed by Thomson Reuters recently expected earnings of 53 cents a share on revenue of $2.66 billion.
Revenue at the company's employer-services segment--its biggest by sales-- improved 6.7% to $1.88 billion. The number of employees on ADP's clients' payrolls in the U.S. rose 3.2%, as measured on a same-store sales basis.
Client retention declined 0.2 percentage points for the fourth quarter due to a client loss announced in the second quarter.
The company ended the year with 91% revenue retention in employer services--an all-time high--which the company plans to improve slightly in 2013. ADP suggested it wouldn't pursue an aggressive pricing strategy even with record retention due to macroeconomic pressures facing its clients.
Shares edged down 0.5% to $56.28 in recent trading. The stock is up 4.2% so far this year.
Write to Victoria Stilwell at Victoria.Stilwell@dowjones.com
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