Automatic Data Processing, Inc. ADP reported better-than-expected third-quarter fiscal 2018 results.

Adjusted earnings per share surpassed the Zacks Consensus Estimate by 8 cents and increased 16% year over year. Revenues came in at $3.69 billion, outpacing the consensus mark by $26 million. The top-line figure improved 8% on a reported basis and 6% on a constant-currency basis.

In the quarter, the company witnessed revenue growth across all its segments and significant improvements in key performance indicators like new business bookings and Employer Services retention.

At the call, management sounded upbeat about the company’s business model and its strategy to drive sustainable long-term growth.

We observe that shares of ADP have rallied 14.2% over the past year, significantly outperforming the S&P 500’s gain of 11%.

 

Let’s delve deeper in to the numbers:

Segments in Detail

Employer Services revenues of $2.80 billion increased 7% year over year on a reported basis and 4% on an organic constant-currency basis. The number of employees on ADP clients’ payrolls in the United States rose 2.9% on a same-store-sales basis. Client revenues retention increased 170 basis points (bps) on a year-over-year basis.

PEO Services revenues were up 10% year over year to $1.1 billion. The upside was driven by 9% increase in average worksite employees. Average worksite employees paid by PEO Services were roughly 512,000.

Interest on funds held for clients in the fiscal third quarter increased 21% to $135 million. The company’s average client funds balances climbed 6% year over year to $28.8 billion, while average interest yield of 1.9% was up 20 bps on a year-over-year basis.

Automatic Data Processing, Inc. Revenue (TTM)

Margins

Adjusted EBIT margin contracted almost 20 bps to 24.4% primarily due to higher pass-through revenues and expenses related to acquisitions.

The Employer Services segment’s margin fell roughly 20 bps on a year-over-year basis. On the flipside, the PEO Services segment’s margin improved approximately 40 bps in the quarter.

2018 Guidance

ADP raised 2018 guidance for adjusted earnings, adjusted EBIT margin and worldwide new business bookings growth but reiterated the same for revenue growth in the band of 7-8%. Acquisitions and impact from foreign currency translation are projected to add approximately two percentage points of growth to revenues instead one percentage point projected in the previous guidance.

Adjusted EBIT margin is anticipated to be more or less flat compared to the prior anticipation of a decline of almost 50 bps. ADP expects growth in worldwide new business bookings of 6-7% compared with the previous expectation of 5-7%.

Also, adjusted earnings are envisioned to grow in the 16% to 17%, up from 12% to 13% guided earlier. ADP expects an adjusted effective tax rate of 26.2% compared with previous forecast of 26.9% for fiscal 2018.

Zacks Rank & Upcoming Releases

ADP carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Business Services sector are keenly awaiting earnings reports from key players like Gartner, Inc. IT, The Dun & Bradstreet Corp. DNB and Broadridge Financial Solutions Inc. BR. Garter and Dun & Bradstreet will release first-quarter 2018 results on May 8 and May 9, respectively. Broadridge will report third-quarter fiscal 2018 numbers on May 8.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we’re targeting>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Dun & Bradstreet Corporation (The) (DNB): Free Stock Analysis Report
 
Gartner, Inc. (IT): Free Stock Analysis Report
 
Broadridge Financial Solutions, Inc. (BR): Free Stock Analysis Report
 
Automatic Data Processing, Inc. (ADP): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research