UPDATE: ADP 2Q Net Rises 21% On Improved Revenue; New Business Sales Up
January 25 2012 - 12:43PM
Dow Jones News
Automatic Data Processing Inc.'s (ADP) fiscal second-quarter
profit rose 21% as the payroll giant reported more small and
medium-sized businesses are turning to the company for its help in
overseeing human resources tasks.
With a hand in managing payroll for one in six U.S. employees,
ADP is widely recognized by its stamp on worker paychecks. Yet the
company also aims to offer businesses a slew of services beyond
payroll management, including benefits administration and
outsourcing of human resources chores.
After posting results that neatly matched analyst expectations,
Chief Financial Officer Christopher Reidy told Dow Jones Newswires
that some of the company's strongest growth is continuing to come
from the smaller end of the market. Many such firms, he noted, lack
a formal head of human resources or need extra help with compliance
duties.
Meanwhile, sales to larger companies are picking up, although at
a slower pace, he said.
"It's harder to get deals over the finish line," said Reidy.
"We're getting the growth, but it's not coming easily."
For the latest quarter, the company reported combined
new-business sales for employer services and professional employer
organization services--a key forward-looking metric for ADP--rose
14% from a year earlier. That jump prompted the company to raise
its full-year growth target for the gauge to 12%, up from the 8% to
10% growth previously predicted.
For the quarter ended Dec. 31, ADP reported a profit of $375
million, or 76 cents a share, up from a year-earlier profit of
$310.1 million, or 62 cents. Stripping out an 8-cent per-share
benefit related to the sale of a third-party expense management
platform, the company reported a per-share profit of 68 cents for
the quarter, meeting analyst expectations.
ADP also trimmed the high end of its full-year earnings target,
saying it now expects profit growth of 8% to 9% over last year due
to asset sales. The company had previously seen 8% to 10% earnings
growth for the year.
Total revenue in the latest quarter improved 7.4% to $2.58
billion, also matching analyst estimates. Revenue at the company's
employer-services segment, by far its largest, rose 7% to $1.83
billion. Its professional employer organization business, which
offers smaller companies help with human resources tasks, reported
a 16% jump in revenue to $413.8 million.
Gross margin narrowed to 41.2% from 42.6% due mostly to the drag
of low interest rates on the company' reinvestment of client funds.
The company cautioned it expects low interest rates to further
pressure earnings and margins throughout the remainder of its
fiscal year.
The number of employees on ADP's clients' payrolls in the U.S.
rose 2.8% during the period.
Shares were recently off 5 cents to $56.68. The stock is up
roughly 14% over the past 12 months.
-By Mia Lamar, Dow Jones Newswires; 212-416-3207;
mia.lamar@dowjones.com
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