Automatic Data Processing Expects a Return to Bookings Growth in 2018

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Automatic Data Processing (NASDAQ: ADP) reported fiscal fourth-quarter financial results on July 27. 2017 was a challenging year for the leading provider of human capital management solutions, but ADP's management remains confident that better times are ahead.

ADP results: The raw numbers

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What happened with ADP this quarter? 

Worldwide new business bookings fell 7% in the fourth quarter and 5% for the year. CEO Carlos Rodriguez explained some of the factors impacting these results during a conference call with analysts:

Revenue rose 6% year over year to $3.1 billion, as organic growth of 7% was partially offset by ADP's sale of its consumer health spending account and COBRA businesses.

PEO services, which is ADP's co-employment division, saw revenue jump 16% to $892 million. Average worksite employees paid increased 12% to more than 485,000. In turn, PEO services earnings from continuing operations leapt 17% to $107 million, as segment margin improved by 10 basis points to 12%.

Revenue in its employer services segment, which includes ADP's human capital management and human resources outsourcing businesses, increased 2% (3% on an organic basis) to $2.3 billion, as the number of employees on ADP clients' payrolls in the U.S. grew 2.1%. Additionally, client revenue retention improved 60 basis points compared to the fourth quarter of 2016. Segment margin, however, decreased 210 basis points to 26.5%, as ADP continues to invest heavily in the business despite slower revenue growth, as noted by Rodriguez:

All told, ADP's earnings per share from continuing operations -- adjusted to exclude restructuring charges -- declined 4% to $0.66.

Looking forward

ADP issued a financial outlook for fiscal 2018 including:

  • full-year revenue growth of 5% to 6% compared to fiscal 2017 revenue of $12.4 billion,
  • growth in worldwide new business bookings of 5% to 7% compared to the $1.65 billion sold in fiscal 2017, and
  • adjusted diluted earnings-per-share growth of 2% to 4% compared to adjusted EPS of $3.70 in 2017.

"We finished the year in-line with our expectations, including solid organic revenue growth of 7% benefiting from continued strong performance of our PEO," Rodriguez said in a press release. "We move into fiscal 2018 with confidence in our long-term strategy and will continue to invest in product, service, and sales to advance the value we create for clients and capture market opportunities."

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Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Automatic Data Processing. The Motley Fool has a disclosure policy.