Payroll processing company Automatic Data Processing Inc. (ADP) on Tuesday reported a 5% increase in profit for the second quarter, as lower expenses and a tax gain helped offset revenues that were flat with the year-ago period. Adjusted earnings per share from continuing operations beat analysts' consensus estimate. Looking ahead, the company now forecasts earnings for fiscal year 2010 at the high end of the prior range.
Automatic Data Processing, or ADP, reported that net earnings for the second quarter rose to $315.8 million or $0.62 per share from $300.5 million or $0.59 per share in the same period last year.
Earnings per share from continuing operations increased to $315.8 million or $0.62 per share from $300.4 million or $0.59 per share in the year-ago period. The latest quarter's results include a favorable tax item, which reduced the provision for income taxes by $12.2 million and contributed approximately $0.02 to earnings per share.
Excluding the favorable tax item, earnings per share from continuing operations increased 2% to $0.60 per share from the year-ago period. On average, twenty analysts polled by Thomson Reuters expected the company to report earnings of $0.58 per share for the quarter. Analysts' estimates typically exclude special items.
Total revenues for the quarter were $2.204 billion compared to $2.203 billion in the year-ago period. Analysts had a consensus revenue estimate for the quarter of $2.17 billion.
The Roseland, New Jersey-based company noted that revenues benefited 2% from favorable foreign exchange rates during the quarter, but continued to be negatively impacted by the cumulative effect of the economic downturn.
Commenting on the results, Gary Butler, president and chief executive officer, said, "Overall, ADP's second quarter results were consistent with our expectations. As anticipated, the comparison to a year ago continued to be difficult due to the cumulative impact of the economic downturn. Our key business metrics in Employer Services - pays per control, client retention, and new business sales - declined year-over-year, but the rate of decline has lessened. Dealer Services posted increased new business sales and continued to improve its share of a consolidating North American marketplace."
Revenues, other than interest on funds held for clients and PEO revenues, declined to $1.767 billion from $1.772 billion a year ago. Interest on funds held for clients was $127.7 million, down from $147.3 million in the same period last year. Meanwhile, PEO revenues grew to $308.9 million from $283.4 million in the year-ago period.
Selling, general and administrative expenses for the quarter were $520.1 million, down from $573.1 million a year ago. Interest expense fell to $2.5 million from $8.1 million in the year-ago period. Total expenses were $1.75 billion, down from $1.77 billion in the previous-year quarter.
ADP, which serves about 570 thousand clients, offers the widest range of HR, payroll, tax and benefits administration solutions from a single source. The company also provides integrated computing solutions to auto, truck, motorcycle, marine and recreational vehicle dealers throughout the world.
Segment-wise, revenues from Employer Services declined 2% year-over-year to $1.57 billion for the second quarter. In the United States, revenues from traditional payroll and payroll tax filing business declined 7%, while beyond payroll revenues grew 3%. The number of employees on the company's clients' payrolls in the U.S. declined 5.0%, as measured on a same-store-sales basis for clients on the company's AutoPay platform.
However, PEO Services revenues grew 9% to $311.2 million, mainly on higher benefits pass-through revenues that resulted from increases in both benefit rates and the number of worksite employees. Average worksite employees paid increased 4% from the year-ago period to nearly 200,000.
Combined Employer Services and PEO Services worldwide new business sales declined 3% for the quarter.
In the Dealer Services segment, revenues were $311.0 million, down 5% from last year, nearly 8% organically, mainly due to continued dealership closings, lower transactional revenues and lower international software license fee revenues.
Among others in the sector, human resources services provider Administaff Inc. (ASF) is slated to report its financial results for the fourth quarter on February 11. Analysts expect the company to report earnings of $0.15 per share for the quarter on revenues of $395.33 million.
In mid-December, Paychex Inc. (PAYX) reported a 10% decline in profit for the second quarter to $125.9 million or $0.35 per share from $140.2 million or $0.39 per share a year ago, as weak economic conditions continued to hurt its results. The Rochester, New York-based company's total revenue for the quarter declined 5% to $496.58 million from $524.16 million in the same period last year.
For the first six months of fiscal year 2009, ADP's net earnings increased to $599.9 million or $1.19 per share from $577.3 million or $1.13 per share in the year-ago period.
Net earnings from continuing operations were $599.9 million or $1.19 per share up from $578.3 million or $1.14 per share in the prior-year period.
Revenues for the half year declined to $4.31 billion from $4.38 billion in the same period last year.
ADP acquired over 3.5 million shares of its stock for treasury at a cost of nearly $152 million fiscal year-to-date.
For fiscal year 2010, ADP now expects to achieve the high end of its outlook for earnings per share from continuing operations in a range of $2.34-$2.39, compared with earnings per share from continuing operations of $2.39 in the prior year, which excludes favorable tax items in both years. Analysts expect the company to earn $2.39 per share for the year.
The company now anticipates total revenues for the year to be flat to slightly down, compared with its previous estimate for revenues to be down 1%-2%. Analysts have a consensus revenue estimate for the year of $8.78 billion, representing a 1% decline from last year.
Segment-wise, the company forecasts a decline of about 1% in employer services revenues, compared to the prior forecast for a decline of 1%-2%. Pays per control are now estimated to decline 4%, compared to the earlier projection of a decline of 4%-5%.
In the PEO Services segment, the company now anticipates high-single-digit revenue growth driven by increased benefits pass-through revenues. Earlier, the company had forecast revenues to increase 4%-6%.
Employer Services and PEO Services new business sales are now expected to be about flat to slightly positive, compared with the prior estimate of about flat new business sales. The company, however, maintained its forecast for Dealer Services revenues to decline 3%-6%.
In Tuesday's regular trading session, ADP is currently trading at $41.20, up $0.13 or 0.32% on a volume of 0.45 million shares. In the past 52 weeks, the stock has been trading in a range of $32.03-$44.50.
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