Automatic Data Processing, Inc. (ADP) on Thursday reported a 41% decline in profit for the fourth quarter, hurt by high unemployment and a year-ago tax benefit. Profit trends were also down for the full fiscal 2010. Looking ahead, the company provided earnings outlook for fiscal 2011 and said it anticipates no changes in the current economic environment.
The Roseland, New Jersey-based payroll processor's net earnings for the fourth quarter were $207.9 million or $0.42 per share, down from $352.8 million or $0.70 per share in the year-ago period.
Net earnings from continuing operations for the latest quarter declined to $207.6 million or $0.42 per share from $347.4 million or $0.69 per share in the same period last year.
Excluding favorable tax items of $120 million or $0.24 per share realized in the year-ago period, earnings per share from continuing operations declined 7% to $0.42 from $0.45. On average, twenty one analysts polled by Thomson Reuters expected the company to report earnings of $0.42 per share for the quarter. Analysts' estimates typically exclude special items.
Total revenues for the latest quarter increased 4% to $2.19 billion from $2.10 billion in the year-ago period. Analysts had a consensus revenue estimate for the quarter of $2.14 billion.
ADP noted that revenues benefited 0.6 percentage points from favorable foreign exchange rates during the quarter.
Gary Butler, president and chief executive officer of Automatic Data Processing said, "Fiscal 2010 was a challenging year. As the global economy began to stabilize and recover, we increased our investments in sales and service as demand grew for ADP's solutions. These investments pressured fourth quarter margins but will enable strong execution against our strategic growth program."
The company's results are highly influenced by employment trends. The declines in the number of workers on clients' payrolls have moderated this year as the economy have stabilized. Nevertheless, the labor market recovery has remained fragile and its sustainability is still in question. The jobless rate also remains elevated.
Employer Services' revenues for the quarter grew 4% to $1.59 billion. However, Employer Services' pretax margin declined a sharp 290 basis points for the fourth quarter, as the benefits from last year's restructuring were offset by increased sales expense, investments in client service and product along with higher benefits and compensation expense. The number of employees on the company's clients' payrolls in the U.S. grew 0.3% for the fourth quarter.
PEO Services' revenues for the quarter increased 13% from the year-ago period to $330.9 million, but pretax margin declined 40%. Average worksite employees paid by PEO Services increased 8.5% for the quarter to about 210,000.
Dealer Services' revenues were flat with the year-ago period at $307.2 million, negatively impacted by the cumulative effect of ongoing dealership closings and lower international software license fee revenues.
For fiscal year 2010, ADP reported a decline in net earnings to $1.21 billion or $2.40 per share from $1.33 billion or $2.63 per share in the previous year.
Net earnings from continuing operations for the year were $1.21 billion or $2.40 per share, down from $1.33 billion or $2.62 per share last year.
Adjusted earnings per share from continuing operations for the year edged down to $2.37 from $2.38 a year ago. The company had forecast adjusted earnings from continuing operations for the year in a range of $2.36-$2.38 per share. Analysts expected the company to earn $2.38 per share for the year.
Revenues for the year were $8.93 billion, up 1% from $8.84 billion a year ago. The company had earlier projected revenues for the year to approximate last year's revenues. Analysts had a consensus revenue estimate for the year of $8.88 billion.
Looking ahead, for fiscal year 2011, Automatic Data Processing expects earnings per share to increase 1%-3%. This compares to earnings per share of $2.37 in the fiscal 2010, excluding favorable items. Analysts expect earnings of $2.51 per share for the year.
The company forecasts fiscal 2011 revenues to increase 1%-3%. Analysts expect the company's revenues for the year to increase 3.6% to $9.20 billion.
Butler said, "Our fiscal 2011 forecasts anticipate no changes in the current economic environment. We anticipate difficult expense and earnings comparisons during the first half of fiscal 2011, primarily as a result of increased sales and service investments which we began during the second half of fiscal 2010."
Among others in the industry, Rochester, New York-based Paychex Inc. (PAYX) in mid-June reported a profit for the fourth quarter that grew slightly by 2% from last year, as the weak economic environment negatively impacted its client base and check volume.
In Thursday's regular trading session, ADP is trading at $41.76, down $0.34 or 0.81% on a volume of 0.69 million shares. The stock has been trading in a range of $26.46-$45.74 in the past 52 weeks.
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