ADP Sets a Steady Course For Continued Growth

ADP announced fiscal Q2 2011 Employer Services revenues of $1,663m, up 7% year-over-year.  PEO Services came in at $358m, up 15%.

Payroll and tax filing revenues were flat primarily because certain end-of-year service billings fell into January.  U.S. beyond payroll revenues increased 16% with the help of recent acquisitions and growth across tax services, T&L services, benefits administration, BPO, and HR services.

Pretax margins for Employer Services declined 80 basis points for the quarter due to planned higher selling expenses, investments in sales and service headcount, and recent acquisition activity.

For the second quarter in a row, ADP increased its 2011 forecast.  Employer Services revenue growth is now expected to be 5%, up from 4%.  Including acquisitions, Employer Services revenue is expected to be 6% to 7%, up from 5%.  With a solid pipeline, increased sales force, and its own unique payroll window into economic recovery, ADP is confident in achieving higher results than the original forecast of 1% to 3% revenue growth.

In a sign of general business health, ADP has seen an uptick in clients funding wage increases and paying bonuses.  Its U.S. clients increased employee payrolls by 2.4%, the single largest quarterly increase since 2007.  Also, the ADP large client segment is finally seeing growth in employee payrolls.  While Europe is not adding employees back yet, the rate of decline is slowing.

Employer Services completed two acquisitions during the quarter, including MasterTax for approximately $10m and Byte Software, the largest payroll and HR products and services provider in Italy, for c. $60m.  ADP was already the second largest provider in Italy and now it will be solid in the top position.

The quarterly earnings call was handled from Barcelona, Spain where senior ADP leaders were hosting their annual Global View conference for more than 100 clients.  This is a great opportunity to listen and learn about client HR service needs and gain business insight into the large multinational market.  This was especially important for Global View which represents a major investment for ADP.  Even with growth on track and a solid pipeline, the platform is not expected to breakeven until fiscal year 2013.

In February, ADP’s RUN mobile payroll app, which is already available for the iPhone, will be released for other Smartphone platforms.  Watch for ADP to roll out more HR mobile apps with increased functionality later this year.

ADP knows its business and understands how each aspect is linked to growth and margins and it continues to confidently execute on its long-term strategy of balanced organic growth and expansion through acquisitions.  Steady as she goes – forward.

Linda Merritt, Research Director, HRO, NelsonHall