ADP Earnings Preview: HR Services, International Business To Drive Results

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ADP: Automatic Data Processing logo
ADP
Automatic Data Processing

ADP (NASDAQ:ADP) is scheduled to reported its fiscal Q4 and full year earnings on July 28. [1] ADP has witnessed a solid 7-8% increase in revenue over the last few years, driven by higher demand for HR outsourcing and services in that period. The trend has continued in fiscal 2016 thus far, with HR outsourcing revenues rising by around 15% through the first three quarters of the year. Much of the growth in the HR services (or PEO services) business was attributable to ADP’s business outside the U.S, which witnessed a strong demand for solutions catering to both small and mid-sized clients and large businesses. [2] Comparatively, payroll processing revenues have witnessed moderate single-digit growth in the last few years, including the first three quarters of fiscal year 2016. Below you can see our full year expectations for ADP’s top line growth.

adp_q4ep1

As you can see from the tables below, ADP’s cash operating expenses are likely to increase at the same rate as revenues, leading to a roughly flat operating margin over the previous year. According to our estimates, ADP’s adjusted EBITDA margin stood at just under 21% in 2015 and is likely to fall slightly to around 20.6% for the full year.

adp_q4ep2

See our full analysis for ADP.

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Notes:
  1. ADP to Announce Fourth Quarter and Full-Year Fiscal 2016 Financial Results on July 28, ADP Press Release, June 2016 []
  2. ADP Q3 FY 2016 Earnings Call Transcript, Seeking Alpha, April 2016 []