New business bookings lift ADP’s results

HR services provider Automatic Data Processing Inc.’s (ADP) third quarter results beat street estimates. The company lifted its earnings outlook for the year aided by new business bookings. Shares rose nearly 4% before the bell and were up 2.5% in the first hour of trading. Last month, ADP has raised its dividend by 10% to $0.69 per share, mainly due to the savings from the recent tax reforms. It also expects to increase the dividends in November based on the company’s performance.

ADP’s new business bookings rose 9% compared to negative 7% growth witnessed in the prior year period. The strong growth in bookings was a result of the strong labor market and more companies willing to outsource their HR services, which would help them to focus on their core business. The unemployment rate has been at 4.1% for the past six months, which is at 17-year low levels. Strong labor market would benefit ADP, as it increases the number of employees it’s serving. As a result, the company might witness a solid growth in new business bookings in the near future.

Adjusted earnings jumped 16% to $1.52 per share on revenues of $3.69 billion, which saw 8% growth. EBIT, on an adjusted basis, improved 8% to $901 million, but margins were down 20 basis points to 24.4% due to the impact from pass-through revenues and acquisitions.

Employee Services division, which used to provide HR management solutions, saw 7% growth in revenues. Client retention improved 170 basis points and the number of people served by ADP in the US improved 2.9% due to the stable labor market. Co-employment division PEO Services saw 10% revenue growth primarily driven by 9% increase in the number of people paid by the company.

For fiscal 2018, ADP expects the earnings to grow in the range of 11% to 12% on a GAAP basis and 16% to 17% on an adjusted basis, and maintains the revenue growth forecast to be between 7% and 8%. New business bookings are expected to be up in the range of 6% to 7% compared to previous guidance of 5% to 7%.