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ADP reports fourth quarter and fiscal 2012 results; provides fiscal 2013 guidance
For the Year, Revenues Rise 8%, 6% Organic; EPS up 12%, up 9% Excluding Gain on Sale of Assets
Forecasting Fiscal 2013 Revenue Growth of 5% to 7%
Forecasting EPS Growth of 5% to 7%, Compared with Adjusted $2.74 in Fiscal 2012
Roseland, New Jersey, August 1, 2012 - Automatic Data Processing, Inc. (Nasdaq: ADP) reported revenue growth of 8%, 6% organic, to $10.7 billion for the fiscal year ended June 30, 2012, Carlos A. Rodriguez, president and chief executive officer, announced today. Pretax earnings and net earnings increased 10% and 11%, respectively, and included a pretax gain recorded in the second quarter of fiscal 2012 of $66 million, $41 million after tax, on the sale of assets related to rights and obligations to resell a third-party expense management platform. Diluted earnings per share of $2.82 increased 12% from $2.52 a year ago on fewer shares outstanding, including $0.08 per share related to the gain on the sale of assets. Excluding this gain, pretax earnings and net earnings increased 6% and 7%, respectively, and diluted earnings per share of $2.74 increased 9%.
For the fourth quarter of fiscal 2012, revenues increased 5%, 4% organically, to $2.6 billion compared with the fourth quarter of fiscal 2011. Excluding the negative impact of unfavorable foreign exchange rates in the quarter compared with a year ago, revenues increased 7%. Pretax earnings increased 11%, and net earnings increased 7% on a higher effective tax rate compared with last year’s fourth quarter which included favorable tax items. Diluted earnings per share of $0.53 increased 10%, from $0.48 per share a year ago on fewer shares outstanding.
ADP acquired 6.4 million shares of its stock for treasury at a cost of $342 million during the fourth quarter, and about 14.6 million shares at a cost of $747 million during the fiscal year. Cash and marketable securities were $1.7 billion at June 30, 2012.
Fourth Quarter and Fiscal Year 2012 Discussion
Commenting on the results, Mr. Rodriguez said, “I am pleased with ADP’s results. Our sales execution in Employer Services and PEO Services was strong in the fourth quarter with robust new business sales growth of 20%. For the year, we achieved new business sales growth of 13%, which was also above our expectations. New business sales represent annualized recurring revenues anticipated from new orders. Dealer Services performed well as the North American automotive marketplace showed continued strengthening. We are driving good pretax margins in all of our business segments, and excluding the drag from acquisitions, pretax margins improved in each business segment. ADP’s total pretax margin, however, continued to be negatively impacted by the decline in high-margin client interest revenues resulting from lower market interest rates.
“Employer Services’ revenues grew 7% for the fourth quarter, 5% organically. Revenues grew 7% for the year, 6% organically. The number of employees on our clients' payrolls in the United States increased 3.2% for the quarter and 3.0% for the year, as measured on a same-store-sales basis for our clients on our AutoPay platform. Worldwide client retention declined 0.2 percentage points for the fourth quarter. For the year, client retention was strong at 91.0%, ending the year 0.1 percentage points below last year’s record high level. Employer Services’ pretax margin increased 40 basis points for the quarter, and included a drag from acquisitions of 90 basis points. Additionally, fourth quarter new business expenses increased due to higher than anticipated new business sales and negatively impacted the pretax margin about 20 basis points. The quarter’s pretax margin benefited from both increased operating scale in the business as well as from easier year-over-year comparisons. Employer Services’ pretax margin declined 30 basis points for the year and included a drag from acquisitions of 80 basis points.
“PEO Services’ revenues increased 12% for the fourth quarter and 15% for the year, all organic. PEO Services’ pretax margin increased 130 basis points for the quarter and 70 basis points for the year. Average worksite employees paid by PEO Services increased 11% for the quarter and 12% for the year to approximately 265,000 and 255,000, respectively.
“Dealer Services’ revenues grew 7% for the fourth quarter, 6% organically. Revenues grew 10% for the year, 6% organically. Dealer Services’ pretax margin improved 70 basis points for the quarter and 130 basis points for the year. Excluding a drag from fiscal 2011 acquisitions of 20 basis points and the positive year-over-year impact of 50 basis points from acquisition-related costs in the first half of fiscal 2011, Dealer Services' pretax margin improved 100 basis points for the year.
Interest on Funds Held for Clients
"The safety, liquidity, and diversification of our clients’ funds are the foremost objectives of our investment strategy. Client funds are invested in accordance with ADP’s prudent and conservative investment guidelines and the credit quality of the investment portfolio is predominantly AAA/AA.
“For the fourth quarter, interest on funds held for clients declined $15.4 million, or 11%, from $135.7 million a year ago to $120.3 million, due to a decline of 40 basis points in the average interest yield to 2.5%, partially offset by an increase of 4% in average client funds balances from $18.5 billion to $19.2 billion.
“For the year, interest on funds held for clients declined $46.8 million, or 9%, from $540.1 million a year ago to $493.3 million, due to a decline of 40 basis points in the average interest yield to 2.8%, partially offset by an increase of 6% in average client funds balances from $16.9 billion to $17.9 billion.
Fiscal 2013 Forecast
“Our fiscal 2013 forecasts assume no changes in the current economic environment. We anticipate year-over-year comparisons to be negatively impacted, particularly in the first fiscal quarter, by foreign exchange rates, an expected lower average yield on the client funds portfolio due to continued low market interest rates, and the year-over-year comparison from certain fiscal 2012 items as noted below.
"Interest on funds held for clients is expected to decline $65 to $75 million, or 13% to 15%, from $493.3 million in fiscal 2012. This forecast is based on a decline of 50 to 60 basis points in the expected average interest yield to 2.2% to 2.3%, and anticipated growth in average client funds balances of 5% to 7%. The interest assumptions in our forecasts are based on Fed Funds futures contracts and forward yield curves as of July 30, 2012. The Fed Funds futures contracts do not anticipate any changes during the fiscal year in the Fed Funds target rate. The three-and-a-half and five-year U.S. government agency rates based on the forward yield curves as of July 30, 2012 were used to forecast new purchase rates for the client extended and client long portfolios, respectively.
“We exited fiscal 2012 with good sales momentum. We are focused on successfully executing against our four strategic pillars for growth to maintain our position as a leading global Human Capital Management solutions provider. Driving product innovation and enhancing our distribution and service capabilities are the right things to grow the business long-term," Mr. Rodriguez concluded.
The schedules of quarterly and full-year revenue and pretax earnings by reportable segment for fiscal years 2010, 2011, and 2012 have been updated for the fourth quarter of fiscal 2012 and posted to the Investor Relations home page (http://www.investquest.com/iq/a/adp/index.htm) of our website www.ADP.com under Reportable Segments Financial Data.
An analyst conference call will be held today, Wednesday, August 1 at 8:30 a.m. EDT. A live webcast of the call will be available to the public on a listen-only basis. To listen to the webcast and view the slide presentation, go to ADP’s home page, www.ADP.com, or ADP’s Investor Relations home page, http://www.investquest.com/iq/a/adp/index.htm, and click on the webcast icon. Please note, this webcast will be broadcast in two streams: Windows Media and Flash. You may switch streams by selecting “Windows Media” or “Flash” from the gear-setup symbol located to the right-hand side of the volume control on the webcast player. Please check your system 10 minutes prior to the webcast. The presentation will be available to download and print about 60 minutes before the webcast at the ADP Investor Relations home page at http://www.investquest.com/iq/a/adp/index.htm. ADP’s news releases, current financial information, SEC filings and Investor Relations presentations are accessible at the same website.
Automatic Data Processing, Inc. (Nasdaq: ADP), with more than $10 billion in revenues and approximately 600,000 clients, is one of the world's largest providers of business outsourcing solutions. Leveraging over 60 years of experience, ADP offers a wide range of human resource, payroll, tax and benefits administration solutions from a single source. ADP's easy-to-use solutions for employers provide superior value to companies of all types and sizes. ADP is also a leading provider of integrated computing solutions to auto, truck, motorcycle, marine, recreational vehicle, and heavy equipment dealers throughout the world. For more information about ADP or to contact a local ADP sales office, reach us at 1.800.225.5237 or visit the company's website at www.ADP.com.
This document and other written or oral statements made from time to time by ADP may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not historical in nature and which may be identified by the use of words like "expects," "assumes," "projects," "anticipates," "estimates," "we believe," "could be" and other words of similar meaning, are forward-looking statements. These statements are based on management's expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from those expressed. Factors that could cause actual results to differ materially from those contemplated by the forward-looking statements include: ADP's success in obtaining, retaining and selling additional services to clients; the pricing of products and services; changes in laws regulating payroll taxes, professional employer organizations and employee benefits; overall market and economic conditions, including interest rate and foreign currency trends; competitive conditions; auto sales and related industry changes; employment and wage levels; changes in technology; availability of skilled technical associates and the impact of new acquisitions and divestitures. ADP disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. These risks and uncertainties, along with the risk factors discussed under "Item 1A. - Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011 should be considered in evaluating any forward-looking statements contained herein.