ADP (ADP) Misses Q4 EPS by 1c, Offers FY 18 Guidance

ADP (NASDAQ: ADP) reported Q4 EPS of $0.66, $0.01 worse than the analyst estimate of $0.67. Revenue for the quarter came in at $3.1 billion versus the consensus estimate of $3.04 billion.

Fiscal 2018 Outlook

Certain components of ADP’s fiscal 2018 outlook and related growth comparisons exclude the impact of the following items and are discussed on an adjusted basis where applicable. Please refer to the accompanying financial tables for a reconciliation of these adjusted amounts to their closest comparable GAAP measure.

Fiscal 2017 pre-tax restructuring charges of $90 million.
Fiscal 2017 second quarter pre-tax gain on the sale of the CHSA and COBRA businesses of $205 million.
Fiscal 2018 pre-tax restructuring charges of about $30 million.

ADP anticipates full-year fiscal 2018 revenue growth of 5% to 6% compared to fiscal 2017 revenue of $12.4 billion. Foreign currency translation is not expected to have a significant impact on revenue growth in fiscal 2018. ADP expects revenue growth at the lower end of the guidance range in the first half of fiscal 2018, and at the higher end of the guidance range in the second half of fiscal 2018. This revenue forecast assumes growth in worldwide new business bookings of 5% to 7% compared to the $1.65 billion sold in fiscal 2017.

ADP expects full year diluted earnings per share to decline 1% to 3% and adjusted diluted earnings per share growth of 2% to 4%. This earnings growth forecast assumes an adjusted effective tax rate increase of 210 basis points to 33.0% and an adjusted EBIT margin decline of 25 to 50 basis points for the full year. ADP anticipates adjusted diluted earnings per share growth and adjusted EBIT margin to be below the guidance ranges in the first half of fiscal 2018, and above the guidance ranges in the second half of fiscal 2018.

Reportable Segments Fiscal 2018 Forecast

For the Employer Services segment, ADP anticipates revenue growth of approximately 2% to 3% and a margin decline of 50 to 75 basis points for the year.
ADP expects pays per control to increase 2.5% for the year.
For the PEO Services segment, ADP anticipates 11% to 13% revenue growth and margin expansion of 25 to 50 basis points for the year.

Client Funds Extended Investment Strategy Fiscal 2018 Forecast

The interest assumptions in our forecasts are based on Fed Funds futures contracts and forward yield curves as of July 25, 2017. The Fed Funds futures contracts used in the client short and corporate cash interest income forecasts assume an increase in the Fed Funds rate in March 2018. The three-and-a-half and five-year U.S. government agency rates based on the forward yield curves as of July 25, 2017 were used to forecast new purchase rates for the client and corporate extended, and client long portfolios, respectively.

Interest on funds held for clients is expected to increase $40 to $50 million, or about 11%. This is based on anticipated growth in average client funds balances of approximately 2% to 3% from $23.0 billion in fiscal 2017 and an average yield which is anticipated to increase about 20 basis points to 1.9% compared to the fiscal 2017 average yield of 1.7%.
The total contribution from the client funds extended investment strategy is expected to be up $30 to $40 million compared with fiscal 2017.

For earnings history and earnings-related data on ADP (ADP) click here.

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