ROSELAND, N.J., May 02, 2018 (GLOBE NEWSWIRE) -- ADP(Nasdaq:ADP), a leading global provider of Human Capital Management (HCM) solutions, today announced its third quarter fiscal 2018 financial results, and provided an update to its fiscal 2018 outlook.

Third Quarter Fiscal 2018 Consolidated Results

Compared to last year’s third quarter, revenues grew 8% to $3.7 billion, 6% organic constant currency. Net earnings increased 9% to $643 million and were ahead of Company expectations. Earnings before income taxes increased to $853 million, or 3%. Adjusted EBIT increased to $901 million, or 8%. Adjusted EBIT margin declined about 20 basis points in the quarter to 24.4% largely due to the impact of acquisition-related expenses and continued pressure from growth in PEO pass-through revenues, which were partially offset by operational and selling efficiencies. Our effective tax rate for the quarter was 24.6%, and 24.3% on an adjusted basis. Diluted earnings per share increased 11% to $1.45 and adjusted diluted earnings per share increased 16% to $1.52.

“I am pleased with our successful results this quarter and with the continued signs of improvement in some of our key performance indicators such as our new business bookings, which grew 9%, and our Employer Services retention, which improved 170 basis points,” said Carlos Rodriguez, President and Chief Executive Officer, ADP. “Our results reflect the fundamental strength of our business model, and demonstrate that our strategy to drive sustainable long-term growth is working.”

“ADP delivered another solid quarter coupling strong revenue growth with improving trends underlying our margin performance,” said Jan Siegmund, Chief Financial Officer, ADP. “Our transformation initiatives continue to drive positive changes in how we are doing business, and we were pleased to build on our momentum this quarter by raising our full year adjusted EPS guidance.”

Adjusted EBIT, adjusted EBIT margin, adjusted diluted earnings per share, adjusted effective tax rate, and organic constant currency revenue are all non-GAAP financial measures. Please refer to the accompanying financial tables at the end of this release for a discussion of why ADP believes these measures are important and for a reconciliation of non-GAAP financial measures to their comparable GAAP financial measures.

Third Quarter Fiscal 2018 Segment Results

Employer Services – Employer Services offers a comprehensive range of HCM and human resources outsourcing solutions.

• Employer Services revenues increased 7% on a reported basis, 4% organic constant currency, compared to last year’s third quarter.
• The number of employees on ADP clients' payrolls in the United States increased 2.9% for the third quarter when measured on a same-store-sales basis for a subset of clients ranging from small to large businesses.
• Employer Services client revenue retention was up 170 basis points compared to last year’s third quarter.
• Employer Services segment margin decreased approximately 20 basis points compared to last year’s third quarter. This decrease includes approximately 70 basis points of combined pressure from acquisitions and foreign currency.

PEO Services – PEO Services provides comprehensive employment administration outsourcing solutions through a co-employment relationship.

• PEO Services revenues increased 10% compared to last year’s third quarter driven primarily by a 9% increase in average worksite employees for the quarter.
• PEO Services segment margin increased approximately 40 basis points compared to last year’s third quarter.
• Average worksite employees paid by PEO Services were about 512,000.

Interest on Funds Held for Clients – The safety, liquidity and diversification of ADP clients’ funds are the foremost objectives of the company’s 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 third quarter, interest on funds held for clients increased 21% to $135 million from $112 million a year ago.
• Average client funds balances increased 6% in the third quarter to $28.8 billion compared to $27.3 billion a year ago.
• For the third quarter, the average interest yield on client funds was 1.9% which was up 20 basis points compared to a year ago.

Other Matters

On March 1, 2018, ADP announced that it is offering a voluntary early retirement program to certain eligible U.S.-based associates in support of ongoing transformation initiatives. ADP anticipates recording a special termination charge in the fourth quarter of fiscal 2018, and expects to fund a significant majority of the program costs from the existing surplus in ADP’s U.S. defined benefit plan. The Company expects this initiative to help reduce its pre-tax operating expenses starting in early fiscal 2019.

On April 11, 2018, ADP declared a regular quarterly dividend of 69 cents per share. This 10% increase represents a return to shareholders of a portion of the benefits from the Tax Cuts and Jobs Act of December 2017. The Board of Directors anticipates consideration of another dividend increase in November 2018 consistent with ADP’s historical pattern throughout its 43 year track record of annual dividend increases.

In addition, on April 18, 2018, ADP announced that Thomas J. Lynch and Scott F. Powers have been appointed to the Board of Directors, effective April 18, 2018. These appointments reflect ADP's commitment to thoughtfully bringing in fresh perspectives and insights as the Company continues to execute on its strategy and transformation initiatives to drive sustainable long-term shareholder value.

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 related to transformation initiatives.
• Fiscal 2017 second quarter pre-tax gain on the sale of the CHSA and COBRA businesses of $205 million.
• Fiscal 2018 pre-tax proxy contest charges of about $33 million.
• Fiscal 2018 one-time net tax benefit of about $43 million from the Tax Cuts and Jobs Act.
• Fiscal 2018 anticipated pre-tax charges of about $46 million related to transformation initiatives. This estimate does not include anticipated fourth quarter charges related to the Company’s recently announced voluntary early retirement program.

ADP continues to expect full-year fiscal 2018 revenue growth of 7% to 8%. This revenue forecast includes approximately two percentage points of growth from acquisitions and the impact from foreign currency. ADP now anticipates growth in worldwide new business bookings of 6% to 7% compared to our prior forecast of up 5% to 7%. ADP now estimates adjusted EBIT margin to be about flat for the full year compared to the prior forecast of down 50 basis points.

ADP expects full year diluted earnings per share to be up 11% to 12% compared to our prior forecast of up 8% to 9%; and adjusted diluted earnings per share growth to be 16% to 17% compared to our prior forecast of 12% to 13% growth. ADP now anticipates an adjusted effective tax rate of 26.2% compared to the prior forecasted rate of 26.9%.

Reportable Segments Fiscal 2018 Forecast

• For the Employer Services segment, ADP anticipates revenue growth of approximately 5%, compared to our prior forecast of 4% to 5%, and now expects margins to be about flat compared with our prior forecasted margin contraction of 50 to 75 basis points.
• ADP maintains expectations for an increase in pays per control of 2.5% for the year.
• For the PEO Services segment, ADP now anticipates revenue growth of approximately 12% compared to our prior forecast of 12% to 13%. ADP now expects PEO margins to be about flat compared with our prior forecast of about flat to down 25 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 April 30, 2018. 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 June 2018. The three-and-a-half and five-year U.S. government agency rates based on the forward yield curves as of April 30, 2018 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 about $65 million, or 16%, compared to the prior forecast of up $55 to $65 million. This is based on anticipated growth in average client funds balances of approximately 5% from $23.0 billion in fiscal 2017, compared to the prior forecast of 4 to 5% growth and an average yield which is still 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 now expected to increase about $50 million compared to the prior forecast of up $45 to $55 million.

About ADP (Nasdaq:ADP)
Powerful technology plus a human touch. Companies of all types and sizes around the world rely on ADP’s cloud software and expert insights to help unlock the potential of their people. HR. Talent. Benefits. Payroll. Compliance. Working together to build a better workforce. For more information, visit ADP.com.