ADP REPORTS FOURTH QUARTER AND FISCAL 2009 RESULTS; PROVIDES FISCAL 2010 GUIDANCE
For the Year, Revenues Rise 1% with EPS from Continuing Operations of $2.63 ($2.39 Excluding Certain Items, a 10% Increase)
Forecasting Fiscal 2010 Revenues Down 1% to 4% with $2.29 to $2.39 EPS
ROSELAND, New Jersey, July 30, 2009 - Automatic Data Processing, Inc. (Nasdaq: ADP)
reported 1% revenue growth to $8.9 billion for the fiscal year ended June 30, 2009, Gary C. Butler,
president and chief executive officer, announced today. Revenue growth was negatively impacted by
continued severe economic conditions and about 2 percentage points from unfavorable foreign exchange
rates. As reported, pretax earnings from continuing operations grew 5%, net earnings from continuing
operations grew 14%, and diluted earnings per share from continuing operations increased 20% to $2.63
from $2.20 a year ago on fewer shares outstanding. The fourth quarter of fiscal 2009 included tax
benefits related to favorable settlements of income tax matters which reduced the provision for income
taxes by $120.0 million. Last year’s fourth quarter included a $16.0 million pretax gain on the sale of a
building. Excluding the current year favorable tax settlements and the prior year building gain, pretax
earnings from continuing operations grew 6%, net earnings from continuing operations grew 5%, and
diluted earnings per share from continuing operations increased 10% to $2.39 from $2.18.
ADP acquired 13.8 million shares of its stock for treasury at a cost of about $550 million during
the fiscal year. Cash and marketable securities balances included approximately $730 million of assets
related to the outstanding commercial paper borrowing as of June 30, 2009, which was repaid on July 1,
2009. This borrowing is a normal part of the client funds extended investment strategy. Cash and
marketable securities were $2.4 billion, or $1.7 billion excluding the assets related to the commercial
paper borrowing, at June 30, 2009.
For the fourth quarter of fiscal 2009, revenues declined 5% to $2.1 billion compared with the
fourth quarter of fiscal 2008. Revenue growth was negatively impacted by continued severe economic
conditions and about 4 percentage points from unfavorable foreign exchange rates. As reported, pretax
earnings from continuing operations grew 2%, net earnings from continuing operations grew 54%, and
diluted earnings per share from continuing operations of $0.69 increased 60%, from $0.43 per share a
year ago on fewer shares outstanding. Excluding the current year favorable tax settlements and the prior
year building gain described above, pretax earnings from continuing operations grew 7%, net earnings
from continuing operations grew 5%, and diluted earnings per share from continuing operations increased
7% to $0.45 from $0.42.
Fourth Quarter and Fiscal Year 2009 Discussion
Commenting on the results, Mr. Butler said, “The downturn in the economy during fiscal 2009 has
been the most profound in decades. Headwinds from the global recession as well as unfavorable foreign
exchange rates began to impact ADP’s growth earlier this fiscal year. As anticipated, our key business
metrics for Employer Services continued to show year-over-year declines in the fourth quarter. The
selling environment remained challenging during the fourth quarter resulting in year-over-year declines in
new business sales for both the fourth quarter and the full year that were larger than we anticipated.
Growth for Dealer Services continued to be negatively impacted by the difficulties facing the automotive
industry. As revenues are expected to remain under pressure near-term, ADP took appropriate
measures during the fourth quarter to reduce its expense structure. At the same time, ADP continued to
invest in new products and client facing resources. For the fiscal year, service-related expenses in
Employer Services increased about 9% from a year ago as we are committed to enhancing the service
we provide our clients especially during these challenging times.
Employer Services
“Employer Services’ revenues were flat for the fourth quarter, and grew 4% for the fiscal year, all
organic. In the United States, revenues from our traditional payroll and payroll tax filing business declined
4% for the fourth quarter, and were flat for the year. Beyond payroll revenues, excluding PEO Services’
revenues, grew 4% for the fourth quarter and 8% for the year. As anticipated, the number of employees
on our clients' payrolls in the United States declined 5.7% for the fourth quarter and 2.5% for the year, as
measured on a same-store-sales basis for our clients on our Auto Pay platform. Worldwide client
retention declined 1.2 percentage points for the year. Employer Services’ pretax margin improved 275
basis points for the fourth quarter and 160 basis points for the year. The full year pretax margin
expansion benefited from operating leverage and a decline in selling and implementation expenses from
lower sales volumes. The fourth quarter pretax margin expansion also resulted from a decline in selling
and implementation expenses as well as a reduction in management incentive compensation expenses.
“Combined Employer Services and PEO Services worldwide new business sales declined 29%
for the quarter and 15% for the year. New business sales represent annualized recurring revenues
anticipated from new orders, and totaled $982 million for the year. Sales results for all markets were
down year over year, but were most negatively impacted up-market where larger companies continued to
delay outsourcing decisions due to the difficult economic conditions.
PEO Services
“PEO Services’ revenues increased 7% for the fourth quarter and 12% for the year, all organic.
PEO Services’ pretax margin was flat for the fourth quarter and improved 10 basis points for the year.
Average worksite employees paid by PEO Services increased 4% for the fourth quarter, and 10% for the
year, to approximately 194,000 and 193,000, respectively.
Dealer Services
“Dealer Services’ revenues declined 9% for the fourth quarter, 11% organically, and 3% for the
year, 4% organically. Revenues were negatively impacted by ongoing dealership consolidations and
closings, and lower transactional revenues as well as dealerships cutting discretionary spending.
Additionally, as expected, consulting revenues and software license fees from an international non-core
business declined due to some large projects completed in the prior fiscal year, which resulted in a more
difficult year over year comparison in the quarter. Dealer Services’ pretax margin declined 120 basis
points for the fourth quarter and 20 basis points for the year. The full year pretax margin declined on
lower revenues and the impact of the January 2009 Automaster Oy acquisition, partially offset by strict
cost reduction measures. In addition to these items, the fourth quarter decline in pretax margin resulted
from the decline in the international non-core revenues and an increase in our provision for allowance for
doubtful accounts relating to the automotive bankruptcies.
Interest on Funds Held for Clients, Interest Income on Corporate Funds, and Interest Expense
"The safety and liquidity 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 $23.4 million, or 13.8%, from
$169.7 million to $146.3 million, due to a decline of 30 basis points in the average interest yield to 3.9%,
and a decline of 7.4% in average client funds balances from $16.1 billion to $15.0 billion. Interest
expense declined $8.9 million, or 72%, from $12.4 million to $3.5 million. The decline in interest expense
was primarily due to a decline of 180 basis points in average commercial paper borrowing rates to 0.3%,
partially offset by higher average daily commercial paper borrowings which increased $0.3 billion, from
$1.3 billion to $1.6 billion.
“For the fiscal year, interest on funds held for clients declined $74.7 million, or 10.9%, from
$684.5 million to $609.8 million, due to a decline of 40 basis points in the average interest yield to 4.0%,
and a decline of 3.1% in average client funds balances from $15.7 billion to $15.2 billion. Interest
expense declined $47.2 million, or 59%, from $80.5 million to $33.3 million. The decline in interest
expense was primarily due to a decline of 320 basis points in average commercial paper borrowing rates
to 1.0%, partially offset by higher average daily commercial paper borrowings which increased $0.5 billion,
from $1.4 billion to $1.9 billion. We utilize our short-term financing arrangements to satisfy our short-term
funding requirements related to client funds obligations in order to extend the maturities of our investment
portfolio, thus averaging our way through an interest rate cycle.
Fiscal 2010 Forecast
“Our fiscal 2010 forecasts anticipate that severely negative economic conditions continue. As
such, our forecasts assume a worsening of our business metrics in the first half of the year as compared
with the first half of fiscal 2009, with particularly tough year-over-year comparisons expected in the first
quarter
- Total revenues – decline 1% to 4%
- Diluted earnings per share - $2.29 to $2.39, compared with $2.39 earnings per share from
continuing operations in fiscal 2009 excluding favorable tax settlements in the fourth quarter.
- Employer Services – decline in revenues of 1% to 3%
- Pays per control – decline of 5% to 6%
- Client revenue retention – flat to down 1 percentage point
- PEO Services – revenue growth of up to 4%
- Employer Services and PEO Services new business sales – about flat compared to $982
million sold in fiscal 2009
- Dealer Services – decline in revenues of 4% to 8%
- We anticipate no improvement in pretax margins given the continued difficult economic
environment anticipated for fiscal 2010
"Interest on funds held for clients is expected to decline $60 to $70 million, or 10% to 11%, from
$609.8 million in fiscal 2009. This is based on an approximate 20 basis point decline in the expected
average interest yield to about 3.8%, and a 4% to 6% decline in average client funds balances. The
interest assumptions in our forecasts are based on Fed Funds futures contracts and forward yield curves
as of July 24, 2009. The Fed Funds futures contracts anticipate two increases of 25 basis points each in
February and May 2010, ending the fiscal year with a Fed funds rate of 0.75%. The three-and-a-half and
five-year U.S. government agency rates based on the forward yield curves as of July 24, 2009 were used
to forecast new purchase rates for the client extended and client long portfolios, respectively.
"We expect interest expense to decline about $20 million from $33.3 million in fiscal 2009
primarily from lower interest expense on our short-term financing related to our ongoing client funds
extended investment strategy. Our average commercial paper borrowing rates are expected to decrease
approximately 50 basis points to about 0.5% and we anticipate a decline of up to $0.1 billion in average
daily commercial paper borrowings to $1.8 to 1.9 billion.
“While we anticipate a challenging year ahead as a result of the difficult economic landscape, our
business model remains intact. A high percentage of recurring revenues, healthy margins, strong and
consistent cash flows and low capital expenditure requirements combined with a strong balance sheet
and a AAA credit rating have enabled us to continually invest in our strategic growth program. We are
doing the right things now to drive the future growth of ADP and I remain optimistic about ADP’s longterm
potential," Mr. Butler concluded.
Website Schedules
The schedules of quarterly and full-year revenue and pretax earnings by reportable segment for
fiscal years 2007, 2008, and 2009 have been updated for the fourth quarter and full-year fiscal 2009
results and posted to the Investor Relations home page (http://www.investquest.com/iq/a/adp/index.htm)
of our website www.adp.com under Financial Data.
An analyst conference call will be held today, Thursday, July 30 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/InvestQuest/a/adp/, and click on the webcast icon. 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 Web site.
About ADP
Automatic Data Processing, Inc. (Nasdaq: ADP), with nearly $9 billion in revenues and about 570,000
clients, is one of the world's largest providers of business outsourcing solutions. Leveraging nearly 60
years of experience, ADP offers a wide range of HR, payroll, tax and benefits administration solutions
from a single source. ADP's easy-to-use, cost-effective 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 and recreational vehicle 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 Web site at www.ADP.com.
This document and other written or oral statements made from time to time by ADP may contain "forwardlooking
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, 2008 and "Item 1A. - Risk Factors" in our
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008, should be considered
in evaluating any forward-looking statements contained herein.
Source: Automatic Data Processing, Inc.
ADP Investor Relations
Elena Charles, 973.974.4077
Debbie Morris, 973.974.7821
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