ADP REPORTS THIRD QUARTER FISCAL 2010 RESULTS;
Revenues Increase 3%; EPS from Continuing Operations Decline 1%
UPDATES FISCAL 2010 GUIDANCE
Forecasting Flat Revenues for Fiscal 2010 and EPS of $2.36 to $2.38
ROSELAND, New Jersey, April 27, 2010 - Automatic Data Processing, Inc. (Nasdaq: ADP) reported 3%
revenue growth to $2.4 billion for the third fiscal quarter ended March 31, 2010, Gary C. Butler, president
and chief executive officer, announced today. Revenues benefited nearly 2% from favorable foreign
exchange rates during the quarter, but remained under pressure from the cumulative effect of the recent
economic downturn. Pretax earnings from continuing operations increased 1%, also assisted nearly 2%
from favorable foreign exchange rates. Net earnings from continuing operations decreased slightly
compared with a year ago due to a higher effective tax rate in the current quarter, and diluted earnings
per share from continuing operations declined 1%, to $0.79, from $0.80 a year ago. ADP acquired over
6.5 million shares of its stock for treasury at a cost of nearly $280 million as of March 31, 2010. Cash and
marketable securities were $2.1 billion at March 31, 2010.
Third Quarter Discussion
Commenting on the results, Mr. Butler said, "ADP’s key business metrics showed improvement
during the third quarter, consistent with our expectations. The selling environment showed signs of
improvement in Employer Services and PEO Services, the pace of decline in pays per control has slowed
compared to a year ago, and client retention compared with last year improved over the critical calendar
year-end retention period. Dealer Services continued to execute well in the challenging automotive
marketplace, with significant growth in new business sales during the quarter.
"Additionally, we are pleased to have closed four strategic acquisitions in our Employer Services
business during the quarter. These acquisitions are expected to add over $10 million in revenues this
fiscal year and to be dilutive about $0.01 per share.
"Employer Services’ revenues increased 1%, nearly all organic, for the third quarter. In the
United States, revenues from our traditional payroll and payroll tax filing business declined 3%, and
beyond payroll revenues grew 8%. The number of employees on our clients' payrolls in the U.S. declined
2.5%, as measured on a same-store-sales basis for our clients on our AutoPay platform. During this key
client retention period, worldwide client revenue retention improved 1.4 percentage points from last year’s
third quarter. Employer Services’ pretax margin was flat with last year’s third quarter. The benefits from
the fourth quarter fiscal 2009 restructuring and growth in client funds balances were offset by fewer W2’s
processed due to lower employment levels, continued investment in client facing-resources, as well as
the dilutive impact of recent acquisition activity.
"Combined Employer Services and PEO Services worldwide new business sales for the third
quarter increased slightly compared with the same period last year. The dollar value of new business
sold during the quarter represents the expected new annual recurring revenues to be generated from
"PEO Services’ revenues increased 15% for the third quarter due to higher pass through
revenues and an increase in the number of worksite employees. PEO Services’ pretax margin declined
200 basis points primarily due to the impact of one-time items in both the current and prior year quarters
and higher pass-through costs. Average worksite employees paid increased 5% to nearly 206,000.
"Dealer Services’ revenues declined 3%, 4% organically, for the third quarter. The cumulative
impact of dealership closings, along with lower transactional revenues, and lower international software
license fee revenues contributed to the revenue decline. Dealer Services’ pretax margin increased 140
basis points, benefiting from lower headcount levels resulting from the fourth quarter fiscal 2009
restructuring as well as other cost containment measures.
Interest on Funds Held for Clients
"The safety of principal, 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
"For the third quarter, interest on funds held for clients declined $16.4 million, or 10%, from
$164.3 million to $147.9 million, due to a decline of 50 basis points in the average interest yield to 3.2%
due to the seasonally high level of client funds that are invested overnight, partially offset by an increase
of 4.8% in average client funds balances from $17.6 billion to $18.4 billion.
On March 24, 2010, ADP completed the sale of Dealer Services’ non-core Commercial business
which was part of the 2005 Kerridge Computer acquisition. Revenues for the Commercial division were
$28.7 million in fiscal 2009. This business contributed approximately $0.01 earnings per share to both
fiscal years 2010 and 2009. The results of operations for this business are reported within discontinued
operations in the fiscal 2010 and 2009 results within this release.
Fiscal 2010 Forecast
"We are forecasting full year revenues will approximate last year’s revenues. We anticipate
achieving $2.36 to $2.38 diluted earnings per share from continuing operations compared with $2.38 in
fiscal 2009, which excludes favorable tax items in both years. Earnings per share from continuing
operations in fiscal 2010 and 2009 have each been reduced by $0.01 as a result of the restatement of
Dealer Services’ Commercial business to discontinued operations.
"For Employer Services, we anticipate a decline in revenues of up to 1%. We continue to
anticipate an average decline of about 4% in pays per control for the full year. We expect client revenue
retention to be about flat with last year. For PEO Services we anticipate 8% to 10% revenue growth
driven by increased pass-through revenues. We anticipate slightly positive combined Employer Services
and PEO Services worldwide new business sales growth. For Dealer Services, we anticipate a decline in
revenues of 3% to 4%. We continue to anticipate no improvement in segment pretax margins.
"Interest on funds held for clients is expected to decline about $70 million, or 11% to 12%, from
$609.8 million in fiscal 2009. This is based on a decline of about 40 basis points in the expected average
interest yield to about 3.6%, and a 1% to 2% 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
April 23, 2010. The Fed Funds futures contracts anticipate no rate changes through June 30, 2010. As
such, our current forecast assumes overnight funds will yield about 15 basis points on average for the
remainder of the fiscal year. The three-and-a-half and five-year U.S. government agency rates based on
the forward yield curves as of April 23, 2010 were used to forecast new purchase rates for the U.S. client
extended and client long portfolios, respectively.
"We expect interest expense to decline about $25 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 decline
approximately 80 basis points to about 0.2% and we anticipate a decrease of up to $0.1 billion in average
daily commercial paper borrowings to $1.8 billion.
"I am encouraged by the continued improvement in our key business metrics as the difficult
economic landscape appears to have stabilized. We continue to invest in ADP’s future which will
pressure near-term earnings growth. However, we are focused and doing the right things for the
business, and I remain positive on ADP’s longer-term outlook," Mr. Butler concluded.
The schedules of quarterly and full-year revenues and pretax earnings by reportable segment for
fiscal years 2008, 2009, and 2010 have been updated for the third quarter of fiscal 2010 and have been
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, Tuesday, April 27 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 website.
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 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 website 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, 2009, 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