ADP Reports Strong Third-Quarter Performance and Optimistic Guidance for FY’25

Automatic Data Processing, Inc. (NASDAQ: ADP) has reported its third-quarter fiscal 2025 results, showcasing a solid performance that exceeded market expectations. The company has also provided an optimistic outlook for the remainder of the fiscal year, raising its full-year guidance based on strong financial metrics and strategic initiatives.

ADP Reports Better than Expected Results for Third-Quarter FY’25

In the third quarter of fiscal 2025, ADP reported a revenue increase of 6% year-over-year, reaching $5.6 billion, which surpassed the anticipated $5.49 billion. This growth was consistent on an organic constant currency basis, highlighting the company’s ability to drive revenue growth despite external challenges. Net earnings also rose by 5% to $1.2 billion, while adjusted net earnings mirrored this increase, demonstrating operational efficiency and effective cost management.

ADP’s diluted earnings per share (EPS) climbed by 6% to $3.06, exceeding the market expectation of $2.97. This increase in EPS was supported by a 6% rise in adjusted EBIT to $1.6 billion and a 10-basis-point improvement in the adjusted EBIT margin to 29.3%. The company’s effective tax rate remained steady at 23.0%, both on a reported and adjusted basis, which contributed to the overall profitability.

The Employer Services segment saw a 5% increase in revenues, with segment margins improving by 20 basis points. Meanwhile, PEO Services experienced a 7% revenue growth, with an 8% rise when excluding zero-margin benefits pass-throughs. The number of average worksite employees paid by PEO Services grew by 2%, reaching approximately 748,000. These positive results reflect ADP’s strategic focus on expanding its service offerings and enhancing client satisfaction.

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ADP Raises Full-Year Guidance for Fiscal 2025

Looking ahead, ADP has raised its full-year guidance for fiscal 2025, signaling confidence in its growth trajectory. The company anticipates revenue growth of 6% to 7%, driven by strong performance across its segments. Adjusted EBIT margin is expected to expand by 40 to 50 basis points, supported by strategic investments and operational efficiencies. The adjusted effective tax rate is projected to remain around 23%, maintaining consistency in financial planning.

In terms of EPS, ADP forecasts a growth range of 9% to 10% for diluted EPS and 8% to 9% for adjusted diluted EPS. This positive outlook is underpinned by anticipated improvements in revenue and profitability, as well as continued investments in technology and service enhancements. The Employer Services segment is expected to achieve revenue growth of 6% to 7%, with margins increasing by 50 to 60 basis points. New business bookings are projected to grow by 4% to 7%, reflecting strong demand for ADP’s comprehensive HCM and HR outsourcing solutions.

For PEO Services, revenue growth is projected at 6% to 7%, with a 5% to 6% increase when excluding zero-margin benefits pass-throughs. While the segment margin is expected to decline by 60 to 80 basis points, the average worksite employee count is anticipated to grow by 2% to 3%. This reflects ADP’s commitment to expanding its client base and enhancing service delivery. The company’s client funds extended investment strategy is also expected to contribute significantly, with interest on funds held for clients projected to reach $1.160 to $1.170 billion, driven by anticipated growth in client funds balances and an increase in average yield.

Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.