ADP REPORTS SECOND QUARTER FISCAL 2010 RESULTS; UPDATES FISCAL 2010 GUIDANCE
Revenues Flat; EPS from Continuing Operations Increases 5%, or 2% Excluding $0.02 per share Benefit from a Favorable Tax Item
Forecasting Fiscal 2010 Revenues Flat to Slightly Down and High-end of EPS Forecast of $2.34 to $2.39 EPS
ROSELAND, NJ, February 2, 2010 - Automatic Data Processing, Inc. (Nasdaq: ADP) reported
revenues of $2.2 billion for the second fiscal quarter ended December 31, 2009, flat with a year ago, Gary
C. Butler, president and chief executive officer, announced today. Revenues benefited 2% from favorable
foreign exchange rates during the quarter, but continued to be negatively impacted by the cumulative
effect of the economic downturn that began in September 2008 and worsened throughout fiscal 2009.
Pretax and net earnings from continuing operations increased 1% and 5%, respectively. Diluted
earnings per share from continuing operations increased 5%, to $0.62, from $0.59 a year ago. The
quarter ended December 31, 2009 included a favorable tax item, which reduced the provision for income
taxes by $12.2 million and contributed approximately $0.02 to earnings per share. Excluding the
favorable tax item, second quarter fiscal 2010 net earnings and diluted earnings per share from
continuing operations increased 1% and 2%, respectively. ADP acquired over 3.5 million shares of its
stock for treasury at a cost of nearly $152 million fiscal year-to-date. Cash and marketable securities
were $1.8 billion at December 31, 2009.
Second Quarter Discussion
Commenting on the results, Mr. Butler said, “Overall, ADP’s second quarter results were
consistent with our expectations. As anticipated, the comparison to a year ago continued to be difficult
due to the cumulative impact of the economic downturn. Our key business metrics in Employer Services -
pays per control, client retention, and new business sales - declined year-over-year, but the rate of
decline has lessened. Dealer Services posted increased new business sales and continued to improve
its share of a consolidating North American marketplace.
Employer Services
“Employer Services’ revenues declined 2% for the second quarter. In the United States,
revenues from our traditional payroll and payroll tax filing business declined 7%, and beyond payroll
revenues grew 3%. The number of employees on our clients' payrolls in the U.S. declined 5.0%, as
measured on a same-store-sales basis for our clients on our AutoPay platform. As we headed into the
key client retention period at the start of the calendar year, worldwide client retention declined slightly
from last year’s second quarter, but remained at excellent levels. Employer Services’ pretax margin
declined 10 basis points as the benefits from the fourth quarter fiscal 2009 restructuring were offset by a
decline in revenues, including lower high-margin interest revenues resulting from a decline in average
client funds balances.
“Combined Employer Services and PEO Services worldwide new business sales declined 3% for
the second quarter compared to 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 each sale.
PEO Services
“PEO Services’ revenues increased 9% for the second quarter due to higher benefits revenues
that resulted from increases in benefit rates as well as the number of worksite employees. PEO Services’
pretax margin declined slightly primarily due to higher benefits pass-through costs. Average worksite
employees paid increased 4% to nearly 200,000.
Dealer Services
“Dealer Services’ revenues declined 5%, nearly 8% organically, for the second quarter.
Continued dealership closings, lower transactional revenues, and lower international software license fee
revenues contributed to this decline. Dealer Services’ pretax margin increased 60 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, Interest Income on Corporate Funds, and Interest Expense
"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
AAA/AA.
“For the second quarter, interest on funds held for clients declined $19.6 million, or 13.3%, from
$147.3 million to $127.7 million, due to a decline of 40 basis points in the average interest yield to 3.8%,
and a decline of 4.9% in average client funds balances from $14.1 billion to $13.4 billion. Interest
expense declined $5.6 million, or 69%, from $8.1 million to $2.5 million due to a decline of 50 basis points
in average commercial paper borrowing rates to 0.2%, and a decline in average daily commercial paper
borrowings of $0.3 billion, from $2.5 billion to $2.2 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.
Reserve Fund Update
“On January 29, 2010, the Reserve Fund made its sixth distribution to Primary Fund shareholders.
ADP received $14.8 million pretax, $9.2 million after tax, or $0.02 per share, which will be recorded in the
third fiscal quarter. Including this sixth distribution, ADP has received approximately 99% of its original
investment in the Reserve Fund. ADP had recorded an $18.3 million loss on its investment in the
Reserve Fund in fiscal 2009.
Fiscal 2010 Forecast
“As we move into the second half of the year we have increased visibility on our key metrics and,
as such, have updated our forecasts for revenues and certain key metrics. We anticipate total revenues
will be flat to slightly down, compared with our previous estimate of down 1% to 2%. Including the $0.02
from the Reserve Fund as noted above, we expect to achieve the high end of our diluted earnings per
share from continuing operations forecast of $2.34 to $2.39 compared with $2.39 earnings per share from
continuing operations in fiscal 2009, which excludes favorable tax items in both years.
“For Employer Services, we anticipate a decline in revenues of about 1% compared with our
previous forecast of down 1% to 2%. We anticipate a decline of about 4% in pays per control for the full
year, which is a slight improvement from our previous estimate of a decline of 4% to 5%. We continue to
expect client revenue retention to be flat to down 1 percentage point. For PEO Services we anticipate
high-single-digit revenue growth driven by increased benefits pass-through revenues. We anticipate flat
to slightly positive combined Employer Services and PEO Services worldwide new business sales growth
compared with our previous estimate of about flat new business sales. There is no change to Dealer
Services’ revenues forecast of a 3% to 6% decline. We continue to anticipate no improvement in
segment pretax margins.
"Interest on funds held for clients is expected to decline about $75 million, or 12% to 13%, from
$609.8 million in fiscal 2009. This is based on a decline of 30 to 40 basis points in the expected average
interest yield to about 3.7%, and a 4% to 5% decline in average client funds balances compared with our
previous forecast when we anticipated a decline of approximately 30 basis point in the expected average
interest yield and a 5% 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 January 29, 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 January 29, 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.
“Our results through the first six months were solid given the challenging economy. However, I
remain cautious looking ahead to the coming months. Although the timing and pace of the recovery
remains unclear, we are continuing to invest in ADP’s future. ADP is positioned well to leverage the
inevitable recovery and I remain optimistic about ADP’s long-term opportunities for growth," Mr. Butler
concluded.
Website Schedules
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 second 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, February 2 at 8:30 a.m. EST. 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.
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 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
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