ADP Q4 Earnings Beat Estimates on Revenue Growth, Margin Gains

ADP ADP has reported fourth-quarter fiscal 2026 adjusted earnings of $2.64 per share, beating the Zacks Consensus Estimate of $2.59 by 1.9%. The metric increased 17% from the year-ago quarter.

Revenues of $5.47 billion surpassed the consensus mark of $5.42 billion by 0.9% and rose 7% year over year. Results benefited from broad-based segment growth, stronger client funds income and operating productivity. Employer Services client retention remained strong at 92.1% for the year.

Automatic Data Processing, Inc. Price, Consensus and EPS Surprise

Automatic Data Processing, Inc. price-consensus-eps-surprise-chart | Automatic Data Processing, Inc. Quote

ADP Posts Broad-Based Revenue Growth

Employer Services revenues increased 7% year over year to $3.7 billion in the quarter. Organic constant-currency growth was 6%, while U.S. pays per control increased 1%.

The segment also benefited from an 8% increase in average client funds balances. The average yield on those balances rose to 3.5% from 3.2% in the prior-year period, supporting higher interest-related revenues.

Automatic Data Processing Expands Employer Margin

Employer Services' margin improved 90 basis points to 34.4%. Management attributed the increase to operating productivity gains and the contribution from higher client funds interest revenues.

For fiscal 2026, Employer Services business bookings increased 6% to $2.2 billion. Client satisfaction scores reached record highs, while the number of clients live on ADP Lyric HCM increased 94%.

ADP's PEO Revenues Rise as Margin Contracts

PEO Services revenues advanced 7% year over year to $1.78 billion. Revenues excluding zero-margin benefits pass-throughs increased 5%, while average worksite employees rose 2% to about 775,000.

The segment margin fell 100 basis points to 12.2%. Faster growth in zero-margin pass-through revenues, along with higher workers' compensation and selling expenses, weighed on profitability.

Automatic Data Processing Lifts Adjusted Profit

Adjusted EBIT increased 13% year over year to $1.37 billion. The adjusted EBIT margin expanded 140 basis points to 25.1%, showing that ADP converted its revenue growth into stronger operating leverage.

Adjusted net earnings rose 14% to $1.05 billion. On a GAAP basis, net earnings increased 7% to $978.6 million, while diluted earnings per share rose 10% to $2.45.

ADP Sees Stronger Client Funds Contribution

Interest on funds held for clients increased 15% year over year to $355.4 million. The net impact from the client funds strategy rose 24% to $355.5 million, reflecting higher portfolio income and a more favorable financing spread.

Story Continues

For fiscal 2026, average client funds balances were $40.4 billion, up 7% year over year. The average portfolio yield increased 20 basis points to 3.4%, while total client funds interest revenues reached $1.355 billion.

Automatic Data Processing Generates Solid Cash Flow

ADP generated $5.44 billion in operating cash flow during fiscal 2026, up from $4.94 billion a year earlier. The company used $2.08 billion for share repurchases and paid out $2.63 billion in dividends.

Cash and cash equivalents totaled $4.23 billion as of June 30, 2026. Long-term debt stood at $4.96 billion, while funds held for clients were $43.96 billion against client funds obligations of $44.42 billion.

Automatic Data Processing Targets Higher Fund Income

ADP expects client funds interest revenues of $1.54-$1.56 billion in fiscal 2027. The outlook assumes 3-4% growth in average client funds balances and an average portfolio yield of 3.7%.

The company also projects a total contribution of $1.55-$1.57 billion from its client funds extended investment strategy. Management said that AI tools embedded across products, services and sales are enhancing quality and productivity as ADP enters the new fiscal year.

ADP Issues FY27 Growth Outlook

For fiscal 2027, ADP expects year-over-year consolidated revenue growth of 5-6%. The adjusted EBIT margin is projected to expand 70-90 basis points, while adjusted diluted earnings are expected to grow 9-11%.

Employer Services revenues are forecast to rise 5-6%, with business booking growth of 4-7%. PEO Services revenues are expected to increase 5-7%, while average worksite employees are projected to grow 2%.

ADP carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Earnings Snapshot

FactSet Research Systems Inc. FDS reported third-quarter fiscal 2026 adjusted earnings of $4.53 per share, beating the Zacks Consensus Estimate of $4.44 by 2%. The figure increased 6.1% from the year-ago quarter.

Revenues of $622.9 million surpassed the consensus mark of $617.2 million by 0.9% and rose 6.4% year over year.

Paychex, Inc. PAYX posted solid fourth-quarter fiscal 2026 results. Adjusted earnings of $1.32 per share surpassed the consensus estimate of $1.31 by a slight margin and increased 11% from the year-ago quarter.

Total revenues of $1.61 billion rose 12% year over year and beat the consensus estimate by a slight margin.

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