Automatic Data Processing ((ADP)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Automatic Data Processing (ADP) reported a strong fiscal 2025, marked by impressive achievements in revenue growth, retention rates, and product innovation. Despite these successes, the company faced challenges in meeting new business bookings expectations and navigating a moderating macroeconomic environment. Looking ahead, ADP remains optimistic about fiscal 2026, with plans for continued strategic investments and growth initiatives.
Strong Fourth Quarter Performance
ADP concluded fiscal 2025 on a high note, achieving an 8% revenue growth, a 40 basis points expansion in adjusted EBIT margin, and an 8% increase in adjusted EPS. These figures underscore the company’s robust financial health and operational efficiency.
Record Employer Services Retention
The company reported a record-high Employer Services retention rate, which increased by 10 basis points to 92.1% for the year. This near-record retention rate highlights ADP’s strong client relationships and service satisfaction.
PEO New Business Bookings Acceleration
ADP’s PEO segment experienced accelerated new business bookings in the fourth quarter, contributing to a 7% revenue growth for fiscal 2025. This performance was at the high end of expectations, showcasing the segment’s strong market demand.
Successful Product Launches and AI Integration
ADP made significant strides in product innovation, with ADP Lyric HCM clients increasing by over 50% in fiscal 2025. The integration of AI tools like ADP Assist has enhanced productivity and client engagement, positioning the company as a leader in technological advancement.
Fiscal 2026 Positive Outlook
Looking forward, ADP projects a 5% to 6% growth in revenue and an 8% to 10% increase in adjusted EPS for fiscal 2026. These projections are supported by ongoing investments in strategic initiatives, including AI and recent acquisitions.
Underperformance in Employer Services Bookings
Despite overall strong performance, Employer Services new business bookings grew by only 3%, falling short of expectations due to a softer finish in HR Outsourcing and earlier international softness.
Moderation in Macro Environment
ADP anticipates a continued slight moderation in the macroeconomic environment, which could impact pays per control growth and retention rates. This cautious outlook reflects broader economic trends.
Ongoing Margin Pressures
The PEO segment faced margin pressures, with a contraction of 20 basis points in the quarter. These pressures are expected to continue into fiscal 2026 due to zero-margin pass-throughs and rising costs.
Guidance for Fiscal 2026
ADP’s guidance for fiscal 2026 includes a 5% to 6% growth in consolidated revenue and a 50 to 70 basis points expansion in adjusted EBIT margin. The company also expects an 8% to 10% growth in adjusted EPS, driven by strategic investments in AI and acquisitions like WorkForce Software.
In summary, ADP’s fiscal 2025 performance was marked by significant achievements in revenue and retention, despite some challenges in new business bookings and macroeconomic conditions. The company’s positive outlook for fiscal 2026, supported by strategic investments, positions it well for continued growth and innovation.