(Adds chief financial officer's comments on client base,
includes analyst comment and updates stock price)
DOW JONES NEWSWIRES
Automatic Data Processing (ADP)'s fiscal second-quarter net
income rose 3.2% despite weakened sales conditions amid uncertainty
about the length and depth of the U.S. recession.
Shares of the largest company in the $70 billion global-payroll
processing market rose as much as 9.1% and were up 5.7% at $38.74
in recent trading as results topped analysts' expectations.
For the quarter ended Dec. 31, ADP reported net income increased
to $300.5 million, or 59 cents a share, from $291.2 million, or 55
a share, a year earlier.
Revenue rose 2.5% to $2.2 billion; the gain would have been
double that absent the strengthening dollar.
Analysts polled by Thomson Reuters were looking for earnings of
56 cents a share on revenue of $2.18 billion.
Revenue rose 6% at ADP's employer-services business, by far its
biggest business, which includes its payroll services. Pretax
earnings from continuing operations rose 13% despite the number of
employees on U.S. clients' payrolls falling 0.6%.
Chief Financial Officer Chris Reidy said the payrolls decline
appears small when compared with recent increases in unemployment
since there is "a bit of a lag" for work-force reductions to affect
results at ADP. It also processes severance payments and other
benefits.
In a conference call, Reidy said companies that outsource
payment processing tend to be healthy, suggesting that ADP's client
base remains strong. In addition, Reidy indicated that
manufacturing companies don't make up a "significant" portion of
ADP's customers, referring to the sector which has seen among the
most job losses.
Several analysts said the comments were encouraging as the
company's second-quarter earnings beat expectations.
"They continue to show resilience against a tough economic
backdrop," said Michael Baker of Raymond James.
For its fiscal year, ADP expects employees on clients' payrolls
to fall 1% to 3%, meaning a 3% to 5% drop over the second half.
Each one percentage-point change affects revenue by $15 million to
$20 million, Reidy said.
Global client retention has decreased 0.5% so far in ADP's
fiscal year amid price sensitivity and an increasing number of
clients going out of business.
Combined new business sold in its employer-services and
human-benefits outsourcing businesses fell 13% amid continued
economic uncertainty. The results are combined due to overlap among
some of the businesses served. The smaller human-resources
outsourcing business posted the strongest growth in the quarter,
with revenue rising 14%, as the company can sell to its large
payroll-services client base.
ADP also expects new business sales to grow about 15%, or by $1
billion, this fiscal year. The dollar figure represents the added
annual revenue expected to be generated from each sale.
-By Tess Stynes, Dow Jones Newswires; 201-938-2473;
tess.stynes@dowjones.com
(Kejal Vyas contributed to this report.)
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