ADP Reports Second Quarter Fiscal 2006 Results
biz.yahoo.com
Wednesday January 25, 8:10 am ET
Revenues Grow 9%
EPS From Continuing Operations Increases 31%
Raises Fiscal 2006 Revenue Guidance to 10% Growth
Fiscal 2006 EPS From Continuing Operations Forecast is 23% - 25% Growth
ROSELAND, N.J.--(BUSINESS WIRE)--Jan. 25, 2006--Automatic Data Processing, Inc. (NYSE:ADP) reported 9% revenue growth, to $2.2 billion, and $0.47 earnings per share from continuing operations for the second fiscal quarter ended December 31, 2005, Arthur F. Weinbach, chairman and chief executive officer, announced today. On a reported basis, including stock compensation expense in the current period, pretax and net earnings from continuing operations grew 10% and 9%, respectively, and diluted earnings per share from continuing operations increased 12%. Fiscal 2006 earnings comparisons are affected by the inclusion of stock compensation expense as of July 1, 2005. On a comparable basis, including stock compensation expense in the second quarter of fiscal 2005, pretax and net earnings from continuing operations grew 25% and 26%, respectively, and diluted earnings per share from continuing operations increased 31% from $0.36 per share a year ago on fewer shares outstanding.
On January 20, ADP sold its Brokerage Services' financial print business with annual revenues of approximately $100 million and recorded a one-time non-cash charge in the second quarter of approximately $0.02 per share to record the assets of the business at market value. The results of operations for this business, as well as the one-time non-cash charge, are reported within discontinued operations in the second quarter and in prior periods.
Commenting on the results, Mr. Weinbach said, "The positive momentum continued in our core businesses and we are pleased with our excellent results for the second quarter. Results were ahead of our expectations, with particular strength in our Employer Services' business. Additionally, we have accelerated investments in additional sales headcount and implementation resources to fuel future growth opportunities. Revenues for Employer Services increased 10% in the quarter. New business sales, which reflect annualized recurring revenues anticipated from new orders, grew 9% in the United States and 8% worldwide, slightly below our expectations. Our sales results were particularly strong in National Accounts and Small Business Services, and while year-to-date sales have been weak internationally, our pipeline is solid. The number of employees on our clients' payrolls increased over 2%, with growth in all market segments in the United States. The number of employees on our clients' payrolls in Europe, which had been declining in previous quarters, was flat compared with the second quarter last year. Our client retention was excellent in the United States as we entered the critical calendar year-end retention period. Although slightly lower than last year's second quarter, on a year-to-date basis, we maintained last year's record client retention levels.
"Brokerage Services' revenues grew 8% compared with last year's second quarter driven by growth in our investor communications business. Beneficial proxy and interim communications revenues grew 12% primarily due to increased mutual fund meetings and other required mutual fund communications. Strong sales in transaction reporting and electronic solutions, as well as increased volumes from existing clients, drove revenue growth of 14% in our beyond beneficial products. Back office revenues declined 6%, reflecting a decline in revenue per trade of 6% and a decline in other service revenues, partially offset by increased trade volumes of 4%.
"Securities Clearing and Outsourcing Services' revenues were $20 million for the quarter, in line with our expectations. We continue to sign new clients and our pipeline is solid. Dealer Services' revenues grew 10%, favorably impacted by the acquisition of UK-based Kerridge Computer Company Ltd. announced last month. Claims Services' revenues grew 6% compared with last year's second quarter. Foreign currency exchange rates during the quarter reduced overall ADP revenue growth 0.5%.
"Our interest earned on funds held for clients grew nearly 31% above last year's second quarter to $119 million, based on a very strong increase in average client funds balances of nearly 13% and a higher interest yield. Corporate cash and marketable securities were $1.9 billion at December 31, 2005.
"As previously announced, we adopted Statement of Financial Accounting Standards (SFAS) No. 123R as of July 1, 2005, which requires the expensing of our stock compensation programs. Our second quarter results included incremental pretax stock compensation expenses, reducing earnings per share by approximately $0.05. The second quarter of fiscal 2005 results would have been lower by approximately $0.06 per share had we expensed stock compensation. For the full fiscal year, the impact of adopting SFAS No. 123R is expected to lower earnings per share by about $0.19 and would have lowered earnings per share in fiscal 2005 by $0.22. The lower dilution for the quarter, and anticipated for the year, is primarily driven by the reduction in the number of options granted to associates beginning in fiscal 2005. Stock compensation expense is reflected in our "Other" segment and not within the business segment results.
"Our results continue to be better than expected as we moved into the second half of the year. With our core businesses executing well against plan and the additional revenues from the Dealer Services acquisition, we anticipate about 10% revenue growth for fiscal 2006, up from previous guidance of high single-digit revenue growth. We have raised the bottom end of our forecast for earnings per share from continuing operations resulting in updated guidance of $1.93 - $1.96, or 23% - 25% growth, from $1.91 - $1.96, or 22% - 25% growth, assuming stock compensation was expensed in fiscal 2005. We are increasingly confident in achieving the higher end of the range. Interest income on client funds is expected to grow to over $540 million based on over 10% anticipated growth in average client funds balances and improvement of 60 basis points in the overall yield on the client funds portfolio to about 4.0% for the full year. In addition, we continue to forecast double-digit sales growth for Employer Services, with stronger results anticipated during the second half of the year.
"This fiscal year we have acquired over 7.6 million ADP shares for treasury for approximately $335 million reflecting our confidence in the long-term growth opportunities of our businesses," Mr. Weinbach concluded. |
