Automatic Data Processing Q2 Earnings Top Estimates, Revenues Rise Y/Y

Core Insights - Automatic Data Processing, Inc. (ADP) reported strong second-quarter fiscal 2026 results, with earnings and revenues exceeding the Zacks Consensus Estimate [1] Financial Performance - Earnings per share (EPS) reached $2.62, beating the consensus estimate by 1.6% and increasing 11.5% year-over-year [1] - Total revenues amounted to $5.4 billion, slightly missing the consensus estimate but growing 6.2% year-over-year [1] Segmental Results - Employer Services generated revenues of $3.6 billion, up 6% on a reported basis and 5% on an organic constant-currency basis, surpassing the consensus estimate of $3.3 billion [3] - PEO Services revenues increased 6% year-over-year to $1.8 billion, exceeding the consensus mark of $1.7 billion, with average worksite employees rising 2% to 758,000 [3] Interest and Client Funds - Interest on funds held for clients grew 13% year-over-year to $309 million, slightly missing the consensus estimate of $310.2 million [4] - Average client funds balance increased 6% to $37.6 billion, with the average interest yield expanding 20 basis points to 3.3% [4] Margins - Adjusted EBIT rose 10% year-over-year to $1.4 billion, with the adjusted EBIT margin increasing by 80 basis points to 26% [5] - Employer Services margin decreased by 50 basis points, while PEO Services margin dipped by 70 basis points compared to the previous year [5] Balance Sheet and Cash Flow - Cash and cash equivalents at the end of the quarter were $2.4 billion, down from $2.5 billion in the previous quarter [6] - Long-term debt remained flat at $4 billion, with cash generated from operating activities amounting to $1.1 billion [6] Fiscal 2026 Outlook - For fiscal 2026, ADP anticipates a year-over-year revenue growth of 6%, an increase from the previous projection of 5-6% [7] - Adjusted EPS growth guidance is maintained at 9-10%, up from the earlier estimate of 8-10% [7] - The adjusted effective tax rate is estimated at 23%, with guidance for adjusted EBIT margin set at 50-70 basis points [7] Revenue Growth Expectations - Employer Services revenue growth is projected at 6%, an increase from the previous guidance of 5-6% [8] - PEO Services revenue growth is expected to remain at 5-7% [8]