Automatic Data Processing (ADP) Second Quarter Earnings and Revenue Beat Estimates

AAutomatic Data Processing (ADP) came out with quarterly earnings of $1.65 per share, beating Zacks’ consensus estimate of $1.63 per share. That compares to earnings of $1.52 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 1.23%. A quarter ago, this payroll and human resources company was expected to post a profit of $1.49 per share when it was actually producing a profit of $1.65, delivering a surprise of 10.74%.

In the past four quarters, the company has exceeded consensus EPS estimates four times.

ADP, which is part of Zacks’ outsourcing business, posted revenue of $4.03 billion for the quarter ended December 2021, beating Zacks’ consensus estimate of 1.10%. That compares to revenues of $3.7 billion a year ago. The company has exceeded consensus revenue estimates four times in the past four quarters.

The sustainability of the immediate stock price movement based on recently released numbers and future earnings forecasts will primarily depend on management’s comments on the earnings call.

ADP stock has lost around 12.1% since the start of the year compared to a decline of -8.6% for the S&P 500.

What’s next for ADP?

While ADP has underperformed the market so far this year, the question on investors’ minds is: what’s next for the stock?

There are no easy answers to this key question, but one reliable metric that can help investors answer it is the company’s earnings outlook. This includes not only current consensus earnings expectations for the upcoming quarter(s), but also how those expectations have changed recently.

Empirical research shows a strong correlation between short-term stock movements and trends in earnings estimate revisions. Investors can track these revisions on their own or rely on a proven scoring tool like Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Before that Press release, the trend of estimate revisions for ADP: favorable. While the magnitude and direction of estimate revisions may change following the release of the company’s earnings report, the current situation results in a Zacks No. 2 (buy) ranking for the stock. Thus, stocks are expected to outperform the market in the near future. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how the estimates for the next few quarters and the current fiscal year change in the days ahead. The current consensus EPS estimate is $2.04 on $4.39 billion in revenue for the upcoming quarter and $6.77 on $16.17 billion in revenue for the current fiscal year.

Investors should be aware that the outlook for the sector can also have a significant impact on stock performance. In terms of Zacks industry rankings, outsourcing is currently in the top 19% of Zacks 250+ industries. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.

Another stock in the same sector, Broadridge Financial Solutions (BR), has not yet released its results for the quarter ended December 2021. Results are expected to be released on February 1.

This technology outsourcing company is expected to post quarterly earnings of $0.81 per share in its next report, representing a year-over-year change of +11%. The consensus EPS estimate for the quarter remained unchanged for the past 30 days.

Broadridge Financial Solutions revenue is expected to be $1.2 billion, up 13.3% from the prior year quarter.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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