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AUTOMATIC DATA PROCESSING INC (ADP)·Q1 2026 Earnings Summary

Executive Summary

  • ADP delivered a clean beat on Q1 FY26: revenue $5.18B (+7% YoY) vs S&P Global consensus ~$5.13B, and diluted EPS $2.49 (+6% YoY) vs ~$2.44, with adjusted EBIT +7% YoY and margin at 25.5% flat YoY . Values retrieved from S&P Global.*
  • Segment revenue grew 7% in Employer Services and 7% in PEO; ES segment margin -50 bps YoY (35.2%) and PEO margin -140 bps YoY (13.0%), reflecting integration costs, SUI timing, and zero-margin pass-through growth .
  • FY26 guidance maintained: consolidated revenue growth 5–6%, adjusted EBIT margin +50–70 bps, adjusted and GAAP diluted EPS +8–10%; client funds interest raised by $10M to $1.300–$1.320B; net impact from extended strategy raised to $1.260–$1.280B .
  • Call tone confident: bookings solid, retention robust, pays per control now guided ~flat; AI initiatives and NextGen deployments seen as drivers of efficiency and product momentum; dividend increased 10% to $6.80 annual rate on Nov 12, 2025, marking 51st consecutive year of increases .

What Went Well and What Went Wrong

What Went Well

  • Revenue and margin performance exceeded internal expectations, helped by solid new business bookings, strong client revenue retention, and higher client funds interest revenue .
  • Employer Services new business bookings saw record first-quarter volume; Lyric HCM bookings and pipeline strong, and Workforce Now NextGen reached >80% of new mid-market clients in 50–150 employee segment .
  • AI progress: ADP Assist enhancements (genAI anomaly detection) and expanding AI agents; >5.5M client conversations over the last year, improving service productivity; internal coding copilots driving measurable gains .

What Went Wrong

  • ES segment margin -50 bps YoY due to integration and acquisition-related costs tied to Workforce Software acquisition; PEO margin -140 bps YoY on higher selling expenses, SUI timing, zero-margin pass-through growth, and one-time ERTC filing deadline changes .
  • U.S. pays per control rounded down to ~0% and guided ~flat for FY26 (versus prior 0–1%), reflecting cautious client hiring amid macro moderation .
  • PEO pays per control moderated; although WSE growth was +2% in Q1 (slightly ahead) management expects bookings-driven modest ramp rather than PPC improvement through FY26 .

Financial Results

MetricQ3 2025Q4 2025Q1 2026
Revenue ($USD Billions)$5.553 $5.127 $5.175
Diluted EPS ($)$3.06 $2.23 $2.49
Adjusted Diluted EPS ($)$3.06 $2.26 $2.49
Adjusted EBIT ($USD Billions)$1.630 $1.213 $1.318
Adjusted EBIT Margin (%)29.3% 23.7% 25.5%
Effective Tax Rate (%)23.0% 23.5% 22.5%
SegmentQ3 2025 Revenue ($MM)Q4 2025 Revenue ($MM)Q1 2026 Revenue ($MM)Q3 2025 Margin (%)Q4 2025 Margin (%)Q1 2026 Margin (%)
Employer Services$3,767.9 $3,465.6 $3,491.2 39.8% 33.5% 35.2%
PEO Services$1,788.5 $1,664.2 $1,687.5 14.2% 13.2% 13.0%
Other$(3.4) $(3.0) $(3.5) n/m n/m n/m
KPIsQ3 2025Q4 2025Q1 2026
U.S. Pays per Control (ES)+1% +1% ~0%
Average PEO Worksite Employees748,000 avg; 751,000 end 761,000 avg; 764,000 end 754,000 avg; 752,000 end
Zero-margin Benefits Pass-through ($MM, PEO)$1,090.0 $1,094.8 $1,131.0
Interest on Funds Held for Clients ($MM)$355.2 $307.8 $286.8
Avg Client Funds Balances ($B)$44.5 $38.1 $34.9
Avg Yield on Client Funds (%)3.2% 3.2% 3.3%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated Revenue GrowthFY265–6% (Jul 30) 5–6% (Oct 29) Maintained
Adjusted EBIT Margin ExpansionFY26+50–70 bps +50–70 bps Maintained
Adjusted Effective Tax RateFY26~23% ~23% Maintained
Diluted EPS GrowthFY26+8–10% +8–10% Maintained
Adjusted Diluted EPS GrowthFY26+8–10% +8–10% Maintained
ES New Business Bookings GrowthFY264–7% 4–7% Maintained
ES Client Revenue RetentionFY26(10) to (30) bps (10) to (30) bps Maintained
U.S. Pays per Control (ES)FY260–1% ~Flat Lowered
PEO Revenue GrowthFY265–7% 5–7% Maintained
PEO Rev ex Pass-throughs GrowthFY263–5% 3–5% Maintained
PEO Avg WSE GrowthFY262–3% 2–3% Maintained
Client Funds Interest Revenue ($B)FY26$1.290–$1.310 $1.300–$1.320 Raised
Net Impact from Extended Strategy ($B)FY26$1.250–$1.270 $1.260–$1.280 Raised
DividendFY26Prior rateAnnual $6.80; +10% (51st consecutive year) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 FY25)Previous Mentions (Q4 FY25)Current Period (Q1 FY26)Trend
AI/technology initiativesADP Assist rollout; Lyric bookings/pipeline doubled; embedded payroll with Fiserv progressing Next-gen Workforce Now scaling; AI benefits and continued investment; integration with Workforce Software ADP Assist enhancements; 5.5M client interactions; agents roadmap; coding copilots; Lyric momentum Strengthening; execution broadening
Macro/hiring (PPC)/retentionPPC +1%; strong retention/NPS; cautious macro in intl deals PPC at lower end of normal; strong retention; pricing ~100 bps PPC ~0% guided flat; retention strong; minimal layoffs; balanced macro outlook Moderating PPC; resilient retention
Embedded payroll (Fiserv/Clover)Integration work to accelerate; mutual referrals; embedded reach expansion Co-selling strategy affirmed; traction with partnerships Backbook deployment beginning; contribution ahead; commitment reiterated Early innings; building distribution
PEO dynamicsPEO rev +7%; flat margin; strong retention; benefits attach steady PEO margins contracting; 7% rev; bookings strong PEO rev +7%; margin -140 bps; WSE +2%; enrollment participation at 4-year highs Mixed: volume steady; margin pressured
Client funds interestRaised FY25 outlook; balances +5–6%; yield ~3.1% FY26 client funds interest $1.29–$1.31B; laddering tailwind Raised to $1.30–$1.32B; balances guided +3–4%; yield ~3.4% Continued tailwind
Regulatory/legalN/ANo pushback internationally; fully-local execution Stablecoin pay rail asked; monitoring regulatory readiness Monitoring; no current impact

Management Commentary

  • “Fiscal 2026 started off with solid financial performance…We also continue to infuse AI into our products…and fundamentally shift how work gets done.” – Maria Black, CEO .
  • “Our first quarter revenue and margin performance exceeded our expectations…benefited from solid new business bookings…strong client revenue retention, and higher client funds interest revenue.” – Peter Hadley, CFO .
  • “Lyric’s new business bookings exceeded our expectations…recognized as a top HR product of 2025…we have an opportunity to use AI…to fundamentally shift how work gets done.” – Maria Black .
  • “We are increasing our full year forecast for client funds interest revenue by $10 million to $1.30 to $1.32 billion…maintaining consolidated revenue outlook of 5% to 6% and adjusted EBIT margin expansion of 50 to 70 bps.” – Peter Hadley .

Q&A Highlights

  • Pays per control: guided to lower end, rounding to 0%; movements are “tens of basis points” with modest revenue/margin impact; macro shows reduced hiring and very low layoffs .
  • Margin cadence: Q1 came in better than expected despite Workforce Software integration; anniversary reduces drag; expect ramp in back half FY26; genAI efficiencies to contribute .
  • Client funds balances: increase driven by wage growth; $10M forecast uplift primarily denominator-driven; yields relatively stable; sensitivity to processing day ~$10M .
  • Embedded payroll partnership: strong commitment; backbook rollout beginning; contribution mostly ahead; expanding Cash Flow Central integration into RUN .
  • Pricing: expectations unchanged; ~100 bps contribution, slightly moderated vs FY25; retention robust across segments .

Estimates Context

MetricQ3 2025 EstimateQ3 2025 ActualQ4 2025 EstimateQ4 2025 ActualQ1 2026 EstimateQ1 2026 Actual
Revenue ($USD Billions)$5.493*$5.553 $5.045*$5.127 $5.134*$5.175
Primary EPS ($)$2.973*$3.06 $2.227*$2.26 $2.443*$2.49
EBIT ($USD Billions)$1.591*$1.6297 $1.187*$1.2129 $1.295*$1.3183
EBITDA ($USD Billions)$1.735*$1.7879 $1.337*$1.3600 $1.452*$1.4866
Gross Margin (%)47.11%*49.90% 45.34%*47.42% 45.19%*47.58%

Values retrieved from S&P Global.*
Note: Actual EBIT/EBITDA align to adjusted presentation per non-GAAP reconciliation when applicable .

Key Takeaways for Investors

  • Broad-based beat with stronger-than-expected client funds interest and resilient retention; EPS and revenue exceeded Street, with adjusted EBIT margin holding at a healthy 25.5% YoY . Values retrieved from S&P Global.*
  • Segment profitability mixed: ES margin modestly compressed on integration costs; PEO margin pressured by pass-throughs/SUI timing; watch margin ramp in 2H as integration anniversary passes and AI efficiencies scale .
  • Guidance intact with incremental float tailwind: raised client funds interest to $1.300–$1.320B and extended strategy net impact to $1.260–$1.280B; PPC now ~flat, tempering volume sensitivity .
  • Strategic momentum: Lyric HCM and NextGen Workforce Now drive bookings and client satisfaction; embedded payroll partnership with Fiserv/Clover entering wider deployment; Pequity acquisition enhances compensation software capabilities .
  • Dividend signal: 10% hike to $6.80 annual rate underscores cash generation and capital returns durability (51st consecutive annual increase) .
  • Near-term trading: Beat + maintained FY26 guide + dividend raise is supportive; monitor Q2 growth cadence (processing day and SUI compares) and margin trajectory, which management flagged as back-half weighted .
  • Medium-term thesis: Product modernization (Lyric/NextGen), AI-driven efficiency, and extended client funds strategy support sustainable revenue growth and margin expansion despite macro moderation and PPC flattening .
Sources: 
Q1 FY26 8-K and exhibit/press release **[8670_0000008670-25-000042_adp-20251029.htm:1]** **[8670_0000008670-25-000042_q1fy26exhibit99.htm:0]** **[8670_0000008670-25-000042_q1fy26exhibit99.htm:1]** **[8670_0000008670-25-000042_q1fy26exhibit99.htm:3]** **[8670_0000008670-25-000042_q1fy26exhibit99.htm:6]** **[8670_0000008670-25-000042_q1fy26exhibit99.htm:7]** **[8670_0000008670-25-000042_q1fy26exhibit99.htm:8]**. 
Q1 FY26 earnings call **[0000008670_2211336_1]** **[0000008670_2211336_2]** **[0000008670_2211336_4]** **[0000008670_2211336_7]** **[0000008670_2211336_8]** **[0000008670_2211336_10]** **[0000008670_2211336_13]** **[0000008670_2211336_14]** **[0000008670_2211336_15]**. 
Q4 FY25 8-K **[8670_0000008670-25-000026_q4fy25exhibit99.htm:0]** **[8670_0000008670-25-000026_q4fy25exhibit99.htm:1]** **[8670_0000008670-25-000026_q4fy25exhibit99.htm:2]** **[8670_0000008670-25-000026_q4fy25exhibit99.htm:3]** **[8670_0000008670-25-000026_q4fy25exhibit99.htm:6]** **[8670_0000008670-25-000026_q4fy25exhibit99.htm:7]** **[8670_0000008670-25-000026_q4fy25exhibit99.htm:9]**. 
Q3 FY25 8-K **[8670_0000008670-25-000012_q3fy25exhibit99.htm:0]** **[8670_0000008670-25-000012_q3fy25exhibit99.htm:1]** **[8670_0000008670-25-000012_q3fy25exhibit99.htm:3]** **[8670_0000008670-25-000012_q3fy25exhibit99.htm:6]** **[8670_0000008670-25-000012_q3fy25exhibit99.htm:7]** **[8670_0000008670-25-000012_q3fy25exhibit99.htm:9]**. 
Dividend press release (Nov 12, 2025) **[8670_20251112NY21973:0]**. 
Pequity acquisition press release **[8670_20251029NY10060:0]**.