AUTOMATIC DATA PROCESSING (ADP)·Q2 2026 Earnings Summary

ADP Beats on Revenue and EPS, Raises Full-Year Guidance as Bookings Momentum Continues

January 28, 2026 · by Fintool AI Agent

ADP delivered a strong Q2 FY2026, beating consensus estimates on both revenue (+4.4%) and adjusted EPS (+7.4%) while raising full-year guidance. Revenue of $5.36 billion grew 6% year-over-year, driven by broad-based new business bookings growth and a 13% increase in client funds interest revenue. Adjusted EBIT margin expanded 80 basis points to 26.0%, reflecting operating leverage and the benefit of higher interest rates on client funds.

Did ADP Beat Earnings?

Yes — ADP beat on both revenue and EPS, extending its beat streak to 8 consecutive quarters.

Values retrieved from S&P Global and company filings

The beat was driven by stronger-than-expected bookings conversion, continued pricing discipline, and client funds interest revenue growing 13% to $309 million on a 6% increase in average balances and a 20 basis point improvement in yield to 3.3%.

What Did Management Guide?

ADP raised full-year guidance, reflecting confidence in execution and sustainable growth:

CEO Maria Black highlighted the drivers: "ADP's strong second quarter results reflect the breadth of our innovative products, differentiated service, and exceptional experiences that we deliver for clients every day."

CFO Peter Hadley added: "Our updated guidance demonstrates our confidence in our ability to deliver on our financial commitments, while continuing to make strategic investments to support sustainable long-term growth."

How Did the Stock React?

ADP shares closed at $254.51 on the day of the earnings release, down 1.4% from the prior close of $258.17. After-hours trading showed the stock edging up to $255.57, suggesting investors are digesting the raised guidance positively.

The stock is trading well below its 52-week high of $329.93 and near its 52-week low of $247.18, reflecting broader market concerns about employment trends and rate sensitivity rather than company-specific issues.

What Changed From Last Quarter?

Several notable shifts from Q1 FY2026:

Key developments this quarter:

• Launched ADP WorkForce Suite, an integrated workforce management solution across payroll and HCM platforms—key driver of the 75,000-employee European bank win
• Embedded Fiserv CashFlow Central into RUN, creating a one-stop-shop for payroll, bill pay, AP/AR, and contractor payments
• Introduced Pooled Employer Plan in Retirement Services, shifting compliance burdens from employers
• Enhanced ADP Assist with new persona-based AI agents for payroll, HR, analytics, and tax
• Workforce Now Next Gen sold to first 1,000+ employee client—a Midwest logistics company
• Client satisfaction scores reached single best quarter in ADP history
• Recognized by Fortune as one of the World's Most Admired Companies for 20th consecutive year

Segment Performance

Employer Services (67% of Revenue)

Employer Services delivered strong results with revenue of $3.61 billion, up 6% YoY (5% organic constant currency).

Key drivers:

• Operating leverage from revenue scale
• Client funds interest revenue growth (+13%)
• Strong new business bookings (guidance maintained at 4-7% growth)

PEO Services (33% of Revenue)

PEO Services revenue grew 6% to $1.76 billion, though margin contracted 70 basis points.

Margin compression drivers:

• Higher zero-margin benefits pass-throughs
• Increased selling expenses for growth investments

Client Funds Interest: A Growing Tailwind

ADP's client funds strategy continues to benefit from elevated interest rates:

The client funds extended investment strategy generated $294 million in net contribution, up 24% YoY. FY26 guidance for client funds interest was raised to $1.31-1.33 billion, up from $1.30-1.32 billion.

Capital Allocation

ADP continues to return capital to shareholders aggressively:

• Dividends paid (H1 FY26): $1.26 billion
• Share repurchases (H1 FY26): $882 million
• New buyback authorization: $6 billion announced January 14, 2026

Cash and cash equivalents stood at $2.4 billion with total debt of $4.0 billion, maintaining a healthy balance sheet.

Q&A Highlights

International Strategy: A Long-Term Growth Engine

The earnings call revealed significant momentum in ADP's global business. Management highlighted a marquee win: a 75,000-employee European bank that selected ADP based on the strength of its integrated global payroll and newly launched Workforce Suite.

CFO Peter Hadley addressed profitability concerns: "The international business is a little bit lower margin than some of the domestic businesses... but the retention rates are very, very high. If you look at it from a lifetime value contribution, very much comparable with any of the businesses we have in the U.S."

Lyric HCM: Enterprise Momentum Accelerating

ADP's enterprise HCM platform continues to outperform expectations. Two notable wins this quarter included companies with over 20,000 employees each—two of the largest clients sold on the platform to date.

CEO Maria Black on why Lyric is resonating: "70% of [Lyric's] new business bookings and overall pipeline relate to new logos as it continues to fare favorably against our competitors. CHROs today are looking for flexibility... products that have AI built in the fabric and in the core, not after and attached."

PEO: Value Proposition Remains Strong Despite Softer Bookings

While PEO bookings came in slightly below expectations, management emphasized the structural strength of the offering. Maria Black: "The value proposition is as strong as it's ever been. The complexity to be an employer in that space, dealing with healthcare and the complexity of offering those type of things to your employees, it's very difficult. The PEO fits into that value proposition."

Management is investing in response: increased seller headcount, enhanced AI tools for lead targeting, and continued mining of the existing ADP client base—which accounts for roughly half of PEO bookings.

AI Impact on Employment: No Visible Impact Yet

When asked about AI-driven layoffs making headlines, CFO Peter Hadley offered reassurance: "We're not really seeing anything discernible... areas that potentially you may think of as being more subject to being at risk with AI—financial services, professional services, tech—we're actually seeing reasonably healthy growth."

He noted that layoff levels continue to decline broadly, and ADP is not observing industry-specific weakness that would suggest AI displacement.

Pricing Environment: Stable, ~100 bps Contribution

On pricing power, Hadley confirmed the environment remains consistent: "We're expecting around 100 basis points of contribution from price in fiscal 2026, which is a little lower than fiscal 2025 and a little higher than the 0.5-point range we were doing pre-pandemic."

Key Risks to Monitor

1. Employment sensitivity: U.S. pays per control at +1% is stable but bears watching as macro uncertainty persists
2. PEO margin pressure: 70 bps contraction this quarter; management expects ~2% WSE growth vs. prior 2-3% guide
3. Interest rate exposure: Q3 margin will face ~75 bps headwind on short portfolio vs. prior year due to Fed rate cuts
4. Client retention: Guidance implies 10-30 bps decline in retention vs. 92.1% in FY25; management expects slight normalization of out-of-business rates

Margin Cadence: Back-Half Weighted

Management provided clarity on the expected cadence of margin expansion. CFO Peter Hadley noted: "We expect more margin expansion in Q4 than in Q3."

The Q3 headwind stems from the client funds short portfolio: calendar Q1 (ADP's fiscal Q3) carries the highest float balances but faces a 75 bps yield reduction year-over-year due to Fed rate cuts. The underlying operational margin expansion continues at "good momentum."

Forward Catalysts

• Q3 FY26 earnings: Expected late April 2026
• Full-year FY26 results: July 2026
• Workforce Now Next Gen adoption: Continued momentum; first 1,000+ employee client sold this quarter
• ADP Lyric HCM expansion: Pipeline expanding rapidly; 70% new logos
• AI integration: ADP Assist agents for payroll, HR, tax rolling out
• Fiserv partnership: CashFlow Central embedded in RUN; revenue contribution ahead

The Bottom Line

ADP delivered a clean beat-and-raise quarter, demonstrating the resilience of its subscription-based HCM model. The 8-quarter beat streak and guidance raise underscore consistent execution. Key positives include:

• Strong bookings momentum across all segments—broad-based growth including enterprise, international, mid-market, and compliance
• Lyric HCM gaining traction with 70% of pipeline from new logos and two 20,000+ employee wins
• International strategy maturing with the Workforce Suite enabling marquee wins like the 75,000-employee European bank
• AI investments bearing fruit through ADP Assist agents and record client satisfaction scores
• Margin expansion on track despite Q3 float headwind

The main watch items are PEO margin pressure (driven by growth investments) and potential normalization of small business out-of-business rates. Management's tone was confident, with Maria Black offering a thoughtful perspective on AI's impact on work: "What we do is not discretionary. What we do is an imperative. Paying people on time and accurately is not just a brand promise, it's candidly how the whole world goes around."

At current levels (~$255), ADP trades at approximately 25x forward earnings, a premium to the market but justified by its defensive characteristics, consistent execution, and capital return program.

---

Data sources: ADP Q2 FY2026 8-K , Q2 FY2026 Earnings Call Transcript , Q2 FY2026 Earnings Slides , S&P Global estimates