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AUTOMATIC DATA PROCESSING INC (ADP)·Q3 2025 Earnings Summary

Executive Summary

  • Solid Q3 with mid-single-digit top-line and EPS growth; revenue rose 6% to $5.553B and diluted EPS rose 6% to $3.06. Adjusted EBIT grew 6% and margin expanded 10 bps to 29.3% . Versus S&P Global consensus, ADP delivered a modest beat on both revenue ($5.553B vs $5.493B*) and EPS ($3.06 vs $2.973*). Values retrieved from S&P Global.
  • Guidance raised: adjusted EBIT margin expansion increased to 40–50 bps (from 30–50 bps) and adjusted EPS growth to 8–9% (from 7–9%). Segment updates included a higher ES margin guide (+50–60 bps), higher PEO revenue growth (6–7%), and higher client funds interest revenue ($1.160–$1.170B) .
  • Business drivers: ES revenue +5% with U.S. pays-per-control (PPC) +1%, PEO revenue +7% with avg worksite employees +2% to ~748k; client funds interest +11% to $355M on 7% higher average balances ($44.5B) and 10 bps higher yield (3.2%) .
  • Call tone: resilient base demand, record client satisfaction, but softer/lumpier international bookings amid macro uncertainty; Workforce Software integration progressing (estimated ~50 bps ES margin headwind for FY25), embedded payroll partnership with Fiserv on track .
  • Corporate updates: CFO transition announced (Peter Hadley to succeed Don McGuire effective July 1, 2025) and a $1.54 quarterly dividend payable July 1, 2025 .

What Went Well and What Went Wrong

  • What Went Well
    • Broad-based growth and margin resilience: revenue +6% y/y to $5.553B; adjusted EBIT +6% with margin +10 bps to 29.3%; adjusted EPS +6% to $3.06 .
    • Client funds tailwind: interest on funds held for clients +11% to $355M; average client funds balances +7% to $44.5B; average yield +10 bps to 3.2% .
    • Strong product/strategy execution: record client satisfaction; momentum in enterprise (Lyric pipeline doubled y/y), Fiserv embedded payroll integration slated to accelerate sales; recognition for ADP Assist (GenAI) and product awards .
  • What Went Wrong
    • International bookings softness and macro lumpiness: management cited uncertainty in key markets and lumpier large multi-country deals in Q3 .
    • ES margin benefit tempered by Workforce Software integration costs (~50 bps FY headwind), limiting faster margin acceleration despite revenue/mix benefits .
    • PEO margin flat in Q3 as higher workers’ comp and SUI offset favorable loss development; full-year PEO margin still guided down 60–80 bps (slightly better than prior) .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$4.833 $5.048 $5.553
Diluted EPS ($)$2.34 $2.35 $3.06
Adjusted EBIT Margin (%)25.5% 25.2% 29.3%

Q3 vs Estimates

MetricConsensusActualSurprise
Revenue ($USD Billions)$5.493*$5.553 +$0.060B (Beat)*
Diluted EPS ($)$2.973*$3.06 +$0.087 (Beat)*
Values retrieved from S&P Global.

Segment Performance

SegmentQ1 2025 Revenue ($B)Q2 2025 Revenue ($B)Q3 2025 Revenue ($B)Q1 MarginQ2 MarginQ3 Margin
Employer Services$3.261 $3.389 $3.768 35.7% 34.9% 39.8%
PEO Services$1.575 $1.663 $1.789 14.3% 15.1% 14.2%
Total$4.833 $5.048 $5.553 25.6% pretax 25.0% pretax 29.2% pretax

Key KPIs and Client Funds

KPIQ1 2025Q2 2025Q3 2025
U.S. Pays per Control (ES)+2% +1% +1%
Avg PEO Worksite Employees737k 746k 748k
Interest on Funds Held for Clients ($M)$253.3 $272.8 $355.2
Avg Client Funds Balances ($B)$32.8 $35.3 $44.5
Avg Yield on Client Funds (%)3.1% 3.1% 3.2%

Guidance Changes

MetricPeriodPrevious Guidance (Jan 29, 2025)Current Guidance (Apr 30, 2025)Change
Consolidated Revenue GrowthFY256%–7% 6%–7% Maintained
Adjusted EBIT Margin ExpansionFY2530–50 bps 40–50 bps Raised
Adjusted Diluted EPS GrowthFY257%–9% 8%–9% Raised (midpoint)
Adjusted Effective Tax RateFY25~23% ~23% Maintained
ES Revenue GrowthFY256%–7% 6%–7% Maintained
ES MarginFY25+40–60 bps +50–60 bps Raised
ES New Business BookingsFY25+4%–7% +4%–7% Maintained
ES Client Revenue RetentionFY25-30 to -10 bps -20 bps to flat Improved
U.S. Pays per ControlFY25+1%–2% +1% Narrowed
PEO Revenue GrowthFY255%–6% 6%–7% Raised
PEO Rev ex Pass-throughsFY254%–5% 5%–6% Raised
PEO MarginFY25-90 to -70 bps -80 to -60 bps Improved
Avg PEO Worksite EmployeesFY25+2%–3% +2%–3% Maintained
Client Funds Interest RevenueFY25$1.140–$1.160B $1.160–$1.170B Raised
Avg Client Funds BalancesFY25+4%–5% +5%–6% Raised
Net Impact from Extended StrategyFY25$1.025–$1.045B $1.045–$1.055B Raised
Dividend per ShareNext payment—$1.54 (payable Jul 1, 2025) Announced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 FY25)Current Period (Q3 FY25)Trend
AI/Technology initiativesIntroduced ADP Lyric HCM; acquired WorkForce Software to expand workforce management for global enterprises . Limited explicit AI commentary in Q2 PR .Recognition for ADP Assist in AI awards; continued Lyric momentum; integration progress with WorkForce Software .Increasing focus and validation via awards and pipeline.
Macro/tariffsNo notable macro/tariff commentary in PRs .Management cites macro uncertainty affecting timing of large international deals; no specific industry PPC weakness; PPC at ~1% .Cautious on macro; operational resilience maintained.
Product performanceQ1: WorkForce Software acquisition (~$1.2B) to bolster enterprise WFM . Q2: strong bookings growth .ES bookings solid; Lyric pipeline doubled y/y; Fiserv embedded payroll integration to accelerate sales .Strengthening enterprise momentum and embedded channels.
Regional trendsNo region-specific risks called out in PRs .Softer international bookings in Q3; pipelines remain strong but deals lumpy heading into Q4 .Near-term softness/lumpiness internationally.
Regulatory/legalNo notable items .No new legal headwinds disclosed; PEO saw favorable loss development offset by higher WC/SUI .Neutral.
R&D/ExecutionRecord client satisfaction; investments supporting long-term growth .Record client satisfaction persists; integration costs a ~50 bps ES margin headwind this year .Execution strong; integration drag moderating over time.

Management Commentary

  • Strategic positioning: “Our solid third quarter results reflect the strength and consistency of our business... we will maintain our strategic progress and continue to lead the way through our resilient and broad-based business portfolio, market-leading product offerings, and the differentiated service we provide our clients each day.” — Maria Black, CEO .
  • Demand and bookings: “We delivered another solid quarter of Employer Services new business bookings growth… small business, mid-market and enterprise as well as compliance solutions offerings all performing well… international bookings [were] softer… pipelines [are] strong.” — Maria Black .
  • Guidance drivers: “Client funds interest revenue increased by more than we anticipated… we are raising our full year average client funds balance growth expectation to 5% to 6%… updating our adjusted EBIT margin expansion guidance to 40 to 50 basis points… and now expect fiscal 2025 adjusted EPS growth of 8% to 9%.” — Don McGuire, CFO .
  • Enterprise/embedded payroll: “We expect our [Fiserv] sales to accelerate as we complete our product integration work this year, enabling us to offer a differentiated integrated solution.” — Maria Black .
  • CFO succession: Peter Hadley appointed CFO effective July 1, 2025; Don McGuire to assist through September 30, 2025 .

Q&A Highlights

  • International bookings softness: Management emphasized lumpiness and macro uncertainty in larger multi-country enterprise deals; pipelines remain strong, with heavy Q4 execution focus .
  • Embedded payroll/Fiserv: Integration to embed RUN into Clover and Clover’s Cash Flow Central into RUN expected this year; seen as a “game changer” with potential expansion into mid-market and internationally .
  • Macro and PPC: Base remains stable; PPC “rounding down to 1%” vs historic 2–3%; no specific industry weakness; monitoring broader macro uncertainty .
  • PEO dynamics: Q3 PEO bookings and PPC were solid; margin was flat as higher workers’ comp and SUI costs offset favorable reserve development; full-year PEO margin guide improved to down 60–80 bps .
  • Client funds balances: Higher wages and strong bonus season drove higher client short balances; guidance for client funds interest narrowed/raised; balance changes relatively insulated from short rate fluctuations .
  • M&A (Mexico PEI): Sub-$10M acquisition to deepen local payroll expertise; focus on broader LatAm expansion (Brazil, Chile) .

Estimates Context

  • Q3 FY25 vs S&P Global consensus: Revenue $5.553B actual vs $5.493B estimate*; Diluted EPS $3.06 actual vs $2.973 estimate*. Beat on both top- and bottom-line. Values retrieved from S&P Global.
  • Implications: Raised FY25 adjusted EPS and margin guidance likely prompt upward revisions to FY EPS and EBIT margins; higher client funds interest revenue/average balances also support estimate revisions .

Key Takeaways for Investors

  • Quality beat with guidance raised: modest revenue/EPS beat and higher FY25 adjusted EPS and margin expansion guidance signal resilient fundamentals despite macro uncertainty . Values retrieved from S&P Global.
  • Interest tailwind persists: Higher average client funds balances and sustained reinvestment rates continue to lift client funds interest revenue; FY25 guide raised to $1.160–$1.170B .
  • Enterprise momentum: Lyric pipeline doubled y/y and WorkForce Software integration enhances large enterprise WFM capabilities; near-term integration costs (~50 bps ES headwind) but strategic upside medium term .
  • International bookings are the swing factor: Softer/lumpier international large deals introduce near-term timing risk; watch Q4 conversion rates and Investor Day updates (June 12) .
  • PEO solid but margin constrained: Strong retention, higher wages, and zero-margin pass-throughs support revenue, but WC/SUI pressures cap near-term margin; FY25 PEO margin guide improved modestly .
  • Embedded payroll as a new vector: Fiserv partnership should begin to accelerate in CY25 on completed integration, expanding distribution in SMBs and potentially mid-market/international .
  • Capital return and leadership continuity: $1.54 quarterly dividend declared; CFO transition to an experienced internal leader (Hadley) supports continuity in strategy and client funds expertise .

Values retrieved from S&P Global.