ADP Posts Strong Q1 Earnings, Revenue Jumps 7.1% on HCM & PEO Growth

Ticker: ADP · Form: 10-Q · Filed: Oct 31, 2025 · CIK: 8670

Sentiment: bullish

Topics: Earnings, Revenue Growth, HCM, PEO, Acquisition, Financial Services, Payroll

Related Tickers: ADP, PAYX, WDAY

TL;DR

**ADP's Q1 numbers are solid, showing strong growth in core services and client funds interest, making it a reliable bet in a volatile market.**

AI Summary

Automatic Data Processing, Inc. (ADP) reported a robust first quarter for fiscal year 2026, with total revenues increasing by 7.1% to $5,175.2 million for the three months ended September 30, 2025, up from $4,832.7 million in the prior year. Net earnings rose by 5.9% to $1,013.0 million, compared to $956.3 million in the same period last year. Diluted earnings per share also saw a healthy increase, reaching $2.49, up from $2.34. Key revenue drivers included HCM revenue at $2,155.7 million, HRO (excluding PEO zero-margin benefits pass-throughs) at $911.4 million, and Global revenue at $690.3 million. Interest on funds held for clients contributed $286.8 million, a 13.2% increase from $253.3 million. The company completed the acquisition of WorkForce Software in October 2024 for $1,170.8 million, integrating it into the Employer Services segment. Risks include currency translation adjustments, which negatively impacted other comprehensive income by $15.5 million, and a decrease in unrealized net gains on available-for-sale securities to $215.7 million from $864.4 million in the prior year.

Why It Matters

ADP's solid Q1 performance, marked by a 7.1% revenue increase and 5.9% net earnings growth, signals continued strength in the human capital management sector. This positive momentum, especially in HCM and PEO services, suggests a resilient demand for payroll and HR solutions, benefiting investors through consistent earnings and dividends. For employees and customers, ADP's acquisition of WorkForce Software enhances its service offerings, potentially leading to more integrated and efficient workforce management tools. In a competitive landscape, ADP's strategic acquisition and robust financial health reinforce its market leadership against rivals like Paychex and Workday, indicating a stable outlook for the broader market.

Risk Assessment

Risk Level: medium — The risk level is medium due to significant fluctuations in unrealized gains on available-for-sale securities, which dropped from $864.4 million in Q1 2024 to $215.7 million in Q1 2025, indicating potential market volatility impact on investment portfolios. Additionally, currency translation adjustments shifted from a gain of $49.2 million in Q1 2024 to a loss of $15.5 million in Q1 2025, highlighting exposure to foreign exchange rate risks.

Analyst Insight

Investors should consider ADP's consistent revenue and earnings growth, particularly the 13.2% increase in interest on funds held for clients, as a sign of strong operational performance and effective cash management. The WorkForce Software acquisition, while not material enough for pro forma presentation, indicates strategic expansion into workforce management. Maintain a 'hold' or 'buy' position, focusing on long-term stability and dividend income, but monitor market interest rate trends and currency fluctuations.

Financial Highlights

revenue
$5,175.2M
net Income
$1,013.0M
eps
$2.49
cash Position
$2,478.0M
revenue Growth
+7.1%

Revenue Breakdown

SegmentRevenueGrowth
Revenues, other than interest on funds held for clients and PEO revenues$3,203.5M+6.9%
Interest on funds held for clients$286.8M+13.2%
PEO revenues$1,684.9M+7.1%

Key Numbers

Key Players & Entities

FAQ

What were Automatic Data Processing Inc.'s total revenues for the quarter ended September 30, 2025?

Automatic Data Processing Inc.'s total revenues for the three months ended September 30, 2025, were $5,175.2 million, representing a 7.1% increase from $4,832.7 million in the same period of 2024.

How did ADP's net earnings perform in the first quarter of fiscal year 2026?

ADP's net earnings for the quarter ended September 30, 2025, increased to $1,013.0 million, up 5.9% from $956.3 million reported in the prior year's comparable quarter.

What was the diluted earnings per share for ADP for the quarter ended September 30, 2025?

The diluted earnings per share for ADP for the three months ended September 30, 2025, was $2.49, an increase from $2.34 in the same period of 2024.

Which business segments contributed most to ADP's revenue growth?

Key revenue contributions came from HCM at $2,155.7 million, HRO (excluding PEO zero-margin benefits pass-throughs) at $911.4 million, and Global at $690.3 million for the quarter ended September 30, 2025.

What was the impact of interest on funds held for clients on ADP's revenues?

Interest on funds held for clients significantly contributed to ADP's revenues, increasing by 13.2% to $286.8 million for the three months ended September 30, 2025, compared to $253.3 million in the prior year.

Did Automatic Data Processing Inc. make any significant acquisitions during the period?

Yes, Automatic Data Processing Inc. acquired WorkForce Software in October 2024 for $1,170.8 million, which is now reported within the Employer Services segment.

What are the main risks highlighted in ADP's 10-Q filing?

The filing indicates risks from currency translation adjustments, which resulted in a negative impact of $15.5 million, and a substantial decrease in unrealized net gains on available-for-sale securities from $864.4 million to $215.7 million.

How many shares of common stock were outstanding for ADP as of October 28, 2025?

As of October 28, 2025, the number of shares outstanding of Automatic Data Processing, Inc.'s common stock was 404,448,744.

What is the purpose of the grantor trust mentioned in ADP's financial statements?

The grantor trust holds the majority of funds provided by ADP's clients pending remittance to employees, tax authorities, and other payees. ADP consolidates this trust as it has a controlling financial interest.

What new accounting pronouncements are expected to impact ADP's financial statements?

ADP is assessing ASU 2025-06 (Internal-Use Software) effective July 1, 2028, and ASU 2024-03 (Expense Disaggregation Disclosures) effective June 30, 2028. ASU 2023-09 (Income Tax Disclosures) effective June 30, 2026, will modify disclosures but not impact financial condition.

Risk Factors

Industry Context

ADP operates in the highly competitive human capital management (HCM) and payroll processing industry. Key trends include increasing demand for integrated HR solutions, cloud-based platforms, and advanced analytics. Competitors range from large enterprise software providers to specialized niche players. The industry is characterized by high customer retention but also faces pressure from technological advancements and evolving regulatory landscapes.

Regulatory Implications

ADP's operations are subject to a complex web of regulations concerning payroll, labor laws, data privacy (e.g., GDPR, CCPA), and financial reporting. Compliance is paramount to avoid penalties and maintain client trust. Changes in tax laws or employment regulations can directly impact service offerings and operational costs.

What Investors Should Do

  1. Monitor interest rate trends and their impact on 'Interest on funds held for clients' revenue.
  2. Assess the integration progress and performance of the WorkForce Software acquisition.
  3. Evaluate the volatility in 'Other comprehensive income,' particularly unrealized gains on securities and currency adjustments.

Key Dates

Glossary

PEO revenues
Professional Employer Organization revenues, which are reported net of direct pass-through costs, primarily payroll wages and taxes. (A significant revenue stream for ADP, showing consistent growth.)
Interest on funds held for clients
Revenue generated from interest earned on client funds held by ADP. This is sensitive to interest rate changes. (A growing and important contributor to total revenue, up 13.2% year-over-year.)
Other comprehensive income
Includes unrealized gains or losses on investments, currency translation adjustments, and other items that are not included in net earnings but affect equity. (Shows significant fluctuations, particularly in unrealized gains on securities and currency adjustments, impacting total equity.)
Available-for-sale securities
Investments that are not classified as held-to-maturity or trading securities. Their unrealized gains and losses are reported in other comprehensive income. (The decrease in unrealized gains from $864.4M to $215.7M indicates market shifts or portfolio changes affecting equity.)
Currency translation adjustments
Gains or losses resulting from translating the financial statements of foreign subsidiaries from their functional currency to the reporting currency. (A negative impact of $15.5M in the current quarter, contrasting with a gain in the prior year, highlighting foreign exchange risk.)

Year-Over-Year Comparison

In the first quarter of fiscal year 2026, ADP demonstrated solid year-over-year growth, with total revenues increasing by 7.1% to $5.18 billion and net earnings rising by 5.9% to $1.01 billion. Diluted EPS also improved to $2.49 from $2.34. While interest on funds held for clients saw a healthy 13.2% increase, the company experienced a significant decrease in unrealized net gains on available-for-sale securities, impacting other comprehensive income negatively compared to the prior year. Currency translation adjustments also shifted from a gain to a net loss, indicating increased foreign exchange headwinds.

Filing Stats: 4,568 words · 18 min read · ~15 pages · Grade level 7.4 · Accepted 2025-10-31 12:09:56

Key Financial Figures

Filing Documents

– FINANCIAL INFORMATION

PART I – FINANCIAL INFORMATION Item 1.

Financial Statements (Unaudited)

Financial Statements (Unaudited) Three months ended September 30 , 2025 and 2024 3 Three months ended September 30 , 2025 and 2024 4 Consolidated Balance Sheets At September 30 , 2025 and June 30, 20 25 5 Three months ended September 30 , 2025 and 2024 6 Notes to the Consolidated Financial Statements 7 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 25

Quantitative and Qualitative Disclosures About Market Risk

Item 3. Quantitative and Qualitative Disclosures About Market Risk 39

Controls and Procedures

Item 4. Controls and Procedures 39

– OTHER INFORMATION

PART II – OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 39 Item 1A.

Risk Factors

Risk Factors 40 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 40

Other Information

Item 5. Other Information 41 Item 6. Exhibits 42

FINANCIAL INFORMATION

Part I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements Automatic Data Processing, Inc. and Subsidiaries (In millions, except per share amounts) (Unaudited) Three Months Ended September 30, 2025 2024 REVENUES: Revenues, other than interest on funds held for clients and PEO revenues $ 3,203.5 $ 3,007.2 Interest on funds held for clients 286.8 253.3 PEO revenues (A) 1,684.9 1,572.2 TOTAL REVENUES 5,175.2 4,832.7 EXPENSES: Costs of revenues: Operating expenses 2,461.6 2,285.8 Research and development 251.2 232.6 Depreciation and amortization 123.3 115.3 TOTAL COSTS OF REVENUES 2,836.1 2,633.7 Selling, general, and administrative expenses 1,006.3 926.7 Interest expense 135.4 137.8 TOTAL EXPENSES 3,977.8 3,698.2 Other income, net ( 110.1 ) ( 101.7 ) EARNINGS BEFORE INCOME TAXES 1,307.5 1,236.2 Provision for income taxes 294.5 279.9 NET EARNINGS $ 1,013.0 $ 956.3 BASIC EARNINGS PER SHARE $ 2.50 $ 2.34 DILUTED EARNINGS PER SHARE $ 2.49 $ 2.34 Basic weighted average shares outstanding 405.1 407.9 Diluted weighted average shares outstanding 406.5 409.5 (A) Professional Employer Organization ("PEO") revenues are net of direct pass-through costs, primarily consisting of payroll wages and payroll taxes of $ 18,534.4 million and $ 17,193.6 million for the three months ended September 30, 2025 and 2024, respectively. See notes to the Consolidated Financial Statements. 3 Automatic Data Processing, Inc. and Subsidiaries (In millions) (Unaudited) Three Months Ended September 30, 2025 2024 Net earnings $ 1,013.0 $ 956.3 Other comprehensive income: Currency translation adjustments ( 15.5 ) 49.2 Unrealized net gains on available-for-sale securities 215.7 864.4 Tax effect ( 48.3 ) ( 197.9 ) Reclassification of realized net (gains)/losses on available-for-sale securities to net earnings ( 1.5 ) 0.2 Tax effect 0.3 — Unrealized losses on cash flow hedging activities

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