Wednesday, business outsourcing solutions provider Automatic Data Processing Inc. (ADP) updated earnings forecast and lowered its revenue growth outlook for the fiscal 2009, citing unfavorable foreign exchange rates and pricing pressures amid global meltdown.
The Roseland, New Jersey-based company currently expects earnings per share from continuing operations growth to be at the low end of its 10% - 14% range, compared with $2.18 in fiscal 2008, which excludes a net one-time gain of $0.02 per share recorded in fiscal 2008's fourth quarter. The earnings per share from continuing operations forecast includes a charge relating to the Primary Fund of the Reserve Fund.
On average, 13 analysts polled by Thomson Reuters expect the company to report earnings of $2.39 per share for fiscal 2009. Analysts' estimates typically exclude special items.
On February 26, the Reserve Fund announced the establishment of a special reserve to cover legal fees and potential claims against the Reserve Fund, resulting in expected lower distributions to its shareholders than previously estimated. As a result, ADP will record a $15 million charge, about $0.02 per share in the quarter ending March 31, 2009.
Fiscal 2009 revenues are now projected to grow between 1% and 2%, down from the prior forecast of 2% - 3% growth. Wall Street analysts have a consensus revenue estimate of $8.97 billion for the full year.
Gary Butler, president and chief executive officer commented, ADP continues to grow despite difficult economic headwinds, albeit at a slower rate than previously anticipated. As reflected in the updated forecasts for the year, the economy has weakened since we last provided an update with our second quarter earnings announcement on February 3, 2009.
Further, the company noted that its revenue growth outlook for fiscal 2009 continues to be negatively impacted by about two percentage points due to the company's assumption of unfavorable foreign exchange rates continuing for the remainder of the fiscal year.
For Employer Services, Automatic Data Processing currently expects full year revenue growth of about 4% versus prior guidance of about 5% increase, primarily due to the impact of pricing pressures as clients struggle with the weakened economy.
Revenue growth for PEO Services is now estimated to grow between 12% and 13%, down from the previous outlook of 14% - 15% revenue growth. Pretax margin expansion is expected to rise up to 30 basis points, compared to 50 basis points of pretax margin expansion expected earlier, impacted by employee contraction within the client base.
On a combined basis, the company said it is still on track to deliver over $1 billion in worldwide new business sales in fiscal 2009 for Employer Services and PEO Services. However, ADP currently expects a decline of up to 13% from about $1.15 billion in new business sales last fiscal year compared with the previous forecast for a decline of about 10%.
For Dealer Services, ADP anticipates a 2% - 3% decline in revenues compared with the prior forecast of flat to slightly down revenues, reflecting increased out of businesses, delayed implementations, and lower transaction volumes as car sales continue to decline, as well as continued stress on pricing as dealers struggle under significant economic pressures.
The company added that it continues to estimate a decline of $75 million - $80 million, or 11% - 12% for interest on funds held, from $684.5 million in fiscal 2008.
ADP expects the economic landscape to continue to be tough over the next several months, and believes the company would be able to weather the economic meltdown and is well positioned for growth.
Among other players in the field, Paychex Inc. (PAYX) lowered its financial growth outlook for fiscal 2009, blaming the current economic and financial conditions. The company said it currently expects 2009 net income to decline in the range of 5% - 7%, and total revenue to increase by 2% - 4%. Earlier, the company had projected earnings growth of 2% - 4%, and total revenue to increase between 6% and 8% for fiscal 2009.
Automatic Data Processing is currently trading at $36.27, down 16 cents or 0.44%. During the day, ADP shares touched a high of $36.15 and a low of $35.27. In the past 52-weeks, the stock has been trading between $30.83 and $45.97.
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