ADP Raises FY2027 EPS Outlook After Q1 Margin Growth

ADP Inc. reported higher fiscal first-quarter revenue and adjusted earnings, supported by margin expansion in Employer Services and increased client funds interest income. Following the quarter, the payroll and human capital management provider increased its fiscal 2027 adjusted diluted earnings-per-share growth outlook to 10% to 12%, from 9% to 11%, and now expects total revenue growth of approximately 6%.

For the first quarter of fiscal 2027, revenue rose 6% year over year to $5.49 billion from $5.18 billion. Organic constant-currency revenue also increased 6%.

Adjusted EBIT climbed 12% to $1.47 billion, while the adjusted EBIT margin expanded by 130 basis points to 26.8%. Adjusted diluted EPS increased 13% to $2.82 from $2.49. ADP’s adjusted measures are non-GAAP financial metrics.

Employer Services margin expands

Employer Services revenue increased 6% to $3.69 billion, including 6% organic constant-currency growth. The segment’s margin rose 130 basis points to 36.5% from 35.2%, reflecting operational productivity improvements and higher client funds interest revenue, according to the presentation.

U.S. pays per control, a measure of employment levels among ADP clients, increased 2%. Average client funds balances rose 6%, while the average yield on those funds reached 3.6%, compared with 3.3% a year earlier.

ADP now expects fiscal 2027 Employer Services revenue to grow approximately 6%, compared with its previous range of 5% to 6%. The company maintained its forecast for new business bookings growth of 4% to 7% and continues to expect client revenue retention to decline by 10 to 30 basis points. U.S. pays per control is projected to increase approximately 1%, versus the prior forecast of 0% to 1%.

PEO revenue rises as margin holds steady

Professional Employer Organization Services revenue grew 7% to $1.81 billion. Excluding zero-margin benefits pass-throughs, revenue increased 4%.

Average worksite employees rose 2% to about 771,000. The segment margin remained unchanged at 13.0%, as lower operating expenses offset the effect of faster growth in zero-margin pass-through revenue.

ADP retained its fiscal 2027 PEO outlook, including revenue growth of 5% to 7%, revenue growth excluding zero-margin pass-throughs of 3% to 5%, and approximately 2% growth in average worksite employees.

Client funds interest outlook increases

ADP expects average client funds balances to grow 4% to 5% in fiscal 2027, compared with its earlier forecast of 3% to 4%. The projected yield on the client funds portfolio is now approximately 3.8%, up from the previous estimate of about 3.7%.

As a result, the company expects client funds interest revenue of $1.59 billion to $1.61 billion, above its prior range of $1.54 billion to $1.56 billion. The expected net impact from its client funds extended investment strategy was also increased to $1.59 billion to $1.61 billion from $1.545 billion to $1.565 billion.

For fiscal 2027 overall, ADP continues to forecast adjusted EBIT margin expansion of 70 to 90 basis points and an adjusted effective tax rate of approximately 23%.

Product and expansion priorities

ADP said use of its ADP Assist artificial intelligence offering expanded to an additional 100,000 clients since the fourth quarter. The company also launched a Recruiting AI Interviewer Agent within ADP Lyric HCM and expanded ADP API Central.

Other initiatives include extending ADP Lyric HCM availability across key European markets and introducing PNC Payroll by ADP through a partnership with PNC Bank. The presentation did not quantify the expected financial contribution from these initiatives.

ADP’s outlook remains subject to risks including client acquisition and retention, pricing, competition, employment and wage trends, interest rates, foreign exchange movements, regulatory changes and the performance of new products. The company also identified technology changes, including artificial intelligence, cybersecurity incidents, system disruptions, acquisitions, natural disasters and supply-chain disruptions as factors that could cause actual results to differ from its expectations.