Earnings

ADP Raises Revenue And EPS Targets But Keeps Margin Outlook At 70 To 90 Basis Points

CFO Peter Hadley said the payroll giant would rather split gains between profit and reinvestment after a first quarter that topped its own plan.

Matteo Parrino Jonathan Ponciano

Matteo Parrino, Jonathan Ponciano

— 3 min read
Share
ADP Raises Revenue And EPS Targets But Keeps Margin Outlook At 70 To 90 Basis Points

ADP lifted its fiscal 2027 revenue and earnings-per-share targets but left its margin outlook where it was, and Chief Financial Officer Peter Hadley told analysts on the company's earnings call Wednesday that the reason is reinvestment. ADP, which provides payroll, HR and workforce management software and outsourcing to employers, still expects adjusted margin expansion of 70 to 90 basis points (0.70 to 0.90 percentage points).

Why the margin guide stayed put

An analyst from JPMorgan asked whether the higher pays-per-control forecast, a high-margin driver, should have moved the margin number. Hadley said ADP is "holding the margin guide consistent with last quarter," while lifting the EPS growth outlook to 10% to 12% on higher revenue. The effective tax rate is still seen around 23%.

He listed the spending areas: AI transformation, product investments, cloud infrastructure, and scaling upmarket and global offerings. Funding comes "more so through float and more so through productivity improvements," he said, and pays per control is a small piece of the margin picture this quarter.

His summary: "We feel like on balance that's in the best interest of shareholders to drop some to the bottom and to retain some to continue to invest in future growth opportunities."

An analyst from TD Cowen asked whether the flat guide reflected conservatism. Hadley said it is early in the year and "perhaps there's an opportunity to outperform," but added "I wouldn't call that out."

What the quarter and new outlook look like

First-quarter revenue grew 6%, adjusted EBIT margin expanded 130 basis points and adjusted EPS grew 13%, Hadley said. Management said all three beat its own expectations. ADP now expects fiscal 2027 revenue growth of about 6%.

Pays per control growth was 2% in the quarter, and the full-year forecast rises to around 1% from 0% to 1%. Client funds interest revenue rose 15%, and ADP lifted its full-year forecast for it by $50 million to a range of $1.59 billion to $1.61 billion, citing higher balances and a projected average yield of about 3.8%.

Employer Services revenue rose 6%, and its 4% to 7% full-year growth guide is unchanged. PEO revenue rose 7%, or 4% excluding zero-margin pass-throughs. ADP holds its PEO guidance, which Hadley called prudence, since state unemployment tax tables, a big revenue piece in the third quarter, arrive in December and January.

The Zone and the AI push

ADP's AI-infused service platform, The Zone, covered 60% of the service population at the end of the quarter, up from 48% at the end of fiscal 2026. In the downmarket core HR and payroll business, where it is fully deployed, contacts per client handled fell a further 7% year over year, after an 8% reduction in fiscal 2026. Hadley said that result combines The Zone and ADP Assist and should not be credited entirely to the former.

CEO Maria Black announced PNC Payroll by ADP, a partnership that puts ADP's payroll and HR tools inside PNC's digital banking platform for small businesses. She said more pipeline sits alongside it. She also said ADP Assist has about 50 agents in general availability.

Black said ADP expects 100% of its North American sellers to be on the sales version of The Zone by the end of this fiscal year.

Sources

More on Automatic Data Processing

All Automatic Data Processing (ADP) coverage →

Read more