ADP (ADP) Has Fallen 11.2% Since Its Last Earnings Release: Is a Recovery Possible?

ADP Stock Performance Since Last Earnings

Approximately one month has passed since Automatic Data Processing (ADP) released its previous earnings report. During this period, the company's shares have declined by about 11.2%, trailing behind the S&P 500 index.

Investors may be questioning whether this downward trend will persist as the next earnings announcement approaches, or if ADP is poised for a turnaround. Before examining recent reactions from analysts and investors, let's review the highlights from the latest earnings report to better understand the key factors at play.

Second Quarter Results Exceed Expectations

ADP delivered strong results for the second quarter of fiscal 2026, surpassing the Zacks Consensus Estimate for both earnings and revenue.

The company reported earnings per share of $2.62, which was 1.6% higher than consensus forecasts and represented an 11.5% increase compared to the same quarter last year. Total revenue reached $5.4 billion, narrowly missing expectations but still marking a 6.2% year-over-year increase.

Performance by Business Segment

• Employer Services: Revenue came in at $3.6 billion, up 6% on a reported basis and 5% on an organic constant-currency basis, exceeding the consensus estimate of $3.3 billion. The number of pays per control rose 1% year-over-year.
• PEO Services: Revenue increased 6% from the prior year to $1.8 billion, beating the expected $1.7 billion. The average number of worksite employees paid by PEO Services climbed 2% to 758,000.
• Interest on Client Funds: Interest earned on funds held for clients grew 13% year-over-year to $309 million, just below the consensus estimate of $310.2 million. The average client funds balance increased 6% to $37.6 billion, while the average interest yield improved by 20 basis points to 3.3%.

Profitability and Margins

Adjusted EBIT rose 10% year-over-year to $1.4 billion, with the adjusted EBIT margin expanding by 80 basis points to 26%. However, the margin for Employer Services declined by 50 basis points, and PEO Services saw a decrease of 70 basis points compared to the previous year.

Financial Position and Cash Flow

At the end of the second quarter of fiscal 2026, ADP held $2.4 billion in cash and cash equivalents, slightly down from $2.5 billion in the prior quarter. Long-term debt remained steady at $4 billion. The company generated $1.1 billion in operating cash flow during the quarter.

Fiscal 2026 Outlook

• ADP anticipates revenue growth of 6% for fiscal 2026, in line with the previous guidance of 5-6%.
• The company expects adjusted EPS to grow by 9-10%, consistent with the 8-10% range provided earlier in the fiscal year.
• The adjusted effective tax rate is projected to be 23%.
• Guidance for the adjusted EBIT margin is set at an increase of 50-70 basis points.
• Employer Services revenue is forecasted to grow 6%, while PEO Services revenue is expected to rise by 5-7%.

Recent Estimate Trends

Over the past month, analyst estimates for ADP have remained largely unchanged.

VGM Score Breakdown

• ADP currently holds a Growth Score of D, indicating below-average growth prospects.
• The Momentum Score is strong at A.
• For value, the stock received a C, placing it in the middle range for value investors.
• Overall, ADP's composite VGM Score is D, which may be most relevant for investors not focused on a single strategy.

Analyst Outlook

ADP is rated as Zacks Rank #3 (Hold), suggesting that the stock is expected to deliver returns in line with the broader market over the coming months.