Payroll Services Sector Update

ADP’s (NASDAQ:ADP) recent employment report brought some good news to a gloomy market as the company reported growth in private payrolls in July by 114,000 jobs, ahead of the 100,000 projected earlier. This was the 18th consecutive month of growth in jobs in the country. Growth has been seen across all business sizes with small businesses reporting an increase of 58,000 jobs last month, medium-sized businesses reporting a gain of 47,000 jobs, and large firms adding 9,000 jobs overall. Payroll processing firm ADP’s quarterly results were also equally cheerful. ADP’s Financials
ADP’s Q4 revenue grew 14% over the year to $2.51 billion, ahead of the Street’s projections of $2.44 billion. EPS of $0.48 was marginally shy of the market’s expected $0.49. For the quarter, employer services revenues grew 9% over the year to $1.71 billion due to increase in payroll and payroll tax filing revenues. The number of workers on ADP client payrolls grew 2.6% over the year.

ADP ended the year with revenues of $9.88 billion compared with $8.93 billion earned a year ago. EPS of $2.52 grew from $2.40 earned in fiscal 2010.

For the current fiscal year, ADP projects revenue of $10.6 billion-$10.8 billion with EPS of $2.72-$2.77, ahead of the Street’s target of revenues of $10.5 billion with EPS of $2.73.

ADP’s Mobile Expansion
Recently, ADP launched their mobile apps for iOS, Android, and RIM device based mobile devices. Using the freely downloadable ADP Mobile Solutions app, employees of ADP clients can now view recent pay statements, access corporate directories, read company news, manage time off and attendance, and review ADP Retirement Savings information.

Earlier last quarter, the company had also launched their payroll management platform for small businesses, RUN, on the Android operating platform. Last year, RUN was launched on the iOS platform and is soon expected to be launched on BlackBerry devices as well. RUN helps businesses with less than 50 employees manage their payroll processes online. ADP sees significant demand for mobile computing services and is hoping to address this demand through the launch of these apps.

ADP’s Expanding Service Offerings
Following the acquisition of AdvancedMD last quarter, ADP has pressed forward its focus on the healthcare IT market. Recently, the company announced plans to expand in the electronic health records (EHR) services by proposing to increase their workforce in the segment by 45%, translating to more than 100 jobs.

Additionally, the company launched ADP Payments, a procure-to-pay solutions platform that lets companies initiate, control, and monitor supplier payments electronically. By integrating the solution with their invoice automation application, ADP believes it is now able to offer clients a seamless, end-to-end solution through a single platform.

ADP’s stock is trading at $44.81 with a market capitalization of $22.16 billion. It touched a 52-week high of $55.12 in May of this year.

Paychex’s Financials
Paychex (NASDAQ:PAYX), however, failed to report a stellar quarter. Revenues of $522.7 million was short of the Street’s target of $542.0 million despite growing 5% over the year. EPS of $0.33 was in line with market expectations. By segment, payroll service revenue grew 5% over the year to $356.9 million, driven by their earlier acquisition of SurePayroll Inc. The human resource services segment revneues grew 9% over the year to $153.5 million.

Paychex’s Small Business Focus
Paychex sharpened their focus on small businesses by launching a new media center which will offer small businesses a resource kit with access to informative articles and tools from Paychex and to other online resources from the U.S. Small Business Administration. The kit will provide in-depth information, templates, and overview of elements about business planning, financing, employee management and payroll payroll processing besides covering compliance, regulations, risk management, and related topics.

Paychex’s stock is trading at $26.48 with a market capitalization of $9.59 billion. It touched a 52-week high of $33.91 in March of this year.