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ADP, Paychex Benefiting From Job Growth

Posted on Friday, Feb 10th 2012

According to the Bureau of Labor Statistics, total nonfarm payroll employment in the country grew by 243,000 jobs last month as the unemployment rate fell to 8.3%. Job growth was widespread across the private sector, specifically in leisure and hospitality, and manufacturing. The numbers spell good news for payroll processing firms, which managed to beat market expectations in the recent quarter results and are expected to perform better in the coming quarters.

ADP’s Financials
ADP’s (NASDAQ:ADP) Q2 revenue grew 7.4% over the year to $2.6 billion, in line with the Street’s projections. EPS of $0.69 was marginally ahead of the market’s targeted EPS of $0.68.

By segment, Employer Services revenues grew 7% for the quarter to $1.83 billion. Revenues from PEO Services grew 16% over the year to $0.42 billion and Dealer Services revenues grew 7% to $0.41 billion.

For the current quarter, ADP estimates revenues of $2.9 billion with EPS of $0.93. Revenues for the year are expected to be $10.7 billion with EPS of $2.74.

ADP’s Acquisitions
ADP continued with their acquisitions during the past quarter as well. Last week, they announced the acquisition of Massachusetts-based private player, PhyLogic Healthcare LLC. PhyLogic  is known for revenue cycle management and medical billing outsourcing services. The company’s services help manage billing and accounts receivable services for medical practitioners across the country and provide electronic health records and cloud-based practice management solutions. In 2011, ADP entered the medical space through the acquisition of AdvancedMD. PhyLogic’s acquisition will help them improve offerings within this field. The Revenue Cycle Management segment is also expected to grow rapidly in the coming years. Analysts estimate the market to grow from $4 billion in 2010 to more than $9 billion by 2018.

Early this year, ADP made a significant international play by moving into India through the acquisition of an Indian human resources and payroll management consultancy, Ma Foi Consulting Solutions Ltd. ADP will now manage Ma Foi’s Indian business, which includes domestic and multinational companies. With 200 employees spread across India, Ma Foi manages payroll outsourcing business for 350 clients in India.

Their acquisitions are being received positively by the market. Their stock is trading at $54.87 with a market capitalization of $26.71 billion. It touched a 52-week high of $57.10 last month.

Paychex’s Financials
Paychex’s (NASDAQ:PAYX) Q2 revenues grew 7% over the year to $545.7 million, short of the Street’s projections of $551 million. EPS of $0.39 grew 5% over the year and was ahead of the analyst target of $0.38. By segment, Payroll Service revenues grew 5% to $371.7 million and Human Resource Services revenues grew 12% to $163.3 million.

Paychex’s SMB Focus
To enhance their SMB offerings, Paychex acquired Oregon-based time and attendance solutions provider Icon Time Systems. Paychex plans to leverage Icon’s reseller network with their own sales force to offer their customers a wide range of options and higher quality service. Paychex had worked with Icon systems earlier to help develop their own time and attendance system, the Paychex PST 1000 time clock. Details of the transaction were not disclosed.

As part of the extended offerings to SMBs, Paychex also launched two new tax credit servicing tools. The Small Business Tax Credit Estimator is a free web-based tool that helps businesses estimate their tax credit on the health insurance schemes they offer based on employees’ hours, wages, premiums, and employer contributions. The Small Business Tax Credit Package helps the SMBs assess their eligibility to receive the tax credit and file for it.

Paychex’s stock is trading at $31.70 with a market capitalization of $11.49 billion. It touched a 52-week high of $33.91 in March 2011.

Overall, both Paychex and ADP are on a strong growth path, driven not only by their acquisitions but also by improvements, however small, in the economy.

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