ADP, Paychex Grow, Despite Sluggish Recovery

According to the Bureau of Labor Statistics, in April non-farm payroll grew by 115,000, much short of the market’s projected growth of 165,000 jobs. However, during the month, unemployment rate fell marginally from 8.2% to 8.1%. As the slow growth in the job market continues, payroll processing firms are delivering steady progress and meeting market expectations.

ADP’s Financials
ADP’s (NASDAQ: ADP) Q3 revenues grew 6.8% over the year to $2.92 billion, in line with the Street’s projections. EPS of $0.92 was ahead of the market’s targeted EPS of $0.91 and reported an impressive 8.2% growth over the year.

By segment, Employer Services’ revenues grew 6.8% over the year to $2.11 billion. The number of employees whose payrolls are processed by ADP in the U.S. grew 3.3% over the year. Revenues from PEO Services grew 15.0% to $513.7 million and revenues from Dealer Services grew 7.0% to $431.9 million.

ADP expects current fiscal revenues of $10.57-$10.77 billion with EPS of $2.72-$2.75. The Street was looking for revenues of $10.7 billion with earnings of $2.74 per share.

ADP’s Acquisitions
As part of growth through acquisitions, ADP recently completed the acquisition of the human resource subsidiary of Kentucky-based SHPS. SHPS offers employee benefit programs and benefit administration services for organizations. Analysts believe that the healthcare reforms and the Patient Protection and Affordable Care Act have led to more complicated regulations and complex benefit administration of employers. Through the acquisition, ADP will be able to offer services like absence management systems, reimbursement systems and the management of flexible spending accounts and health savings accounts to clients.

ADP’s stock is trading at $53.56 with a market capitalization of $26.16 billion. It touched a year high of $57.10 earlier this year.

Paychex’s Financials
Paychex’s (NASDAQ: PAYX) Q3 revenues grew 8% over the year to $558.5 million, short of the Street’s projections of $568.9 million. EPS of $0.37 grew 3% over the year and were in line with the market’s expectations.

By segment, payroll service revenues grew 5% to $386.5 million and human resource services revenues grew 12% to $172 million.

Paychex’s New Products
Paychex continued to strengthen its product offerings and released its Business Insurance Payment Service last quarter. The Business Insurance Payment Service lets policy holders opt for a pay-as-you-go monthly billing setup for premiums versus the up-front premium deposit. The service will be available for business owner, commercial auto and umbrella policies sold by Paychex Insurance Agency through The Hartford, Guard Insurance Group and Travelers insurance companies. Additionally, management of the policies has been simplified by reducing the need to keep track of due dates, determine the correct premium or remember to send payments.

Paychex’s stock is trading at year high levels of $29.73 with a market capitalization of $10.81 billion.