ADP and Paychex Chug Along Amidst Uninspiring Jobs Numbers

According to market reports, U.S. companies added more jobs than expected in July. More than 163,000 jobs were added by U.S. companies, which was marginally less than the 172,000 jobs added in June of this year. A survey conducted by Bloomberg of 38 economists was projecting job growth of 75,000-180,000 during the month. Increased job opportunities were a positive sign for payroll processing firms, helping them to meet market expectations.

ADP’s Financials
ADP’s (NASDAQ:ADP) Q4 revenues grew 5.2% over the year to $2.64 billion, marginally shy of the Street’s projections of $2.65 billion. EPS of $0.53 was in line with the market’s targeted EPS and reported growth over previous year’s earnings of $0.48 for the quarter.

By segment, Employer Services’ revenues grew 7% over the year to $1.88 billion, with the number of employees whose payrolls were processed by ADP in the U.S. rising 3.2% over the year. Revenues from PEO Services grew 12% to $443.3 million, and revenues from Dealer Services grew 7.0% to $431.4 million.

During the quarter, ADP bought back 6.4 million shares of its stock at a cost of $342 million.

ADP ended the year with revenues growing 8% over the year to $10.67 billion and EPS of $2.82. For the year 2013, the company projects revenues and earnings to grow 5%-7% over the year. The market is looking for 8% growth on revenues and 9% growth on earnings.

A New Cloud Product for SMBs
ADP remains focused on small and medium businesses and continued to expand service offerings for this segment. Recently, the company announced an integration with online accounting software provider, Xero. Through the tie-up, Xero’s general ledger solution will be integrated with ADP’s RUN Powered by ADP payroll platform. ADP’s RUN is a cloud-based solution that delivers compliance tools for payroll, tax administration, and employee management.

The integrated solution is tailored to small business owners. Xero provides SMB owners with real-time visibility into their financial positions. The solution also helps online collaboration with clients, virtual teams, and prospects for accounting professionals. The integration will enable both businesses and accounting professionals to transfer data in a simple and secure manner to Xero’s cloud-based software.

In addition, ADP is offering improved mobile offerings. After acquiring AdvancedMD last year, it recently launched an iPad app for medical practices. The freely downloadable AdvancedMD iPad app will be available later this summer and will include features such as simplified user experience, enhanced credit card management, credit balance transfer, patient photos, pediatric workflow, and the conversion to ICD-10 codes.

The stock is trading at $57.47 with a market capitalization of $28.11 billion. It touched a 52-week high of $57.17 earlier this year.

Paychex’s Financials
ADP’s competitor Paychex (NASDAQ:PAYX) saw Q4 revenues grow 6% over the year to $551.5 million, short of the Street’s projections of $558.0 million. EPS of $0.34 was in line with market expectations and grew 4% over the year.

By segment, payroll service revenues grew 4% to $369.5 million and Human Resource Services revenues grew 12% to $171.2 million.

The company ended the year with revenues up 7% over the year to $2.19 billion and EPS up 6% to $1.51. For the current year, Paychex expects payroll revenues to grow from 3%-4%, short of the market’s projected growth of 4.5%.

Paychex’s Mobile Expansion
As part of its expanding product offerings, Paychex recently released a smartphone app for its solutions. The smartphone app for iPhone, Android, and BlackBerry will offer clients and clients’ employees a tool to stay connected to their Paychex payroll, benefits, and retirement information.

Paychex’s stock is trading near highs at $32.92, with a market capitalization of $11.94 billion. It touched a 52-week high of $33.40 in July 2012.