Newly-appointed ADP president and chief executive officer, Maria Black, made her first earnings call Wednesday morning.

ADP, the human capital management company with offices in Allentown, Scranton and Wayne, delivered the usual good results.

The company increased earnings by 17% over fiscal 2022 second quarter and also beat Zach’s consensus earnings estimates for the quarter. So, Wall Street, in its mysterious way, watched the ADP stock price decline over 5% in early morning trading.

ADP is one of the companies that government and Wall Street analysts look to for guidance on the labor market. The company saw pays-per-control (the number of employees on its clients’ payrolls not factoring in new clients) grow 5% in the quarter, which it believes is indicative of a continuing healthy labor market in the country, although Black told analysts in a webcasts that ADP is seeing some signs of employment slowing. This news might be what caused the stock to drop.

In addition, the company projects revenue for fiscal 2023 to increase 8% to 9% across the company and its two operating segments: Employer Services (ES) and Professional Employer Organization (PEO) Services. Adjusted earnings per share (EPS) are anticipated to grow 15% to 17%.

“Our healthy momentum from earlier in the year continued into our second quarter with strong revenue growth, margin expansion, and adjusted EPS growth,” said Black in a statement.

Second Quarter Fiscal 2023 Consolidated Results

Compared to last year’s second quarter, revenues increased 9% to $4.4 billion and 10% on an organic constant currency basis. Net earnings increased 17% to $813 million, and adjusted net earnings increased 17% to $815 million. Adjusted EBIT (Earnings Before Interest and Taxes) increased 15% to $1.1 billion, representing an adjusted EBIT margin increase of 120 basis points in the quarter to 24.3%.

Second Quarter Segment Results

Employer Services – Employer Services offers a range of global HCM and Human Resources outsourcing solutions. Compared to last year’s second quarter, Employer Services revenues increased 8% on a reported basis and 10% on an organic constant currency basis. U.S. pays per control increased 5% and Employer Services segment margin increased 170 basis points.

PEO Services – PEO Services provides comprehensive employment administration outsourcing solutions. Compared to last year’s second quarter, PEO Services revenues increased 11%. Average worksite employees paid by PEO Services increased 8% to about 711,000 and PEO Services segment margin increased 130 basis points.

Included within the segment results is Interest on Funds Held for Clients. The company maintains the safety, liquidity, and diversification of clients’ funds. Compared to last year’s second quarter, interest on funds held for clients increased 77% to $187 million, average client funds balances increased 4% to $33.4 billion, and the average interest yield on client funds increased 90 basis points to 2.2%

Fiscal 2023 Outlook

“With strong results in new business bookings, client revenue retention, and U.S. pays per control growth as well as a continued healthy HCM demand backdrop, we are well-positioned to continue our growth across the balance of the year,” said Don McGuire, Chief Financial Officer, ADP. “We remain committed to delivering against our profitability commitments while we invest in our people, products, and processes to ensure a strong foundation for sustainable future growth.”

Consolidated Fiscal 2023 Outlook

• Revenue growth of 8% to 9%

• Adjusted EBIT margin expansion of 125 to 150 basis points

• Adjusted effective tax rate of approximately 23.0%

• Diluted EPS growth of 15% to 17%

• Adjusted diluted EPS growth of 15% to 17%

Employer Services Segment Fiscal 2023 Outlook

• Employer Services revenue growth of 8% to 9%

• Employer Services margin expansion of 200 to 225 basis points

• Employer Services new business bookings growth of 6% to 9%

• Employer Services client revenue retention decrease of 30 to 20 basis points

• Increase in U.S. pays per control of 3% to 4%

PEO Services Segment Fiscal 2023 Outlook

• PEO Services revenue growth of 8% to 9%

• PEO Services revenue, excluding zero-margin benefits pass-throughs, growth of 9% to 10%

• PEO Services margin of flat to up 25 basis points

• PEO Services average worksite employee count growth of 6% to 7%

Client Funds Extended Investment Strategy Fiscal 2023 Outlook

The interest assumptions in the company’s outlook are based on Fed Funds futures contracts and various forward yield curves as of January 24, 2023.

Interest on funds held for clients of $790 to $800 million is based on anticipated growth in client funds balances of 4% to 5% and an average yield that is anticipated to increase to 2.4%. The total contribution from the client funds extended investment strategy is anticipated to be $710 to $720 million.

ADP (Nasdaq: ADP) is a global technology company providing human capital management solutions including cloud-based human capital management (HCM) solutions that unite HR, payroll, talent, time, tax and benefits administration, as well as business outsourcing services, analytics and compliance expertise.