ADP profit falls 41 percent as unemployment persists

NEW YORK Thu Jul 29, 2010 6:33pm EDT

NEW YORK (Reuters) - Automatic Data Processing Inc (ADP.O) said quarterly profit fell 41 percent amid stubbornly high unemployment, and the world's largest payroll processor forecast no immediate improvement in the economy.

The earnings were in line with Wall Street's average forecast, but the company was reluctant to say that hiring was on the upswing. ADP shares closed down 1.9 percent at $41.32 on Thursday.

ADP said it sold more of its services in the quarter and employers hired slightly more employees.

Chief Financial Officer Christopher Reidy said the company's business is improving, even if the overall economic outlook is cloudy.

"The fact that our sales and new (business) bookings are going in the right direction across the board is an encouraging indicator," he said. "We really see it as an inflection point. The metrics are turning and we're investing in the business."

Worldwide sales of ADP's payroll and human resources processing products increased 25 percent during the quarter from a year earlier, when the economy was moribund.

About half of ADP's sales this quarter were to existing customers who bought more products, Reidy said. The other half came from ADP signing new customers, especially small businesses.

Small and mid-size employers are still more willing to spend money on new products than large companies, he said.

Larger clients are having "a lot more conversations with us about potential new business, but large company CFOs still remain somewhat cautious on the economy" and are more reluctant to invest in technology, he said.

ADP predicted stability but not improvement for the overall economy in the next 12 months.

Chief Executive Gary Butler said in a statement that the company's expectations for its new fiscal year, begun July 1, would reflect "no changes in the current economic environment."

NEW YEAR

ADP's revenue grew 4 percent from a year earlier to $2.2 billion for its fiscal fourth quarter, which ended June 30.

The company forecast that fiscal 2011 revenue would inch up somewhere between 1 percent and 3 percent. It said earnings for the first half of the year may be offset by expenses from investments, as it recently signed deals to buy two companies.

The company reported earnings of $207.9 million, or 42 cents a share, for its fourth quarter, down from $353 million, or 70 cents a share, a year earlier. The year-earlier profit included a $120 million benefit from tax settlements.

Earnings were in line with Wall Street expectations, according to Thomson Reuters I/B/E/S.

ADP repurchased 11.7 million of its shares at a cost of $485 million during the quarter.

(Reporting by Maria Aspan; Editing by John Wallace, Tim Dobbyn and Steve Orlofsky)

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