January 31, 2018 / 12:20 PM / a year ago

ADP boosts forecast as new tax law spurs demand

(Reuters) - Automatic Data Processing Inc (ADP.O) raised its full-year profit and revenue forecasts on Wednesday, as corporate tax reform and buoyant U.S. economic growth favor the payroll and tax services provider.

Shares in the firm, which in November defeated a proxy challenge from activist investor William Ackman, hit a record high after the announcement. They cooled slightly before the close, ending 2.3 percent higher.

U.S. companies are reassessing their tax accounting after President Donald Trump enacted sweeping changes to the tax code, benefiting tax services providers like ADP. The company will also gain from a lower tax bill.

The Roseland, New Jersey-based company said it expects revenue growth of 7 percent to 8 percent in fiscal 2018, compared with its earlier forecast of 6 percent to 8 percent.

Adjusted profit growth would now likely come in at 12 percent to 13 percent for 2018, up from its prior forecast 5 percent to 7 percent growth.

“The fact that the economy is robust and appears to be accelerating is helpful, with signs in the quarter of continued strength in employment and enough people out there to satisfy job growth,” Chief Executive Carlos Rodriguez told Reuters in a phone interview.

The encouraging macroeconomic environment was bolstering internal moves that improved its new business and client retention, Rodriguez said.


The stronger forecasts follow a bitter three-month contest with Ackman’s Pershing Square Capital, which accused the chief executive of complacency and hindering ADP’s potential.

Rodriguez said that while improved performance came from actions unrelated to activist pressure, the company benefited from the “energy” that the campaign gave it.

Noting a difference of views with the activist remained, Rodriguez said the short-term benefits it was generating would complement the company’s medium to long term plan for growth.

“As long as they get a return, they won’t return.”

Revenue from its professional employer organization services unit, which caters to small and medium businesses and is a major contributor to revenue, rose 15 percent to $945.3 million in the second quarter ended Dec. 31.

Net income fell to $467.5 million, or $1.05 per share, from $510.9 million, or $1.13 per share, a year earlier.

Excluding one-time items the company earned 99 cents per share. Total revenue rose to $3.24 billion from $2.99 billion.

Analysts on average expected it to report a profit of 90 cents per share on a revenue of $3.18 billion, according to Thomson Reuters I/B/E/S.

(This version of the story corrects the location of company headquarters in paragraph 4 to Roseland from Rosewood)

Reporting by Laharee Chatterjee in Bengaluru and David French in New York; Editing by Saumyadeb Chakrabarty and Cynthia Osterman

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