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October 31, 2025 • 3 min read
Automatic Data Processing, Inc. (ADP), a giant in the Human Capital Management (HCM) industry, recently unveiled its financial performance for the first quarter of fiscal year 2026. For anyone interested in the health of the labor market or the business of managing people, ADP's numbers offer a valuable glimpse into current trends. Let's dive into their latest 10-Q filing to see how the company is faring.
For the quarter ending September 30, 2025, ADP reported total revenues of $5.2 billion, a solid 7% increase from the same period last year. To get a clearer view of the underlying business, analysts often look at "organic constant currency" growth, which removes the effects of acquisitions and foreign exchange fluctuations. On this basis, ADP's revenues grew by a healthy 6%.
To understand where this money comes from and where it goes, the following flow diagram provides a visual breakdown of ADP's income statement for the quarter.
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You might notice a small negative "unallocated" revenue in the chart. This represents the elimination of revenues that occur between ADP's different business segments, which is a standard accounting practice for consolidated reporting.
ADP's business is primarily split into two large segments: Employer Services and Professional Employer Organization (PEO) Services.
Employer Services: This is ADP's core business, offering a vast suite of products from payroll and benefits administration to talent management and HR compliance. This segment generated $3.5 billion in revenue, up 7% from last year (or 5% on an organic constant currency basis). This steady growth underscores the essential nature of its services for businesses of all sizes.
PEO Services: In this segment, ADP acts as a co-employer for its clients, handling HR, benefits, and payroll on a larger scale. PEO Services also saw revenues climb by 7% to $1.7 billion. A significant portion of this revenue—$1.1 billion—is from "zero-margin benefits pass-throughs," which are costs like health insurance premiums that ADP collects and passes on without a markup. Excluding these pass-throughs, the segment's revenue grew by 6%, indicating healthy demand for its core offerings.
While growing revenue is crucial, profitability tells the rest of the story. ADP’s Earnings Before Income Taxes (EBIT) rose 6% to $1.3 billion. However, total expenses grew slightly faster than revenue, at 8%, leading to a minor compression in the EBIT margin, which dipped from 25.6% to 25.3%. The company's preferred non-GAAP metric, Adjusted EBIT margin, remained stable at 25.5%, suggesting underlying profitability remains strong.
Ultimately, this translated into Net Earnings of $1.0 billion, a 6% increase, and a Diluted Earnings Per Share (EPS) of $2.49.
ADP also continued its long-standing practice of returning cash to its shareholders. During the quarter, the company distributed $627 million in dividends and spent $366 million repurchasing its own stock, totaling nearly $1.0 billion in shareholder-friendly actions.
ADP's first-quarter results paint a picture of a stable and mature company executing well. The consistent, mid-single-digit organic growth across both major segments highlights the stickiness of its client relationships and the recurring nature of its revenue. While keeping an eye on expense growth will be important, the company's robust profitability and generous capital return program continue to be key features of its financial profile. In a competitive HCM landscape with players like Workday and Paychex, ADP's ability to deliver steady results demonstrates its entrenched market leadership.
Last updated: October 31, 2025