Automatic Data Processing reported second-quarter fiscal 2026 earnings per share of $2.62, surpassing consensus estimates by $0.04. Revenues climbed 6.2% year-over-year, driven by a 7.1% increase in Employer Services and a 5.4% rise in Professional Employer Organization (PEO) Services. Net income reached $714 million, up from $642 million in the year-ago period, while operating margin expanded by 50 basis points to 23.8%. Total client funds balances rose to $92 billion, reflecting strong cash collection and reinvestment activity, and free cash flow improved by 8% to $830 million.

Following the strong quarter, management raised its full-year revenue growth outlook to a range of 5.5%–6.0%, up from 5.0%–5.5%, citing sustained demand for payroll and human capital management solutions. Adjusted operating margin is now projected to improve by 40–60 basis points versus prior guidance of 30–50 basis points. The company expects free cash flow conversion to exceed 90% of adjusted net income, supported by disciplined working capital management and continued client funds reinvestment strategies.

ADP unveiled new AI agents under the ADP Assist platform, leveraging a global data repository spanning 1.1 million clients and 42 million wage earners. These persona-based bots automate tasks such as payroll variance audits, tax registration workflows and HR policy inquiries, with the goal of reducing manual effort by up to 30% for practitioners. Senior executives project that incremental AI-driven services could contribute 150–200 basis points of revenue growth over the next three years as adoption expands within mid-market and enterprise segments.

Despite solid top-line momentum, the stock trades at roughly 22 times consensus fiscal 2026 earnings, positioned toward the upper end of its five-year multiple range. Investors remain cautious given moderating U.S. employment growth—ADP’s own National Employment Report data showed private payroll additions averaging 7,750 per week in early January, down from 11,000 in mid-December—and demographic headwinds that may weigh on long-term hiring demand. Potential interest rate cuts by late 2026 could support reinvestment yields on client funds but are unlikely to offset near-term pressure on workforce expansion.