Payroll and HR services provider Automatic Data Processing (NASDAQ:ADP) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 7.5% year on year to $5.13 billion. The company expects next quarter’s revenue to be around $5.10 billion, close to analysts’ estimates. Its non-GAAP profit of $2.26 per share was 1.5% above analysts’ consensus estimates.
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ADP (ADP) Q2 CY2025 Highlights:
- Revenue: $5.13 billion vs analyst estimates of $5.03 billion (7.5% year-on-year growth, 1.9% beat)
- Adjusted EPS: $2.26 vs analyst estimates of $2.23 (1.5% beat)
- Adjusted EBITDA: $1.42 billion vs analyst estimates of $1.34 billion (27.6% margin, 6% beat)
- Revenue Guidance for Q3 CY2025 is $5.10 billion at the midpoint, roughly in line with what analysts were expecting
- Operating Margin: 23.5%, in line with the same quarter last year
- Free Cash Flow Margin: 27.4%, up from 26.1% in the same quarter last year
- Market Capitalization: $125.3 billion
Company Overview
Processing one out of every six paychecks in the United States, ADP (NASDAQ:ADP) provides cloud-based human capital management solutions that help businesses manage payroll, benefits, talent acquisition, and HR administration.
Revenue Growth
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.
With $20.56 billion in revenue over the past 12 months, ADP is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices.
As you can see below, ADP’s sales grew at a solid 7.1% compounded annual growth rate over the last five years. This is an encouraging starting point for our analysis because it shows ADP’s demand was higher than many business services companies.
We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. ADP’s annualized revenue growth of 6.8% over the last two years aligns with its five-year trend, suggesting its demand was stable. 
This quarter, ADP reported year-on-year revenue growth of 7.5%, and its $5.13 billion of revenue exceeded Wall Street’s estimates by 1.9%. Company management is currently guiding for a 5.5% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 5.1% over the next 12 months, a slight deceleration versus the last two years. We still think its growth trajectory is satisfactory given its scale and indicates the market sees success for its products and services.
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Operating Margin
ADP has been a well-oiled machine over the last five years. It demonstrated elite profitability for a business services business, boasting an average operating margin of 24.6%.
Analyzing the trend in its profitability, ADP’s operating margin rose by 4.2 percentage points over the last five years, as its sales growth gave it operating leverage.
This quarter, ADP generated an operating margin profit margin of 23.5%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
ADP’s EPS grew at a remarkable 11.1% compounded annual growth rate over the last five years, higher than its 7.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
We can take a deeper look into ADP’s earnings to better understand the drivers of its performance. As we mentioned earlier, ADP’s operating margin was flat this quarter but expanded by 4.2 percentage points over the last five years. On top of that, its share count shrank by 5.3%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For ADP, its two-year annual EPS growth of 10.2% is similar to its five-year trend, implying stable earnings power.
In Q2, ADP reported EPS at $2.26, up from $2.09 in the same quarter last year. This print beat analysts’ estimates by 1.5%. Over the next 12 months, Wall Street expects ADP’s full-year EPS of $10 to grow 8.8%.
Key Takeaways from ADP’s Q2 Results
It was encouraging to see ADP beat analysts’ revenue expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its revenue guidance for next quarter was in line. Zooming out, we think this was a decent quarter. The stock remained flat at $310.75 immediately following the results.
Should you buy the stock or not? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.