Executive Summary
Automatic Data Processing Inc (0HJI.L) reported QQ1 2026 results with revenue of USD 5.175B, up 7.1% year over year and 0.9% quarter over quarter, supported by ongoing demand for cloud-based human capital management solutions. Gross profit was USD 2.339B, yielding a gross margin of 45.2%. However, operating income was negative USD 0.123B, as the quarter benefited from a substantial non-operating gain of USD 1.430B in total other income/expenses, resulting in income before tax of USD 1.308B and net income of USD 1.013B. Diluted EPS came in at USD 2.49 on 406.8 million diluted shares, with basic EPS at USD 2.50. Cash generation remained robust: cash from operations USD 642.3M and free cash flow USD 595.6M, though capital allocation included USD 366.0M of share repurchases and USD 626.7M in dividends. The balance sheet shows substantial liquidity (cash and equivalents plus short-term investments around USD 7.94B) and a total debt position of USD 9.53B, with the company reporting a net debt metric around USD 7.05B in the materials. While the top-line and cash flow metrics are supportive, the quarter’s profitability was driven by non-operating income rather than core operating leverage, highlighting the need for sustained operating-margin normalization as the company executes its cloud-based HCM strategy and cross-sell opportunities across Employer Services and PEO.
Key Performance Indicators
QoQ: -110.15% | YoY:-109.63%
Key Insights
Revenue: USD 5,175.2M; YoY growth 7.09%, QoQ growth 0.94%. Gross Profit: USD 2,339.1M; Gross Margin 45.20%; YoY change -2.87%, QoQ change -9.31%. Operating Income: USD -122.5M; Operating Margin -2.37%; YoY change -109.63%, QoQ change -110.15%. Net Income: USD 1,013.0M; Net Margin 19.57%; YoY 5.93% increase, QoQ 11.25% increase. EBITDA: USD 1,566.2M; EBITDA Margin 30.26%. Earnings per Share (GAAP): USD 2.50; Diluted EPS: USD 2.49; Weighted Avg Shares: 405.2M (non-diluted) / 406.8M (diluted). Cash...
Financial Highlights
Revenue: USD 5,175.2M; YoY growth 7.09%, QoQ growth 0.94%. Gross Profit: USD 2,339.1M; Gross Margin 45.20%; YoY change -2.87%, QoQ change -9.31%. Operating Income: USD -122.5M; Operating Margin -2.37%; YoY change -109.63%, QoQ change -110.15%. Net Income: USD 1,013.0M; Net Margin 19.57%; YoY 5.93% increase, QoQ 11.25% increase. EBITDA: USD 1,566.2M; EBITDA Margin 30.26%. Earnings per Share (GAAP): USD 2.50; Diluted EPS: USD 2.49; Weighted Avg Shares: 405.2M (non-diluted) / 406.8M (diluted). Cash Flow: Net cash from operating activities USD 642.3M; Free cash flow USD 595.6M. Balance Sheet: Total assets USD 54,320.8M; Total liabilities USD 47,947.0M; Total stockholders’ equity USD 6,373.8M. Liquidity: Cash and short-term investments USD 7,944.1M; Total debt USD 9,525.3M; Net debt USD 7,047.3M (note: reconciliation variances exist in the reported cash/debt numbers). Capital allocation: Purchases of investments and share repurchases amounted to USD 366.0M in the period; Dividends paid USD 626.7M.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
5.18B |
7.09% |
0.94% |
| Gross Profit |
2.34B |
-2.87% |
-9.31% |
| Operating Income |
-122.50M |
-109.63% |
-110.15% |
| Net Income |
1.01B |
5.93% |
11.25% |
| EPS |
2.50 |
6.84% |
11.61% |
Management Commentary
Note: Transcript data was not provided in the input. Highlights below reflect inferred themes for the QQ1 2026 period based on the financials and sector context: (1) Strategy and product focus: Ongoing emphasis on cloud-based HCM platforms across Employer Services and PEO, with cross-sell opportunities and upsell potential within existing client bases. (2) Operations and profitability: Operating margin remains negative despite healthy gross margin, underscored by substantial non-operating income that supported overall profitability for the quarter. (3) Cash flow and capital allocation: Solid cash generation from operations and meaningful free cash flow support, even as the company returns capital through share repurchases and dividends. (4) Market conditions: The HCM software/services market remains competitive with a mix of on-premise-to-cloud migrations and outsourcing demand; macro conditions and client mix could influence near-term performance.
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Forward Guidance
There were no explicit long-range annual guidance details provided in the QQ1 2026 materials. Based on the results and sector dynamics, the outlook hinges on: (a) continued growth in cloud-based HCM adoption and cross-selling within Employer Services and PEO; (b) normalization of operating margins as non-operating gains are less dominant and operating leverage improves with scale and mix shifts toward higher-margin recurring revenue; (c) resilience of cash flow generation supporting capital returns and balance-sheet strength. Key factors to monitor include: trajectory of operating margin normalization, the sustainability of non-operating income, client retention and ARPU growth, capex cadence for platform enhancements, and regulatory considerations affecting PEO operations across regions.