Thread regarding ADP layoffs

Even Ackman likes what ADP is doing

“Automatic Data Processing, Inc (“ADP”)ADP is a high-quality, defensive business which is in the early stages of a long-term transformation that should drive significant value creation as it closes the performance gap and achieves its structural potential.

2018 was a critical year for ADP. In response to our 2017 proxy contest, ADP made broad commitments to shareholders to accelerate revenue growth, bolster its competitive position (specifically in the enterprise market) and improve operational efficiencies and margins. ADP began to execute upon these commitments in 2018 and introduced new medium-term (fiscal year 2021) targets at its June 2018 Analyst Day.

At the Analyst Day, ADP provided a comprehensive update on the business trajectory and next-generation product portfolio. ADP committed to achieving accelerated revenue growth and operational efficiency improvements (targeting 23% to 25% adjusted EBIT margins) over the coming years. These projections represent substantial increases in management’s prior guidance. ADP’s new targets provide a credible plan for ADP to realize $7 of earnings per share by FY 2021 (vs. $4 at the time of our initial investment). We believe the targets still only capture a fraction of ADP’s structural potential, as we expect it will exceed its medium-term targets and make accelerated margin progress thereafter.

In support of the operating targets communicated at the Analyst Day, ADP executed numerous transformation initiatives in 2018, including accelerating the company’s Service Alignment Initiative, executing an Early Retirement Program, moving up the roll-out of its next-generation product portfolio and strengthening the talent and performance culture at the company. In support of ADP’s transformation, the company promoted a current executive to Chief Transformation Officer and has further bolstered the management team with new external hires (including a new Chief Strategy Officer and Chief Financial Officer). We view the hiring of external executives with relevant skills and fresh perspectives positively as it further assists ADP in executing on its transformation.

Recent financial results have provided some early validation of the transformation underway at ADP as evidenced by accelerated organic growth, significant margin expansion and upward revisions in current fiscal year 2019 earnings-per-share guidance which now stands at $5.30 to $5.40 per share (an increase of 17% to 19% over the previous year). We believe ADP’s ongoing transformation will be further demonstrated over the coming quarters.

We believe ADP can sustain mid-to-high-single-digit top-line growth, which when coupled with the substantial opportunity to improve ADP’s cost structure and the high operating leverage realized on incremental revenue, should allow ADP to compound earnings per share at a mid-to-high-teens growth rate for many years. At present, ADP trades at 25 times our estimate of next-twelve-months earnings which is below our estimate of the company’s intrinsic value based upon its high-quality defensive business and accelerated earnings growth profile. ADP shares appreciated 14% in 2018 including dividends and 19% 2019 year-to-date.”

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Post ID: @YnmApfq

6 replies (most recent on top)

ADP senior leadership believes it can be more successful (considering only stock price) with less experienced, less skilled EEs that make less money.

Cutting costs like that is known to raise stock prices in the short term. It remains to be seen if ADP can sustain growth/quality/retention without the people that got them there in the first place. It seems counter intuitive and goes against the mantra of elite leaders at the best companies (fyi, I do not consider Carlos a great or even a good leader).

So, it's a risk. My educated opinion is that ADPs senior leadership is focusing on short term stock prices at a cost that will undermine their position in the mid to long term. Is that risk worth upending the lives of thousands of families? My answer would be...no.

A couple things that won't show up on ADPs balance sheet...

  1. EE loyalty used to be pretty strong at ADP. Now it's dead. Senior leadership killed it. EE turnover rates will be interesting.

  2. Much of that tenured talent now works for smaller, aggressive competitors that are going hard after ADP clients with some success.

Time will tell. FWIW, I sold all my stock and recently left ADP...voluntarily.

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Post ID: @YnmApfq-1ekm

ADP has no interest in keeping tenured employees that have the knowledge to keep clients happy. The truth is that most of the tenured staff have been let go by means of severence or early retirement pkg. The praises seen on this site are lies.

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Post ID: @YnmApfq-1suu

What the hell is with this site? My prior post (two of them) are not showing up. There was nothing controversial about them. Can the Nazis run in this site please explain it?

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Post ID: @YnmApfq-ttr

"Keeping ee's happy is a means to that end"

But many ADP employees are not happy. Many are leaving in droves resulting in a constant revolving door of ingoing and outgoing employees. The fine language gobbledygook by the OP fails to address that. It also does not address the tons of dissatisfied ADP clients and the severe difficulties encountered by the new poorly paid employees who are trying to service them. It also fails to address that the high stock price and other good financials are driven by a temporary wind of labor cost savings through layoffs and firings that make it appear that the company is doing well. Once the labor cuts finish, the wind will cease and the ADP ship will stall and sink.

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Post ID: @YnmApfq-xfu

The only reason a company exists is to keep investors happy. Keeping ee's happy is a means to that end.

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Post ID: @YnmApfq-eew

No concern for working people, just keep investors happy.

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Post ID: @YnmApfq-ydn

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