(Adds chief financial officer's comments on client base, includes analyst comment and updates stock price)

 
   DOW JONES NEWSWIRES 
 

Automatic Data Processing (ADP)'s fiscal second-quarter net income rose 3.2% despite weakened sales conditions amid uncertainty about the length and depth of the U.S. recession.

Shares of the largest company in the $70 billion global-payroll processing market rose as much as 9.1% and were up 5.7% at $38.74 in recent trading as results topped analysts' expectations.

For the quarter ended Dec. 31, ADP reported net income increased to $300.5 million, or 59 cents a share, from $291.2 million, or 55 a share, a year earlier.

Revenue rose 2.5% to $2.2 billion; the gain would have been double that absent the strengthening dollar.

Analysts polled by Thomson Reuters were looking for earnings of 56 cents a share on revenue of $2.18 billion.

Revenue rose 6% at ADP's employer-services business, by far its biggest business, which includes its payroll services. Pretax earnings from continuing operations rose 13% despite the number of employees on U.S. clients' payrolls falling 0.6%.

Chief Financial Officer Chris Reidy said the payrolls decline appears small when compared with recent increases in unemployment since there is "a bit of a lag" for work-force reductions to affect results at ADP. It also processes severance payments and other benefits.

In a conference call, Reidy said companies that outsource payment processing tend to be healthy, suggesting that ADP's client base remains strong. In addition, Reidy indicated that manufacturing companies don't make up a "significant" portion of ADP's customers, referring to the sector which has seen among the most job losses.

Several analysts said the comments were encouraging as the company's second-quarter earnings beat expectations.

"They continue to show resilience against a tough economic backdrop," said Michael Baker of Raymond James.

For its fiscal year, ADP expects employees on clients' payrolls to fall 1% to 3%, meaning a 3% to 5% drop over the second half. Each one percentage-point change affects revenue by $15 million to $20 million, Reidy said.

Global client retention has decreased 0.5% so far in ADP's fiscal year amid price sensitivity and an increasing number of clients going out of business.

Combined new business sold in its employer-services and human-benefits outsourcing businesses fell 13% amid continued economic uncertainty. The results are combined due to overlap among some of the businesses served. The smaller human-resources outsourcing business posted the strongest growth in the quarter, with revenue rising 14%, as the company can sell to its large payroll-services client base.

ADP also expects new business sales to grow about 15%, or by $1 billion, this fiscal year. The dollar figure represents the added annual revenue expected to be generated from each sale.

-By Tess Stynes, Dow Jones Newswires; 201-938-2473; tess.stynes@dowjones.com

(Kejal Vyas contributed to this report.)

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary. You can use this link on the day this article is published and the following day.