Automatic Data Processing rating affirmed with stable outlook

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ADP rating affirmed stable outlook

Highlights

Fitch Ratings affirmed Automatic Data Processing's Long-Term IDR at 'AA-' and Short-Term IDR at 'F1+' with a Stable outlook, citing consistently low gross leverage below 1.0x.
ADP ended fiscal 2026 with $2.1 billion in free cash flow after $2.6 billion in dividends and 0.8x gross leverage, including a $1 billion note issued in May.
Recurring revenues, high EBITDA margins in the high 30s, and average annual free cash flow before dividends of $4 billion support ADP's robust credit profile.

Credit profile supported by low leverage

As reported by Fitch Ratings, Automatic Data Processing's Long-Term Issuer Default Rating is affirmed at 'AA-' and its Short-Term IDR at 'F1+', while the outlook remains Stable.

Fitch says the outlook reflects ADP's leading position in human capital management solutions and its very conservative capitalization. The agency says the company's credit profile is supported by gross leverage consistently below 1.0x, giving it flexibility to keep investing in the rollout of ADP Lyric HCM technology, digital transformation and AI capabilities.

At the end of fiscal 2026, which ended June 30, ADP generates about $2.1 billion in free cash flow after paying $2.6 billion in dividends. The company ends the year with 0.8x gross leverage, including an additional $1 billion note issuance in May, and Fitch expects leverage to remain below that level over the rating horizon.

HCM scale and recurring revenues back outlook

Fitch says ADP continues to benefit from its client funds investment strategy, generating about $1.3 billion compared with $1.2 billion in the prior fiscal year. While the company continues shareholder-friendly actions such as buybacks and dividends, the agency expects it to preserve low leverage to protect its strong credit standing.

ADP pays one in six U.S. workers and more than 42 million workers across over 140 countries, underscoring its scale in payroll and HCM services. Fitch says strong retention in employee services, which account for 85% of net revenue, highlights the stickiness of the company's offerings and supports further revenue expansion over the forecast period.

The ratings case is also supported by EBITDA margins on net revenue in the high 30s and limited capital expenditure needs. Fitch says free cash flow margins average 9.1% over the last four fiscal years, while free cash flow before dividends averages $4 billion, a level the agency expects ADP to continue generating despite sizable dividend distributions.

Our earlier article on Fitch’s final ratings for BMW Vehicle Lease Trust 2026-2 explained how the agency graded the auto lease ABS notes based on portfolio quality, credit enhancement, and structural protections. It also highlighted that residual-value exposure was a central risk driver, with the senior notes’ ratings particularly sensitive to higher residual-value loss assumptions despite the prime-credit characteristics of the underlying lease pool.

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