Don McGuire
Chief Financial Officer at Automatic Data Processing
Thank you, Maria, and good morning everyone. Our Q4 represented a strong close to the year with 10% revenue growth on a reported basis and 12% growth on an organic constant currency basis ahead of our expectations, despite higher than expected FX headwinds from the strengthening dollar. Our adjusted EBIT margin was up 170 basis points about in line with our expectations as leverage from strong revenue growth overcame higher selling expenses, PEO pass-throughs, and growth investments like the sales headcount growth Maria just mentioned. And our robust revenue and margin performance drove 25% adjusted EPS growth for the quarter supported by our ongoing return of cash for investors by a share repurchases.
For the full year, revenue landed a 10% growth. We delivered 90 basis points of margin expansion, offsetting a few different sources of incremental expense over the course of the year and adjusted EPS grew to $7.01, up about 16%. For our Employer Services segment, revenues in the quarter increased 8% on a reported basis and 9% on an organic constant currency basis. The stronger than expected revenue growth was a function of continued outperformance on key metrics, like retention and pays per control, and our ES margin increase of 140 basis points was a bit lower than previously planned as a result of growing headcount faster than previously anticipated.
For the full year, our ES revenues grew 8% on a reported basis and our ES margin increased 110 basis points. For our PEO, revenue in the quarter grew 16% accelerating slightly from Q3. Average worksite employees increased 14% on a year-over-year basis to 704,000 as bookings, retention, and same store pays all continue to perform well. PEO margin was up 260 basis points in the quarter due in large part to favorable workers' compensation reserve adjustments. For the full year, our PEO revenues and average worksite employees both grew 15% at the high end of our guidance ranges and our margin expanded 80 basis points.
I'll now turn to our outlook for fiscal '23, beginning with some overall remarks. We have on the one hand an inflationary environment that is creating upward pressure on our expense base, and at the same time, we recognize there is clearly concern about a potential upcoming global recession or that we perhaps are already in one. On the other hand, our momentum entering fiscal '23 is strong and there are no obvious signs of near-term strength and if the market forecast of higher interest rate holds, we are positioned to benefit from a continued rebound in interest income. So, our focus for now will be to continue executing on our strategy and, to that end, we have been and will continue to be making investments in headcount where we perhaps didn't get a chance to the last year in the tight labor market, but we also expect to deliver growth that's at or above our medium-term annual objectives shared on November 21, Investor Day.
On to the numbers. Beginning with ES segment revenues, we expect growth of 6% to 8% driven by the following key assumptions. First, we expect our ES new business bookings growth to be 6% to 9%, which Maria covered. For ES retention, we finished the year at 92.1%, a touch below last year's record level and we believe it's prudent to anticipate some further normalization of SMB of business levels in fiscal '23, even while we maintained record retention levels in some of our other business units. Our initial assumption is for a decline of 25 to 50 basis points in ES retention for the year. For pays per control, with employment back in your pre-pandemic levels, we anticipate a return to a more typical 2% to 3% growth range.
We normally talk about prices contributing 50 basis points to our ES growth rate. We expect that benefits to be around 100 to 150 basis points this year, and for client funds interest revenue, we expect higher overnight interest rates and higher repurchase rates on maturing securities should combined with our continued balance growth to drive interest income up nicely. Our short-funds portfolio, which is invested in overnight securities will benefit assuming the Federal Open Market Committee increases the Fed Funds rate over the course of this fiscal year, and our client extended and loan portfolios will benefit as we reinvest maturing securities at an expected rate of about 3.3%. Between those two drivers, we expect average yields to increase from 1.4% in fiscal 2022 to 2.2% in fiscal '23. We expect our client funds balances to grow 4% to 6% supported by growth in clients, pays per control, and wages and this is on top of the very robust 19% growth we experienced last year.
Putting those together, we expect our client funds interest revenue to increase from $452 million in fiscal '22 to a range of $720 million to $740 million in fiscal '23. Meanwhile, the net impact from our client fund strategy will increase by a bit less from $475 million in fiscal '22 to a range of $675 million to $695 million in fiscal '23 and, as a reminder, this is the number that impacts our adjusted EBIT.
The slightly lower growth here is due to the expected increase in short-term borrowing costs, which track the Fed funds rate. This borrowing enable our portfolio to invest further out of the yield curve that we otherwise would. As we gradually reinvest maturing securities, this gap between client funds revenue and the net impact from our client fund strategy should reverse and again become positive.
Back to the ES revenue outlook, one more factor to consider is FX headwinds. Clearly, with the year-over-year (indecipherable) period into the dollar with a weaker pound and with about 20% of our ES segment revenue being generated outside the US, we're factored in a fair amount of FX headwind for fiscal '23 of well over 1%.
For ES margin, we expect an increase of 175 to 200 basis points. This coming year, our expense base will be increasing more than it does in a typical year, in part due to inflationary pressure on overall wages and in part due to headcount growth. Some of which we did late in fiscal 2022 and some of which we're planning for fiscal '23, but because our margins are benefiting from strong revenue growth outlook, including growth in client funds interest revenue, we're pleased to be able to guide to the strong ES margin outlook.
Moving on to the PEO segment. We expect PEO revenues and PEO revenues excluding zero margin passthrough to grow 10% to 12%. The primary driver for our PEO revenue growth is our outlook for average worksite employee growth of 8% to 10%. That would represent a bit of a deceleration from last year, but, of course, we are contemplating much less contribution from same-store pays per control in fiscal '23 compared to fiscal '22. This peaked 10% growth compares to a high-single digit target that we outlined at the Investor Day in November. We expect our PEO margin to be down 25 basis points to up 25 basis points in fiscal '23, compared to a strong margin results in fiscal '22.
Adding it all up, our consolidated revenue outlook is the 7% to 9% growth in fiscal '23 and our adjusted EBIT margin outlook is for expansion of 100 to 125 basis points. We expect our effective tax rate for fiscal '23 to increase slightly to about 23% and we expect adjusted EPS growth of 13% to 16% supported by buybacks and I'll make one comment on cadence because, we expect year-over-year headcount growth to be more significant early in the year and because the benefit from client funds interest will build as the year progresses, we expect adjusted EBIT margins to be down about 50 basis points in Q1, but then build steadily over the rest of the year.
And I'll turn it back to Michelle for Q&A.
