AmerisourceBergen Misses Estimates

Zacks

AmerisourceBergen Corporation (ABC) posted earnings (excluding employee severance, warrants, litigation and acquisition costs) of 87 cents per share in the second quarter of fiscal 2013, missing the Zacks Consensus Estimate of 88 cents. Earnings were up 7% year over year in the reported quarter aided by lower share count.

Revenues grew 4.1% to $20.5 billion in the second quarter of fiscal 2013. However, reported revenues missed the Zacks Consensus Estimate of $21.4 billion.

Quarter in Detail

Following the acquisition of the World Courier Group in 2012, AmerisourceBergen made some adjustments in its reporting format. The company decided to report results of the AmerisourceBergen Drug Corporation (:ABDC) and AmerisourceBergen Specialty Group (:ABSG) units under the Pharmaceutical Distribution segment. Results of the World Courier Group and AmerisourceBergen Consulting Services (ABCS) have been clubbed under “Other."

Revenues from the Pharmaceutical Distribution segment, which accounted for 98% of total revenue, increased 3% to $20.1 billion during the reported quarter.

The ABSG unit performed well during the quarter with revenues increasing 4%. Results of the segment were boosted by growth in third party logistics, blood products, and vaccine and physician office distribution business. Revenues from the ABDC segment also increased 4% primarily due to increased sales volume resulting from the implementation of a new contract with Express Script, Inc. (ESRX) effective Oct 2012.  The growth was partially offset by the loss of a food and drug retail group purchasing organization customer.

We note that AmerisourceBergen signed a three-year supply agreement with Express Script in Oct 2012 wherein the former will primarily supply branded pharmaceuticals to the latter.

Revenues from the Other segment were $435.4 million, including significant contributions from the recent acquisition of World Courier. The year-ago quarter did not include the World Courier contribution.

Gross profit for the quarter climbed 5.5% to $717.0 million. Gross profit was boosted by AmerisourceBergen’s recent acquisitions and gains from antitrust litigation settlements.

Operating expenses (excluding employee severance and acquisition costs) during the quarter grew 21.2% to $366.9 million due to inclusion of the World Courier business.

Meanwhile, in order to streamline its operations, AmerisourceBergen decided to sell its Canadian pharmaceutical distribution business in Mar 2013, which was facing tough market conditions. Hence, the company restated its fiscal 2012 figures to incorporate the pending sale.

Additionally, AmerisourceBergen also agreed to sell AndersonBrecon – its contract pharmaceutical packaging business in the US and the UK, earlier this month.

AmerisourceBergen did not buy any shares in the second quarter of fiscal 2013. Nevertheless, the company bought back shares worth $284.7 million in the first half of fiscal 2013. 

We note that AmerisourceBergen authorized a new share repurchase program of $750 million in Nov 2012, having completed the earlier buyback program (authorized in May 2012). This should help boost the bottom line as the company still has $562.4 million remaining under its new buyback program. We believe that the buyback program highlights the company’s commitment to return value to shareholders.

Outlook for Fiscal 2013

AmerisourceBergen expects earnings from continuing operations toward the lower end of the range of $3.04 – $3.14 per share for fiscal 2013. The guidance excludes certain expenses (warrants issued and inventory charges) related to the company’s 10-year agreement with Walgreens (WAG) and Alliance Boots signed in Mar 2013. The pre-earnings Zacks Consensus Estimate was pegged at $3.08 per share.

Excluding the expenses related to this agreement, AmerisourceBergen expects revenues to grow in the range of 11% – 13%. The company plans to repurchase shares worth at least $400 million in 2013.

AmerisourceBergen currently carries a Zacks Rank #3 (Hold). Currently, CVS Caremark Corp. (CVS) looks well placed with a Zacks Rank #2 (Buy).

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