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AmerisourceBergen (ABC) Q1 Earnings Beat, Revenues Miss

Zacks Equity Research

AmerisourceBergen Corporation ABC reported first-quarter fiscal 2020 adjusted earnings per share (EPS) of $1.76 surpassing the Zacks Consensus Estimate of $1.67 by 5.4%. The figure also improved 10% year over year.

The better-than-expected bottom-line performance can be attributed to increase in adjusted operating income, lower share count and reduced net interest expense.

Revenues improved 5.4% to $47.86 billion in the reported quarter. However, the figure missed the Zacks Consensus Estimate by 0.3%.

Segmental Analysis

Pharmaceutical Distribution Segment

Revenues at this segment totaled $46.04 billion, improving 5.2% on a year-over-year basis. Consistent robust specialty product sales and increase in volume related to growth of some of its largest customers contributed to the improvement.

Segmental operating income was $391.7 million, up 5% year over year. Increase in gross profit drove the upside.

Other Segment

This segment includes AmerisourceBergen Consulting Services (ABCS), World Courier and MWI Veterinary Supply.

Revenues at this segment came in at $1.85 billion, up 10.5% year over year. This upside was driven by growth in MWI, ABCS and World Courier.

Operating income in the segment was $104.5 million in the quarter, up 14.9% year over year primarily on the back of the performance of World Courier and ABCS.

AmerisourceBergen Corporation Price, Consensus and EPS Surprise

 

AmerisourceBergen Corporation Price, Consensus and EPS Surprise
AmerisourceBergen Corporation Price, Consensus and EPS Surprise

AmerisourceBergen Corporation price-consensus-eps-surprise-chart | AmerisourceBergen Corporation Quote

Margin Analysis

In the quarter under review, AmerisourceBergen reported adjusted gross profit of $1.24 billion, up 3.3% on a year-over-year basis. As a percentage of revenues, adjusted gross margin was 2.6% in the quarter, down 5 bps from the year-ago quarter.

AmerisourceBergen reported adjusted operating income of $495.2 million, up 5% year over year. As a percentage of revenues, adjusted operating margin was 1% in the quarter, which was down 1 basis point from the prior-year quarter.
 
Fiscal 2020 Guidance Updated

AmerisourceBergen has updated fiscal year 2020 outlook, reflecting the company’s strong performance, prudent share buybacks and the exit of the PharMEDium business.

Adjusted EPS is now estimated in the range of $7.55-$7.80 (up from the previously guided range of $7.30-$7.60). The Zacks Consensus Estimate is currently pegged at $7.53, which is below management’s guided range.

Adjusted operating income is now projected to grow in the mid-single-digit percent range, up from the previously guided low-to-mid single digit percent range.

Operating income at Pharmaceutical Distribution Services segment is now anticipated to improve in the mid-single digit percent range up from the low-to-mid single digit percent range.

Further, the company now anticipates weighted average diluted shares to be around 208 million (down from the previously guided band of 209-210 million).

Nonetheless, the company has reaffirmed all the other previously communicated aspects of its fiscal 2020 guidance and assumptions, which are as follows:

The company estimates revenue growth in the mid-to-high single digit percent range.

For the Other segment the metric is estimated to grow in the high-single digit percent range.

Adjusted operating expenses is projected to increase in the mid-single digit percent range.

Adjusted free cash flow is estimated to be around $1.5 billion.

The company anticipates adjusted effective tax rate in the range of 21-22%.

Summing Up

AmerisourceBergen exited the fiscal first quarter on a strong note, wherein both earnings and revenues beat the consensus mark. The company continues to gain from its Pharmaceutical segment and World Courier business, which have been generating huge profits since quite some time. Its specialty distribution business also continues to contribute significantly to the top line. A strong fiscal 2020 outlook instills investor optimism in the stock.

In late January 2020 AmerisourceBergen decided to exit the PharMEDium compounding business and, consequently, the company will cease all commercial and administrative operations related to this business. Given the decision to exit this business, the company anticipates to claim an ordinary income tax deduction and estimates that it will realize a cash tax benefit in fiscal 2020 through fiscal 2022 totaling around $500-$600 million.

Meanwhile, company faces other headwinds like conversion of branded drugs and lower price generics. Cutthroat competition in the MedTech space adds to woes.
 
Zacks Rank


Currently, AmerisourceBergen carries a Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks in the broader medical space are SeaSpine Holdings Corporation SPNE, STERIS plc STE and DexCom, Inc. DXCM, all three carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

The Zacks Consensus Estimate for SeaSpine’s fourth-quarter 2019 revenues is pegged at $43.6 million, suggesting growth of 14.7% from the prior-year reported figure. The same for loss per share is anticipated at 44 cents, indicating an improvement of 16.9% from the year-ago reported figure.

The Zacks Consensus Estimate for STERIS’s third-quarter fiscal 2020 revenues is pegged at $749.7 million, indicating an improvement of 7.7% from the year-earlier reported figure. The same for adjusted earnings per share stands at $1.43, indicating growth of 13.5% from the year-ago reported figure.

The Zacks Consensus Estimate for DexCom’s fourth-quarter 2019 revenues is pegged at $457 million, suggesting growth of 35.2% from the prior-year reported figure. The same for adjusted earnings per share stands at 72 cents, indicating an improvement 33.3% from the prior-year reported figure.

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