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AmerisourceBergen Beats on Q3 Earnings & Revenues, Ups View

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AmerisourceBergen Corp. (ABC) posted earnings (excluding employee severance, LIFO expense, warrants, litigation, restructuring and acquisition costs) of $1.01 per share in the third quarter of fiscal 2014 (ended Jun  30, 2014), which beat the Zacks Consensus Estimate of 92 cents and were above the year-ago figure of 78 cents per share.


AmerisourceBergen Corporation - Earnings Surprise | FindTheBest


However, earnings plunged 122.2% on a reported basis due to expenses related to issuance of warrants to Walgreens (WAG) and Alliance Boots.

Revenues grew 38.5% to $30.3 billion in the third quarter of fiscal 2014. Reported revenues easily surpassed the Zacks Consensus Estimate of $29.2 billion.

Fiscal Third Quarter in Detail

The company reports results of the AmerisourceBergen Drug Corp. (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 the Other segment.

Revenues from the Pharmaceutical Distribution segment surged 39.0% to $29.8 billion during fiscal third quarter. Within this segment, revenues from the ABDC business increased 45.0% primarily due to the onboarding of the new branded pharmaceuticals business from Walgreens and a substantial portion of their generic pharmaceuticals business along with increased branded pharmaceutical sales to other large customers.

The ABSG unit also performed well during the quarter with revenues increasing 13% y/y. Results of the segment were driven by solid performance in blood products, vaccine and physician office distribution business.

Revenues from the Other segment were $620.3 million, up 13.0% y/y.

Gross profit (adjusted) for the quarter increased 21.2% y/y to $822.7 million. Gross profit benefited from strong revenue growth and strong performance of generic pharmaceuticals in the ABDC segment.

Operating expenses (adjusted) during the quarter grew 17.2% to $429.2 million due to the onboarding of the new business from Walgreens.

2014 Guidance Increased

AmerisourceBergen now expects earnings from continuing operations in the range of $3.89–$3.94 per share in fiscal 2014, up from the earlier estimate of $3.64–$3.74 and an increase of 21.0%–23.0% from fiscal 2013. The pre-earnings Zacks Consensus Estimate of $3.72 per share is way short of the low end of the new guidance.

AmerisourceBergen now expects revenues to grow around 35.0% y/y, up from the earlier projected range of 30.0%–34.0%. Operating margins, however, are expected to decline in high teens basis points due to the onboarding of a new lower margin business and growth in brand pharmaceutical business with some large customers.

Our Take

We are encouraged by the solid third quarter results, which beat the Zacks Consensus Estimate on both fronts driven by the onboarding of substantial new business.  The subsequent increase in guidance was impressive as well. Given the strong performance of the company so far in fiscal 2014, we believe AmerisourceBergen is all set to achieve its increased guidance. 

We remind investors that AmerisourceBergen entered into a strategic agreement with Walgreen and Alliance Boots GmbH in fiscal 2013. The agreement includes a 10-year pharmaceutical distribution contract with Walgreens and access to generic drugs and related pharmaceutical products through the Walgreens & Alliance Boots Development joint venture. We believe the distribution deal with Walgreens will positively impact results in the upcoming quarters.

AmerisourceBergen currently carries a Zacks Rank #2 (Buy).  Other stocks that look equally attractive in the broader healthcare sector include McKesson Corp. (MCK) and Pfizer (PFE), both carrying a Zacks Rank #2.

Read the Full Research Report on PFE
Read the Full Research Report on ABC
Read the Full Research Report on MCK
Read the Full Research Report on WAG

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