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AmerisourceBergen Corp (ABC) Q2 2019 Earnings Call Transcript

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AmerisourceBergen Corp  (NYSE: ABC)
Q2 2019 Earnings Call
May. 02, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the ABC Earnings Call. (Operator Instructions) As a reminder, today's call is being recorded. I'll now turn the conference over to your host Jim Cleary. Please go ahead.

Bennett Murphy -- Vice President of Investor Relations

Thank you. Good morning and thank you all for joining us for this conference call to discuss AmerisourceBergen's fiscal '19 second quarter financial results. I'm Bennett Murphy, Vice President, Investor Relations, and joining me today are Steve Collis, Chairman, President and CEO, and Jim Cleary, Executive Vice President and CFO. On today's call we'll be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release and are also available on our website at investor.amerisourcebergen.com. We've also posted a slide presentation to accompany today's press release on our investor website. During the conference call we will make forward-looking statements about our business and financial expectations on an adjusted non-GAAP basis, including but not limited to EPS, operating income, and income taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change. For a discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10-K. AmerisourceBergen assumes no obligation to update any forward-looking statements and this call cannot be rebroadcast without the expressed permission of the Company.

You'll have an opportunity to ask questions after today's remarks by management. We ask that you limit your questions to one per participant in order for us to get to as many participants as possible within the hour. With that, I will turn the call over to Steve. Steve?

Steven H. Collis -- Chairman, President and Chief Executive Officer

Thank you, Bennett, and good morning to everyone on today's call. I'm pleased to talk about AmerisourceBergen's continued strong performance in the second quarter of fiscal 2019. On this call I will highlight how our business remains well-positioned for the long-term growth and how AmerisourceBergen unites the stakeholders across the healthcare supply chain as a solutions provider and good corporate citizen. First, our fiscal 2019 second quarter financial performance. Revenues were up a solid 6% to $43.3 billion for the quarter and our adjusted diluted EPS was $2.11 for the second quarter, an increase of 9% compared to the previous fiscal-year period. We are extremely pleased with our performance in the second quarter, which was driven by solid growth in customer volumes, double-digit specialty distribution growth and overall strong execution across both the Pharmaceutical Distribution and Global Commercialization Services and Animal Health groups.

I first want to thank our 21,000 associates who are really driving our performance. I couldn't be more proud of their dedication, solution-oriented mindset, focus and passion for our customers and partners, and I consider it a privilege to work alongside them every day. Our teams are executing well across our vast portfolio of businesses, as we continue to enhance the experience and value that we provide for our customers and partners in the industry. Our Pharmaceutical Distribution services team, notably in specialty physician services and health systems, continue to deepen their customer relationships and seek new ways to drive value for our partners while enabling patient access to pharmaceuticals. Finally, we are proud of how our Global Commercialization Services and Animal Health Group continues to execute, grow and deliver differentiated services for pharmaceutical manufacturers and veterinarians. Next, an update on our comprehensive strategic and financial review for PharMEDium. As part of this process, we determined that the best way to maximize the value of the business was to close PharMEDium's smallest and least automated facility and consolidate production into the business' remaining two open facilities to service customers more efficiently and effectively. We believe this decision should optimize the business more appropriately for the long term, while ensuring that PharMEDium's focus remains on patient safety and delivering the safest and highest quality products. In addition, as you may recall, we engaged a cGMP expert consulting firm to help out with our review of this business unit. After taking into consideration PharMEDium's enhanced quality assurance and quality control procedures and independent evaluations from our cGMV consulting firm and the business unit's new president, we have determined that it will be difficult for PharMEDium's overall volumes to return to previous levels in the next few years.

In addition to our internal review, we have continued discussions with regulators and based on discussions today, we expect to enter into a consent decree in the June quarter. Subject to the successful completion of third-party orders, we anticipate that a consent decree will allow commercial distribution to continue at the two open compounding facilities. Additionally, we expect that a consent decree would specify requirements that must be satisfied prior to resumption of commercial operations at the Memphis facility. Based on these updates, Jim will provide more details in his comments regarding PharMEDium's financial outlook. However despite this challenge and as evidenced by this quarter's results, AmerisourceBergen continues to execute and deliver strong growth and performance. Our differentiated strategy and investments have positioned us to continue delivering long-term sustainable growth in fiscal 2019 and beyond.

At the core of our strategy remains a clearly defined pharmaceutical-centric focus. AmerisourceBergen continues to benefit from growth in the US pharmaceutical market, which was driven by strong Asian demographics and prescription utilization trends, as well as pharmaceutical innovation across brands, specialty and biosimilars. In fact, the specialty market is experiencing significant growth as an increasing number of breakthrough medicines continue to improve the current standards of game. Our undisputed leadership position in specialty, distribution and services places AmerisourceBergen at the forefront of this rapidly growing market segment. While we report distribution and commercialization services in separate segments, together they represent our extensive footprint and comprehensive portfolio in specialty that we have built through decades of significant organic and inorganic strategic investments.

Our expertise and capabilities empower us to support the complex solutions needed in both specialty distribution and pre and post-commercialization services. Specialty distribution, which includes oncology and physician-administered products, continued its double-digit growth in the second fiscal quarter as we continue to create value for our customers. This part of the US healthcare market is growing well as patient utilization of these life-altering medications continue to increase. The efficiency of the distribution channels we enable combined with key services and solutions we provide our physician practice customers are core reasons why AmerisourceBergen remains the preferred partner of choice. For example, Besse Medical extends AmerisourceBergen's reach and relationship to over 65,000 non-oncology community physician sites, accelerating access to the products, insights, technology and guidance needed to elevate their practice performance and patient experience.

On the commercialization side, we continue to increase the depth and span of our manufacturer services making ourselves an essential partner for the global pharmaceutical industry. For example, World Courier, the most trusted specialty logistics partner in the world offers high quality and innovative services which provide the customised support and flexibility that manufacturers value for clinical trial logistics and commercial services such as always needed in cell and gene therapy. World Courier continues to move innovation forward to recent technology and packaging advancements like (inaudible) which deliver increased efficiencies and an enhanced experience for their customers and power their sustained growth and demand for their services. In the years ahead the strong pipeline of innovative and complex specialty products and increasing number of (inaudible) in the market should further increase demand for the innovative distribution and commercialization services that we provide for our partners.

AmerisourceBergen applies the same innovative mindset toward all opportunities or issues that arise across this dynamic and exciting healthcare landscape. Our ongoing investments in state-of-the-art services and solutions continue to differentiate our business and enable new value creation opportunity for our partners, customers and the entire healthcare supply chain. Likewise, our focus on driving data connectivity throughout all our offerings further distinguishes our ability to meet the evolving needs of our stakeholders and solidifies AmerisourceBergen's position as a trusted data company in our industry that stakeholders depend upon to help them deliver care and improve efficiency at scale. As an industry, AmerisourceBergen and its peers create a secure nationwide supply chain that produces reliable, accessible and transparent data and analytics that consistently deliver value for our stakeholders. For example, manufacturers value and trust data generated by AmerisourceBergen which enables them to proactively manage their daily service and inventory levels. On the other end of the supply chain, our unique set of analytics tools empowers the 4,600 pharmacies and our (ph) elaborate provider network with solutions that help pharmacies maximize profitability, improve operational effectiveness and enhance patient care.

We take great pride in our responsibility as a trusted data source and our role as a solutions provider in this supply chain. With this solutions-oriented approach in mind, we continue to believe there is a facilitation role that we can play, if the US healthcare system shifts to one where patients need access to this kind of pharmaceutical process in the pharmacy, at the point of sale. Given our fundamental tools and trusted relationships, we believe AmerisourceBergen and its pharmaceutical distribution peers would be best-positioned to support this transition. Our existing capabilities and proven experience in managing and maintaining complex contract administration and (inaudible) systems today provide the necessary building blocks to operationalize a (inaudible) system to handle point-of-sale discounts in the pharmacy.

(technical difficulty) pharmaceutical distributors' existing relationships built on fairness and trust with their pharmacy customers and manufacturer partners (inaudible) distributors to approach this potential reform for solutions that are fair, efficient and transparent. We support an industry alignment and AmerisourceBergen is ready to play a role in pursuing a distributor-facilitator model. This unique opportunity would further embody AmerisourceBergen's purpose of being united in our responsibility to create healthier futures. In fact, our purpose is the driving force behind everything we do. As a company, AmerisourceBergen recognizes the importance of strong corporate citizenship as a cornerstone to long-term shareholder value creation. We're especially excited by the continued progress and developments detailed within this year's corporate citizenship report which follows externally accepted standards for sustainability reporting and is our most comprehensive report to-date. Here are a few highlights. First, we have invested in two solar energy projects located at our distribution centers and introduced several packaging innovation solutions that help reduce waste and energy usage in our efforts to improve the sustainability of our operations. In addition, to help enhance our inclusive culture, we ask associates to respect and support one another. We launched the Connect with Respect campaign and supported colleagues impacted by hurricanes and wildfires through our Associates Assistance Fund.

Finally, the AmerisourceBergen Foundation, an independent, not-for-profit charitable giving organization continues to invest in health-related causes that help increase healthcare access for human and animal populations and ensure prescription drug safety. As a distributor of pharmaceutical products, AmerisourceBergen manages the transportation and medication, including controlled substances from manufacturers to licensed providers.

We take our role in the supply chain seriously and work to combat opioid abuse by ensuring safe and secure distribution, maintaining operational integrity, advocating for the highest regulatory standards and community outreach, all of this in addition to reporting full controlled substance orders to the DEA and holding suspicious orders. AmerisourceBergen and the AmerisourceBergen Foundation are commited to making a difference in our communities and providing communities across the country resources to combat the epidemic of opioid misuse.

Together, our 21,000 associates, Board of Directors and partners will continue to further our efforts, collectively working to boost our reach and improve across our communities and our supply chain to create a healthier future for all. In closing, AmerisourceBergen is well-positioned to continue creating shareholder value and delivering long-term sustainable growth. We are proud of our ability to execute, evolve and transform our business to meet the needs of our partners, to drive value for our stakeholders and ultimately even patients, and ultimately serve patients. We won't be complacent. We're making investments in our people, solutions and infrastructure and focusing on the problems or opportunities that our customers have in their business.

AmerisourceBergen is committed to being a foreseer that drives solutions, enables access and creates additional efficiency. We have the utmost confidence that our differentiated strategy will create sustained long-term value for our stakeholders. More than ever, we are united in our responsibility to create a healthier future and as always, we appreciate AmerisourceBergen. Now I'll turn the call over to Jim for a more in-depth discussion of our quarterly financial results and our upward revision to fiscal 2019 EPS guidance. Jim?

James F. Cleary -- Executive Vice President and Chief Financial Officer

Thanks, Steve, and good morning everyone. My remarks today will focus only on our adjusted non-GAAP financial results. Growth rates and comparisons are made against the prior-year March quarter unless otherwise noted. For a discussion of our GAAP results, please refer to our earnings release. As we have reached the halfway point of our fiscal year, we are extremely proud of the execution throughout AmerisourceBergen to deliver strong results. Our continued strong performance is especially impressive given that this quarter still has a notable year-over-year headwind from PharMEDium.

Looking ahead, we expect (inaudible) any notable headwind beginning in the June quarter. Before I discuss our results this morning, I want to first take a moment to discuss the GAAP asset impairment charge that we have taken for PharMEDium. Based on the current analysis of the business, we now expect that PharMEDium will have lower volumes due to the implementation of enhanced (inaudible) procedures and the continued closure of Memphis. This conclusion was reached in accordance with the evaluations of PharMEDium's new President and our cGMP consulting firm.

As part of the comprehensive, strategic and financial review, we updated our long-term outlook at quarter end. We continued to see that there is a demand for compounded sterile preparations but given the estimated production limitations over the next few years, we determined that the estimated undiscounted future cash flows indicates that the (inaudible) should have a lower carrying value.

We used a variety of scenarios with probability weightings to make this determination. We subsequently performed a fair value test using discounted cash flows to determine the asset impairment amount of $570 million. After a consent decree is finalized, PharMEDium expects to have further clarity on the remediation requirements to reopen Memphis and maintain the other facilities in operation as well as the overall production ramp pace expectations.

As a reminder, PharMEDium is expected to be a headwind of about 3% in fiscal 2019, and this represents an adjusted operating income loss of about $50 million for fiscal 2019. For comparison purposes, PharMEDium had only a small operating income profit in fiscal 2018, down from a significant operating income profit in fiscal 2017.

Turning now to discuss our second quarter results and the continued strong execution by AmerisourceBergen, I will provide commentary in two main areas this morning. First I'll detail our adjusted quarterly consolidated and segment performance. Second, I'll cover the upward revision to our fiscal 2019 EPS guidance.

Moving now to our second quarter results, we finished the quarter with adjusted diluted EPS of $2.11, an increase of 9%, primarily due to higher operating income, lower net interest expense and a lower share count. I will note that there were some positive general and administrative expense items that hit in the second quarter and had been expected to be realized later in the year. Our consolidated revenue was $43.3 billion, up 6%, primarily driven by strong revenue growth in the Pharmaceutical Distribution Services segment. Gross profit increased 3% or $40 million to $1.3 billion. Consolidated operating expenses increased 1.5% to $702 million.

As a reminder, in the second quarter of fiscal 2018, there were some true-ups related to the accounting for recognizing PharMEDium's remediation costs which impacted both cost of goods sold and operating expenses. Normalizing for those adjustments last year, our gross profit this quarter would have increased 3.8% while our operating expenses would have increased 2.6%. These items net out and have no impact on the operating income comparison.

As it relates to operating expenses this quarter, we had solid overall expense management as we continue to be focused on effectively managing operating expenses throughout the business. Additionally, the positive general and administrative expense items that I referred to earlier represent roughly $0.05 of EPS in the quarter.

Expense management is so important in the healthcare industry and it's especially impressive that our teams were able to execute on expense management while delivering strong customer service and continuing to ensure a safe, secure and efficient patient access to care. Consolidated operating income was $617 million, up 5% with our operating margin essentially flat. As we had previously highlighted, we expect the March quarter to mark the last significant headwind for operating income related to PharMEDium. That headwind was offset this quarter by strong results from our consolidated businesses in Brazil, which we expect to normalize in the third quarter. If you were to exclude both PharMEDium and consolidated Brazil, our consolidated operating income growth would still have been 5%, helped by the lower-than-expected operating expenses in the quarter that I discussed earlier.

Net interest expense increased $5 million to $43 million due to an increase in interest income. Given strong cash flow year-to-date and the better-than-expected interest income, we now expect our net interest expense to be lower than originally anticipated. Moving now to income taxes, our adjusted income tax rate was 21.5%, up slightly from the prior year quarter due primarily to some relatively small discrete items. As a reminder, the prior year quarter tax rate (ph) did reflect the benefit from tax reform. Our diluted share count decreased 4% to $213 million shares. In the quarter, we purchased approximately $100 million of our shares and now have roughly $800 million remaining on the November 2018 share repurchase authorization. Year-to-date, we have now repurchased $325 million of shares, bringing our total share repurchases in the last four quarters to over $900 million. Regarding free cash flow and cash balance, year-to-date we had adjusted free cash flow of $803 million, putting us right on track with our guidance for the full year adjusted free cash flow of between 1.4 billion to 1.6 billion, although the timing of free cash flow was earlier in the year than expected.

We ended the quarter with $2.9 billion in cash, of which 520 million was held offshore and the majority was US-denominated cash. This completes the review of our consolidated results. Now I'll cover our segment results. Beginning with Pharmaceutical Distribution Services, segment revenue was $42 billion, up 6%. This segment continues to benefit from growth of some of its largest customers, continued strong growth in specialty distribution and overall market growth. Segment operating income increased about 6% to (ph) $570 million. As discussed earlier, the March quarter had a headwind from PharMEDium, but was offset by the favorability related to Brazil.

Normalizing for both of these impacts, segment operating income still would have increased 6%. Our core pharmaceutical distribution businesses continue to execute extremely well, growing volumes with our customers, while effectively managing operating expenses. Our teams are working with partners both upstream and downstream to deepen existing relationships and deliver outstanding services and solutions all while working diligently to operate the most efficient distribution network. I'll now turn to the other segment which includes businesses that focus on global commercialization services and animal health, including World Courier, AmerisourceBergen Consulting and MWI. In the quarter, total revenue was $1.7 billion, up 5%, primarily due to growth at Consulting's Canadian operations and World Courier. Consulting's Canadian operations or NMR has had solid growth as it continues to deliver innovative solutions to specialty manufacturers while improving product access and increasing supply chain efficiency in the Canadian market.

World Courier had strong revenue growth as demand for their high touch mobile specialty logistics continues to be strong. MWI's revenue was up 2% limited by severe winter conditions impacting customers on the production animal side of the business. From an operating income standpoint, this group had operating income of $100 million, up 3%. World Courier continued its strong momentum with strong volume and weight growth trends. The group's operating income growth rate is increasing as expected as we continue to drive cost efficiencies across the group and we anticipate solid growth at MWI in the back half of the year.

While fiscal 2019 continues to be a transition year for Lash, we are excited for the long-term outlook of the business as we have had notable success in winning new business in addition to having key anchor manufacturer relationships renewed or adding programs. The Fusion platform continues to be a differentiator for Lash's service offering and positions the business well for the long term. This completes the review of our segment results. So now I'll turn to our fiscal 2019 guidance. As we said in this morning's press release, we are raising our fiscal 2019 adjusted EPS guidance to a range of $6.70 to $6.90, up from $6.65 to $6.85, as our businesses continue to execute at a high level despite the headwind from PharMEDium.

The only other guidance item we are updating this morning is a minor change to our expectation for weighted diluted shares outstanding for the year. Given the buyback so far this year, we are lowering our expectation for weighted shares outstanding to approximately 214 million shares, down from our previous expectation of approximately 215 million shares for the year. Lastly, we are not making any changes to our working assumptions around pharmaceutical pricing for the full fiscal year. Broadly speaking, after the first half of the year, both brand and generic pricing are trending relatively in line with our original expectations for the year but I'll note that it's still relatively early in our fiscal year.

Turning back for guidance range overall, factors that move us within our range include business unit performance, operating expense management, brand and generic pricing and mix, results from PharMEDium and H. D. Smith synergy capture. Based on how we are evaluating these factors today, we are less likely to be at the bottom of our range. Regarding the expected cadence for our adjusted EPS for the rest of the year, while we do not provide quarterly guidance, I will note that certain expense items referenced earlier were initially expected to benefit the third quarter, but actually benefited the March quarter. Keep that in mind as you adjust your quarterly models for the rest of the year to align with our updated full-year guidance.

In closing, we are extremely proud of the execution throughout AmerisourceBergen to deliver continued strong results. AmerisourceBergen has spent decades evolving to become the enterprise we are today, having built a robust portfolio of businesses and capabilities, attracting and developing talent and fostering key customer relationships, all while maintaining strong financial discipline and investing internally and externally to ensure we are offering our partners unparalleled value and efficiency. Thank you for your interest in AmerisourceBergen. Now here is Bennett to start our Q&A.

Bennett Murphy -- Vice President of Investor Relations

Operator, we're ready for our first question.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question will come from the line of Glen Santangelo from Guggenheim Securities. Please go ahead.

Glen Santangelo -- Guggenheim Securities -- Analyst

Yeah, thanks for taking my question. Steven, just wanted to, sort of, follow up on the gross margins within the core distribution business, I mean, you've given us some color about the Brazilian piece and PharMEDium maybe offsetting what happened in Brazil. But the gross margin came in a little bit better than what we were looking for. And I was wondering if you could help us unpack what's going on there so we can help us better assess the sustainability of that trend. And then I'll just get my follow up out of the way, the biggest question we're getting from investors is about the reimbursement pressures at retail pharmacies and how that may be impacting the independent pharmacy channel and what that could mean for wholesaler economics over the intermediate and longer term. So, any thoughts on those two issues would be helpful.

James F. Cleary -- Executive Vice President and Chief Financial Officer

Yeah. Glen, thanks for the questions. This is Jim, and I'll answer the first question and then Steve will take the second question. So regarding margins, as I talk about the quarter, I will focus on operating margin. And let me kind of take a step back and first say from a big picture standpoint that we feel confident that our value proposition is high and we earn a fair margin and our margins are clearly justified by the services we provide, including logistics and access and efficiency and financing and security and now kind of getting into the quarter, in our distribution business you asked about revenues were up 6% and operating margin was up 6% and as you noted, if we adjust out the headwind from PharMEDium and the tailwind that we have this particular quarter from Brazil, operating income and distribution was still up 6% and I'd call out a couple of things.

There was good performance across many business units but one particular that I'll call out is growth in specialty distribution, which there are added services that we provide -- wraparound services that we provide, in particular to physicians, and that really benefited us during the quarter and plays out in our operating margin, and operating income growth. And the other thing I'll call out during the quarter is this really good performance on expense management. We had very nice performance there in the quarter. One thing I will call out though, as I said in my prepared remarks, there were about five pennies during the quarter of five general and administrative expense benefits that we received during the quarter that we had expected to receive over the balance of the year, and so that did help us in the quarter. But we overall, we're really pleased with our performance and really pleased with our operating income growth and our operating margin. And then of course, one thing that will benefit us on that front, in future orders as we've really left the tough PharMEDium comparisons and the comparisons don't have the notable headwinds going forward. We don't expect them, the notable headwinds going forward that we had in past quarters.

Steven H. Collis -- Chairman, President and Chief Executive Officer

Yeah, thanks, Glen. And on the same question really around reimbursement pressure, our customers, it really (inaudible) by your contracting strategy. So, particularly if you're in narrow networks, knowing we do the elevate work for example, it's really important that we, we take into account the manageability of contract rates that we have for elevate and we have a lot of discussions with our independent base that we contract on behalf of for that. You know, there is a lot of talk, I think you're referencing can independents survive in this environment and now we are seeing independents' market share remain fairly consistent. I think because of the differentiated service they provide, the community that they are in and their role as a local healthcare practitioner, very accessible. I think they work very hard and there is a continuity of service that, I think a lot of patients are very fond of. So, and then I think ourselves, our industry has been very helpful to the overall growth and survivability of the independent pharmacists.

So -- and I have other key partners like buying groups, but you know the services we offer them including analytics technology, professional services, sourcing services are very critical to their survival. We think that they do differentiate (inaudible) and we in particular think that being a good neighbourhood pharmacy can elevate them and differentiates you further within an important subset. Thank you. Next question.

Operator

Thank you. Our next question will come from the line of Robert Jones from Goldman Sachs. Please go ahead.

Robert Jones -- Goldman Sachs -- Analyst

Thanks for the questions, I guess just to pick up on the first question for you, Jim. Even if I account for that $0.05 of the positive G&A that you highlighted it still seems like based on your original expectations for this quarter to be flat to last quarter, we obviously came in much better, it seems like the implied back half is lower than what you guys would have been anticipating before the results today. So I'm just curious if there's any other dynamics at play there that you could share and then just Steve, my follow up would be, you've mentioned now a few times about ABC and the wholesalers being a facilitator of the flow of funds in a potential point of sale discount world. So just wanted to get a sense from you now that we're a quarter later, what are you hearing out of DC, and how significant of a revenue and profit stream could this be for ABC and the group? Thanks.

James F. Cleary -- Executive Vice President and Chief Financial Officer

Okay. And thanks, and I will again answer the first question and then Steve will answer the second question. Regarding what we are seeing over the balance of the year, and of course it's still relatively early in the year and we increased our guidance range of course to 6.70 to 6.90 and as we look at the balance of the year, the factors that move us within the range, our business unit performance, operating expense management, brand and generic pricing, results from PharMEDium and H. D. Smith synergy capture. Probably the ones that are a little bit less under our control, but of course be the brand and generic pricing and to some extent the results from PharMEDium given the negotiation of the consent decree. But as I said during the prepared remarks, based on how we are evaluating all those factors today, we're less likely to be at the bottom of our range.

And then, one other thing I'll just call out that I think is important to consider, when we did our guidance at the beginning of the year, the low end of our range was $6.65 and I think it's important to remember that we indicated that what would move us to the low end of that range was the downside scenario at PharMEDium of not reopening Memphis. And that is the current expectation and so we've been able to overcome that and increase our guidance range due to strong execution across numerous AmerisourceBergen businesses. But you know again I'll comment that it is still pretty early in the fiscal year.

Steven H. Collis -- Chairman, President and Chief Executive Officer

Yeah, Rob, thanks for the question and you know one thing (inaudible) everything that, we worked very hard on balancing our portfolio to make sure that all the products are profitable and we talked a lot about that. And we've been talking about that for years and I think that you know (inaudible) we are not where we'd like to be entirely but we obviously had an effort just to be very frank, to make sure that generics and generics with the deflation was not a growing robust part of our portfolio. As I had given in the past that this was not as much of a headwind and I think you've seen some of that play out.

Just on the question about distributors and adjudication, great question. I'm really proud of the team. I mean, the way we brainstorm that you talk about the work that gets done to information, resources to give you a glimpse into the inner workings of the company. The work that was done here before we could put out the release between information resources, our digital people and our core business operations to elevate people, I think it's really among the finest thinking that we've done in a long time, just to think about the future, look at the problems and be proactive about putting a solution out there.

Having said that, still it's not a clear picture, there needs to be tremendous cooperation among all family of industry stakeholders. I do think that sometimes people forget that not all products are heavily rebated, we are talking about a category of products, which is fairly large and have specific characterizations around how they get prescribed and how patients utilize them and how they get dispensed and how manufacturers have negotiated with PBMs and other insurance parties.

So I think that's important, but we are positive about our role I think we'd be quite confident, intellectually confident to state that we can perform this service (inaudible) other services we provide. But it is more complex, because we have to take a data feed from payers and claim. So we stand ready to do that work, we need help from and we need (inaudible) the right party to do that. We have a strong faith and confidence that we can do that because we are an honest neutral party and we do this in the institutional setting very frequently. So it's not that big of a stretch for us and we have these strong relationships that we can leverage and I think that over time, I've been saying for a long time that it's inevitable that companies like AmerisourceBergen will have a strong payer-facing relationship in terms of the services we provide you payers. So maybe that is part of the evolution of the market and we look forward to playing that role.

Robert Jones -- Goldman Sachs -- Analyst

Thanks, Steve.

Operator

Thank you. Our next question will come from the line of Ross Muken from Evercore ISI. Please go ahead.

Ross Muken -- Evercore ISI -- Analyst

Good morning, guys. So maybe just sticking on through the independents team, obviously your partner and (inaudible) talked about less generic procurement savings this year and maybe slightly tougher environment obviously less generic deflation is also good for you guys, but just in terms of your independent customers we've heard more anecdotally and after seeing some of the numbers from NCPA that there is, given some of the issues with the IR fees and other things, they, the independent base is seeking sort of better generic procurement and sourcing than what they've had and obviously those two things kind of go against each other in terms of what the environment is and what they need, and so in the guise of keeping this important customer base kind of healthy, I guess how do you kind of balance what you can kind of provide to them maybe incremental services, maybe they need you more than they did in the past versus sort of that push and pull of what the generic market is offering today?

Steven H. Collis -- Chairman, President and Chief Executive Officer

Yes, it's a good question. So (inaudible) is now six years old. I mean we, just to remind everyone, in 2013, we joined Alliance that had already being created between Walgreens and AllianceBoots at that time. And we think that it's been very successful in fact you know, historically and narrowed the gap tremendously between how independents could source generics versus how chains can and I think if you look back that really does help very well into the theme that I talked about how important wholesalers have been for the overall survival of independents. So we look at these statistics very carefully and there is just a physician, if you want to stay between what our generic profitability is and what our compliance rates are and we've talked about that. We are obsessed with compliance rates and our independents feel that we're giving them a fair deal as we always maintain our profitability and that's an important segment of the business. So that is something that we're very aware of, it's not something that's new to us, there has always been this balance. But we are confident in the value proposition that we provide to Good Neighbor Pharmacy and to all of our customers and we are aware reimbursement pressure and other healthcare policy pressures or it's nothing, it is not new to us. We have been engaged in these discussions and have been proactive more and more in those discussions with our key customers, as well as the suppliers, so that we can help be, really plan for managing through changes. The (inaudible) you referenced those, those were a surprise. About 3 years ago when I went to our Vegas trade show, I was really surprised at the intensity of the independent base about that and we really try to help. And I think people are in a much, pharmacies are in a much better position now to understand what the exposure to (inaudible) could be and to manage that accordingly. So we feel that some of those things have not necessarily in my opinion, been fair but we've been able to help our base manage through that. So, thank you. Next question.

Operator

Thank you. Our next question will come from the line of Steven Valiquette from Barclays. Please go ahead.

Steven J. James Valiquette -- Barclays Bank PLC -- Analyst

Great, thanks. Good morning guys. So just a question here around generic pricing, obviously it's very topical right now. Thinking back about 4 or 5 years ago when drug distributors really captured a lot of earnings upside from generics, there were a lot of generics that were going up in price pretty materially, a lot of list price increases. In the current environment, the trend seems to be a little bit more generic prices stabilizing, not really going down anymore, but really not a lot of generics going up in price at least based on the data that we're looking at, so just curious maybe if you're able to discuss that at a high level, how important that is when thinking about the potential for distributors to capture incremental profits in the current environment. Thanks.

James F. Cleary -- Executive Vice President and Chief Financial Officer

Yeah. So regarding generics, what we're seeing is that the deflation is generally in the range of our original expectations. So when we look at it, overall, we see it's generally in the range of our original expectations and as we said at the beginning of the year, as long as that stabilizes and is in that range we won't call out a particular percentage on a quarterly basis. We are hopeful that the commentary from manufacturers on portfolio optimization leads to further stabilization. We're optimistic over a period of time that the market returns to historic levels of mid-single digits in terms of deflation and then on supply constraints we are seeing some volume impacts there, but it's, that's just kind of one of the things that we can see in the market and relatively small.

Steven J. James Valiquette -- Barclays Bank PLC -- Analyst

I guess at the end of the day, are you seeing a consistent relationship right now between the buy side generic pricing trend versus the sell side generic pricing trend, that's really I think what's critical at the end of the day?

James F. Cleary -- Executive Vice President and Chief Financial Officer

Yeah, we have been, we have been tracking that and in terms of that spread, we've seen that spread is relatively constant.

Steven J. James Valiquette -- Barclays Bank PLC -- Analyst

Okay, perfect. Okay, thanks.

Operator

Thank you. Our next question will come from the line of Lisa Gill from JPMorgan. Please go ahead.

Lisa Gill -- J.P. Morgan -- Analyst

Thanks and good morning. Steve, I'm wondering if maybe you could just talk a little bit about the impact around potential changes on Medicare Part B. You talked about your specialty business and growth there but do you see incremental opportunities if we start to see changes around reimbursement on the part B side or do you see any risk to your specialty business?

James F. Cleary -- Executive Vice President and Chief Financial Officer

The specialty business is doing really well at the moment from a key product innovation on the manufacturers side, and if you look at the, our manufacture colleagues reporting so much the growth that you see in some of the larger pharma companies it is around oncology and we have this incredible franchise and in fact, I've had some customer wins within that segment. A lot of our customers which we have always talked about, that are the consolidated, that are the acquirers. So we are seeing some important macro trends pertinent to AmerisourceBergen that Jim referenced within our specialty distribution business and it's hard to exactly gauge our market share because of the data access to good data. But we think that our distribution market would have gone up a bit there. I think invariably it has, because of the growth of our customer base and I as far as the actual part B goes, we don't think the reimbursements are really fair right now. I think a lot of the oncologists I have talked to really rely on a commercial base. We hope that there could be some changes that could be beneficial maybe more around fees and there is some skepticism about the sustainability of those fees but really so there is nothing that is new that we are overly concerned about as far as part B. I think what is a positive is that the particularly commercial payers and hopefully Medicare understands the important role that community oncologists play with patients and the other thing we are seeing is that there are more Part B drugs in important areas like ophthalmology, urology et cetera. That is another positive trend and that's why we highlighted the strength and excess of our basic medical business. So hopefully that answers your question.

Lisa Gill -- J.P. Morgan -- Analyst

That's helpful and then just as a follow-up, Jim, when we think about the $800 million that's left in the share repurchase, you have only brought the share count down by roughly 1 million shares . How do we think about that playing out throughout the rest of this year?

James F. Cleary -- Executive Vice President and Chief Financial Officer

Yeah. So, as a reminder, we don't include unidentified capital allocation in guidance. As we said during the call we've done $900 million worth of share repurchasing over the past 4 quarters and will continue to look at opportunistic share repurchases as part of our capital allocation. But, as I said before, we don't include unidentified capital allocation in guidance.

Lisa Gill -- J.P. Morgan -- Analyst

Great. Thank you.

Operator

And our next question will come from the line of Kevin Caliendo from UBS. Please go ahead.

Kevin Caliendo -- UBS -- Analyst

Thanks for taking my call. I'm going to change it up a little bit and talk about the animal health business. You mentioned the weather had a negative impact on MWI on the production side and Zoetis this morning called out a miss in their US livestock business partially caused by the timing of distribution or distributor purchases. Is there any of these delays could be pushed into the next quarter, meaning there could be a little bit of a makeup. Can you talk a little bit about the dynamics of what's going on the production side for MWI?

James F. Cleary -- Executive Vice President and Chief Financial Officer

Yeah, and as I said during my prepared remarks, MWI grew 2% during the quarter, impact I said that was limited because of the severe winter weather and so the companion animals grew faster than production animal during the quarter and yeah, there was, and those of you that follow the animal health business (inaudible) some of the weather in the Midwest during the second fiscal quarter and it really did have an impact on on production animal business, and I have to say, to answer your question, some of that is lost and then some of that will kind of flow into the next quarter. I would have to just make an overall comment that sometimes weather impacts that business, it happens from time to time. But overall, and over the long term, we view it as a very positive, very healthy, long-term business.

Kevin Caliendo -- UBS -- Analyst

On the companion side, I know it's only been a quarter but have you seen any impact yet from the Covetrus merger, the merger of the Schein and the Vets First Choice businesses in the marketplace yet?

James F. Cleary -- Executive Vice President and Chief Financial Officer

Yeah. Schein and Covetrus are good competitors. We have good competitors in that market and they are one of them and we'll just continue to focus on our areas of strength. We're particularly strong in corporate accounts, we're particularly strong in our operating efficiency in that business. We have really good value-added services and technologies, both in the production animal market and in the companion animal market, strong sales force. So we'll continue to focus on our strengths and building the business. But I'm sure that Covetrus will continue to be, they have been a strong and good competitor.

Kevin Caliendo -- UBS -- Analyst

Is there any plans to try to grow your own platform similar to the Vets First Choice or Vetsource platform?

James F. Cleary -- Executive Vice President and Chief Financial Officer

Yeah, we are a shareholder of Vetsource and we've been very happy with our interest in that business and partnering with them and then we have you know other kind of value-added technologies like (inaudible) that we have internally.

Steven H. Collis -- Chairman, President and Chief Executive Officer

Operator, next question please.

Operator

Thank you. Our next question will come from the line of Charlie Rhyee from Cowen, please go ahead.

James -- Cowen -- Analyst

Hi, it's James on for Charles actually. So World Courier seems to be continuing to perform well, if I recall correctly, it was noted previously that you expect operating profit growth there to grow at or in excess of 20% in fiscal '19. Can you give us some color on, like what's driving that level of growth, has growth year-to-date been in line with that expectation and is that sustainable over the longer term beyond fiscal '19?

Steven H. Collis -- Chairman, President and Chief Executive Officer

So, James. No, we don't give that specific guidance for a business within (inaudible) we did have an outstanding year very high growth year-over-year in 2018 in World Courier and when a business has two or three back-to-back very strong growth years, we were pleased with the plan that I put together and I continue to hit the internal milestones and more importantly provide very important services to their manufacturing partners. So we couldn't be happier with the business. It's a international business that's been a really strong success for us and we have high confidence in the management there, we've made strong internal investments. Yeah, it's a complex business for us to run and operate in 50 countries and a lot of the value add that ABC has done there, if you look back over a long time has been in strengthening the internal controls, the financial, really helping them with how do you price contracts. So we think that you know there is always a good business. We've added a lot in terms of management, the services and just manage and inform the business better. So I think it is a great case study within ABC for what is a successful acquisition.

James -- Cowen -- Analyst

Okay, great. And can you provide us with an update on Lash maybe particularly the Fusion implementation, how is Lash tracking toward the return to growth in fiscal '20?

James F. Cleary -- Executive Vice President and Chief Financial Officer

Yes. So we are really pleased with the progress that Lash is making. From a financial standpoint, it's still a transition year for Lash but they're doing really well in terms of new business development and new business wins and signing extensions and adding to programs with existing customers and we really feel strongly about fusion for the current and for the long term and the benefits that will have for Lash and for manufacturers and patients.

Bennett Murphy -- Vice President of Investor Relations

Operator, next question please.

Operator

Thank you. Our next question will come from the line of Ricky Goldwasser from Morgan Stanley. Please go ahead.

Ricky Goldwasser -- Morgan Stanley -- Analyst

Yeah, hi, good morning. So, Jim two part question. But first, Jim, when we talk about the $0.05 benefit in the quarter from the lower operating expenses, should we think about this as a sustainable benefit that we can model going forward or is it just kind of like more of a one-time item? And then for Steve. I just wanted to revisit the (inaudible) question, I mean obviously your largest customer and sourcing partner has highlighted some meaningful headwinds for them from less lower generic sourcing benefit. So what are you seeing at your end and how are you mitigating it? I know you responded before that the, you're seeing the sell versus buy side spread being stable. Should we interpret that as you getting better pricing from the sell side?

James F. Cleary -- Executive Vice President and Chief Financial Officer

Yeah, I'll take the first part of that question. The $0.05 of G&A benefits during the quarter is really timing and it's, I think that we expect it to happen throughout the balance of the fiscal year, particularly in the third quarter that ended up benefiting us in the second quarter.

Steven H. Collis -- Chairman, President and Chief Executive Officer

Yeah, we've adapted. We have a very, the relationship really works because of the strength of the data and the sources that we have between Walgreens Alliance Boots and AmerisourceBergen and also has been further strengthened by our key partners especially Express Scripts but also an institutional pharmacy partner like (inaudible) . So we, we feel like it's really well positioned. We are painfully aware of generic inflation and brand inflation and the growth of specialty so when you look at the $160 billion in revenues and the planned profits, the contemplation of a lower contribution from (inaudible) is certainly something we thought about in our fiscal year '19 planning and we'll continue to think about, so it's, the sourcing component is very important.

We think the model has been very successful, but of course, (inaudible) but the original stakeholders that we have are very powerful and informed stakeholders and good partners to have. So I hope I'm getting the time's up here so I'll turn it off to Bennett.

Bennett Murphy -- Vice President of Investor Relations

That is the last question we have time for. But, I will turn the call back over to Jim for some closing remarks.

James F. Cleary -- Executive Vice President and Chief Financial Officer

Yeah. I'll just take a moment here and then I'll turn it over to Steve for closing remarks. But I'm going to go off script to just recognize Steve for just having celebrated his 25th year milestone as an AmerisourceBergen associate and congratulations Steve and thanks for your leadership and for your 25 years of service to all AmerisourceBergen stakeholders.

Steven H. Collis -- Chairman, President and Chief Executive Officer

Thank you, Jim. I hope at some stage people will think of me as a senior spokesperson but I'm not ready for that yet. So, but honestly, as I have said here today, we had a fabulous quarter. We are proud of the results we had but if I think about the requirements to do what AmerisourceBergen does, I am more confident than ever in our value proposition and the services that we provide continue to grow in scale, in quality, in magnitude and that's really both upstream and downstream and I feel that they are critical to the health and outcomes and management of our key customers, whether they are in the pharmaceutical space, but (inaudible) you mentioned 25 years but really since our merger in 2001 if you look at the company that we built, the key cultural aspects, the people, the relationships that we have built, the differentiated services and solutions portfolio, the businesses that we've acquired and the strong financial flexibility we have probably the most financial flexibility we've ever had in our future, I just feel very confident that we can successfully navigate the complexity of the US healthcare system and deliver long-term shareholder value. So thank you for listening. I thought the quality of the questions today was excellent from our sell-side community. I appreciate your interest in AmerisourceBergen today. Thank you.

Operator

Thank you. Ladies and gentlemen, that will conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

Duration: 66 minutes

Call participants:

Bennett Murphy -- Vice President of Investor Relations

Steven H. Collis -- Chairman, President and Chief Executive Officer

James F. Cleary -- Executive Vice President and Chief Financial Officer

Glen Santangelo -- Guggenheim Securities -- Analyst

Robert Jones -- Goldman Sachs -- Analyst

Ross Muken -- Evercore ISI -- Analyst

Steven J. James Valiquette -- Barclays Bank PLC -- Analyst

Lisa Gill -- J.P. Morgan -- Analyst

Kevin Caliendo -- UBS -- Analyst

James -- Cowen -- Analyst

Ricky Goldwasser -- Morgan Stanley -- Analyst

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