Business context and reporting period
Cencora, Inc. filed this report under its former name, AmerisourceBergen Corporation. The filing covers the first quarter of fiscal 2021, the three months ended December 31, 2020, with comparative results for the three months ended December 31, 2019. The company distributes pharmaceuticals and provides related services; its reportable segments are Pharmaceutical Distribution Services and Other, which includes animal health and global commercialization services.
Financial and operating highlights
| Metric | Q1 FY2021 | Prior-year quarter |
|---|---|---|
| Revenue | $52.52 billion | $47.86 billion |
| Gross profit | $1.45 billion | $1.23 billion |
| Operating income | $547.2 million | $263.4 million |
| Net income attributable to AmerisourceBergen | $374.8 million | $187.6 million |
| Diluted EPS | $1.81 | $0.90 |
| Operating cash flow | $903.1 million | $142.8 million |
| Capital expenditures | $65.4 million | $67.3 million |
Gross margin was approximately 2.8%, compared with 2.6%. Pharmaceutical Distribution Services gross margin was 2.06%, up 12 basis points; Other gross margin was 18.88%, down from 19.01%. The effective tax rate rose to 28.3% from 18.7%.
At December 31, 2020, cash and cash equivalents were $4.89 billion; total debt was $3.70 billion, including $59.4 million of current debt. Current assets were $34.70 billion and current liabilities were $35.04 billion. The company reported $2.62 billion of additional availability across specified credit facilities and was compliant with its revolving-facility covenants. The $400 million term loan matured and was repaid in October 2020.
Material changes versus the prior comparable period
- Revenue increased 9.7%, led by Pharmaceutical Distribution Services, whose revenue grew 9.7%. Management cited specialty-product sales, including COVID-19 treatments, growth at large customers, and higher market unit volumes.
- Gross profit increased 18.0%; operating income more than doubled. The comparison benefited from a $138.0 million PharMEDium asset impairment in the prior-year quarter that did not recur, as well as a current-quarter LIFO credit versus a prior-year LIFO expense. Current-quarter results also included higher acquisition-related and other costs.
- Operating cash flow increased to $903.1 million, substantially reflecting a $1.72 billion increase in accounts payable. Receivables and inventory increases used $906.5 million and $545.5 million, respectively; management noted the effects of sales growth, payment timing, and seasonal inventory needs.
- Cash dividends declared increased to $0.44 per share from $0.40. The company repurchased $56.2 million of stock during the quarter.
Outlook, commentary, risks and unusual items
- Management expected fiscal 2021 revenue growth in the high single digits and capital expenditures of approximately $400 million.
- In January 2021, after quarter-end, the company agreed to acquire most of Walgreens Boots Alliance’s Alliance Healthcare businesses for approximately $6.5 billion: $6.275 billion in cash, subject to adjustments, plus 2 million shares. It expected to fund the cash portion with cash and new debt and had $3.025 billion of bridge financing commitments. Closing was subject to customary conditions, including regulatory approvals; the company said it expected closing by September 30, 2021.
- The company had accrued a $6.6 billion opioid-litigation liability in fiscal 2020, with no change to the estimate in this quarter. It described global settlement discussions as advanced and a settlement as probable, but emphasized that the outcome and ultimate loss could differ materially. Approximately $408 million was expected to be paid before December 31, 2021; the remaining $6.2 billion was recorded as a long-term litigation liability. Proposed settlement terms remained contingent.
- Current-quarter unusual costs included $32.1 million of opioid-related legal fees and $18.9 million of acquisition-related deal and integration costs. The tax rate was affected by Swiss tax reform and other discrete tax items.
- Key risks include opioid and other litigation, failure or delay in the WBA transaction, integration and synergy risks, customer or supplier concentration and contract economics, reimbursement and pricing pressures, regulation, COVID-19 effects, and working-capital volatility. Walgreens Boots Alliance was a related party and generated $16.2 billion of revenue in the quarter.
Important facts for investors to verify
- Progress, regulatory approvals, financing, purchase-price adjustments, and expected benefits of the Alliance Healthcare acquisition.
- Developments in opioid settlement negotiations, the scope of participating plaintiffs, payment timing, and adequacy of the $6.6 billion accrual.
- Whether operating cash flow remains strong when accounts-payable timing and seasonal working-capital movements normalize.
- Revenue growth, margins, and customer concentration, including the economics of the Walgreens relationship.
- Achievement of fiscal 2021 revenue and capital-expenditure expectations, alongside ongoing legal, tax, and integration costs.