Business context and reporting period
This summary covers AmerisourceBergen Corporation’s unaudited fiscal first quarter ended December 31, 2009, compared with the three months ended December 31, 2008. The filing describes a pharmaceutical distribution and related services business operating primarily in the United States and Canada. The filing registrant is AmerisourceBergen Corporation; the supplied metadata identifies Cencora, Inc., so the entity and period should be verified.
Financial performance and position
| Metric | Q1 FY2010 | Q1 FY2009 | Change |
|---|---|---|---|
| Revenue | $19.336 billion | $17.338 billion | +12% |
| Gross profit | $563.4 million | $489.8 million | +15% |
| Gross margin | 2.91% | 2.83% | +8 basis points |
| Operating income | $262.4 million | $197.9 million | +33% |
| Operating margin | 1.36% | 1.14% | +22 basis points |
| Income from continuing operations | $151.3 million | $112.5 million | +34% |
| Net income | $151.3 million | $111.1 million | +36% |
| Diluted EPS | $0.52 | $0.36 | +44% |
| Cash from operations | $(41.7) million | $(304.4) million | Cash use narrowed |
| Capital expenditures | $42.6 million | $42.3 million | — |
Growth in operating income reflected higher gross profit and operating leverage: operating expenses rose 3%, while revenue increased 12%. Diluted EPS growth also benefited from a 6% reduction in weighted-average shares, largely due to repurchases.
At December 31, 2009, cash and equivalents were $979.6 million, total debt was $1.376 billion, and stockholders’ equity was $2.741 billion. Debt increased from $1.178 billion at September 30, 2009, mainly reflecting issuance of $400 million of 2019 senior notes. The company reported $1.357 billion of additional availability under revolving and receivables facilities. Current assets were $9.916 billion and current liabilities were $9.243 billion. Cash declined $29.8 million during the quarter.
Material changes versus the prior comparable period
- Revenue growth came from ABDC (+13%) and ABSG (+8%), including new large buying-group customers added in 2009 and market growth.
- Gross profit rose $73.5 million. Management attributed approximately two-thirds of the increase to new generic product launches; generic revenue grew more than 20%.
- Operating expenses as a share of revenue fell to 1.56% from 1.68%, reflecting operating leverage and productivity improvements.
- Operating cash use improved substantially year over year, but remained negative. The quarter’s working-capital movements included a $391.2 million inventory increase and a $254.5 million decrease in accounts payable, accrued expenses and income taxes, partly offset by a $371.9 million reduction in receivables.
- In November 2009, the company issued $400 million of 4⅞% senior notes due 2019 and used most proceeds to repay revolving-facility borrowings. It completed a prior $500 million repurchase authorization and began a new $500 million program.
- Q1 FY2009 included a $1.5 million discontinued-operations loss related to PMSI; PMSI had been sold in October 2008.
Outlook, commentary, risks and unusual items
- Management raised its fiscal 2010 revenue-growth expectation to 7%–8% from 5%–7%, while expecting growth to be higher in the first half than the second half.
- Management expected a significant but reduced generic-launch benefit in the March 2010 quarter, and a substantially smaller contribution in the second half of fiscal 2010 than in the December quarter. Generic-launch benefits are variable and not assured.
- Management estimated fiscal 2010 capital expenditures of approximately $140 million and expected to repurchase approximately $350 million of shares during the fiscal year. It expected cash flows and borrowing capacity to meet ongoing needs.
- Management expected fiscal 2010 interest expense to exceed the prior year following the 2019 notes issuance, while noting that extending maturities and securing long-term rates improved the company’s financing position. It projected an effective tax rate of approximately 38.4% for fiscal 2010.
- Liquidity considerations include the $700 million receivables securitization facility expiring in April 2010. Management intended to renew it and believed acceptable terms were achievable, but gave no assurance. The $55 million Blanco facility was also due in 2010; the company stated it intended and was able to refinance it on a long-term basis.
- Legal contingencies include the Bergen Brunswig executive-benefits dispute, an Ontario rebate-payment order and related complaint, and a qui tam/False Claims Act case concerning alleged promotion of Amgen’s Aranesp. The company disputed allegations in the matters and said outcomes could not be predicted. The filing also cautions that adverse resolution of legal matters could materially affect results or financial condition.
- Unrecognized tax benefits were $54.7 million, including interest and penalties; approximately $8.0 million could be reduced within 12 months through audit resolutions or statute expirations. U.S. federal tax years 2006 onward remained open to examination; fiscal 2006 and 2007 were under IRS examination.
- Other risks cited include changes in drug pricing and reimbursement, generic competition and launch economics, customer or supplier concentration and credit, market and interest-rate changes, Canadian regulatory developments, controlled-substance enforcement, and execution of the enterprise resource planning transformation.
- Unusual items included a $1.5 million antitrust-settlement gain recorded as a reduction of cost of goods sold and a $7.8 million LIFO charge. The quarter recorded a $48,000 credit for facility consolidation, severance and other costs.
Important facts for investors to verify
- Confirm the filing’s registrant and reporting period: this is an AmerisourceBergen 10-Q for the quarter ended December 31, 2009, not a filing under the supplied Cencora name.
- Assess how much of the quarter’s gross-profit and EPS improvement came from unusually strong generic launches, and whether that benefit persisted.
- Review renewal terms and availability for the receivables securitization facility due in April 2010, and refinancing of the Blanco facility.
- Track operating cash flow and inventory, supplier-payment and receivables trends, given continued quarterly operating cash use.
- Monitor the cited litigation, tax examinations and potential exposure; the filing does not provide a clear final resolution or total potential loss for these matters.
- Compare realized revenue growth, repurchases, capital spending and ERP costs with management’s fiscal 2010 expectations.