Business context and reporting period
This is AmerisourceBergen Corporation’s unaudited Form 10-Q for the fiscal quarter and nine months ended June 30, 2020 (filed August 5, 2020). The supplied filing is not titled Cencora, Inc.; it identifies the registrant as AmerisourceBergen Corporation. Its principal business is pharmaceutical distribution and related services, with additional animal health and global commercialization operations.
Financial performance and position
Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions unless otherwise noted.
| Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Nine months ended June 30, 2020 | Nine months ended June 30, 2019 |
|---|---|---|---|---|
| Revenue | $45,366.8m | $45,239.3m | $140,649.2m | $133,951.3m |
| Gross profit | $1,225.7m | $1,231.2m | $3,845.0m | $3,953.6m |
| Operating income | $404.8m | $406.7m | $977.8m | $932.1m |
| Net income attributable to AmerisourceBergen | $289.4m | $302.0m | $1,437.4m | $722.7m |
| Diluted EPS | $1.41 | $1.43 | $6.95 | $3.42 |
| Operating cash flow | Not separately presented | Not separately presented | $907.8m | $1,671.2m |
- Third-quarter gross margin was approximately 2.70% and operating margin approximately 0.89%. Nine-month gross margin was approximately 2.73% and operating margin approximately 0.70%.
- Cash and cash equivalents were $3,420.3m at June 30, 2020, versus $3,374.2m at September 30, 2019. Total debt was $4,140.4m, including $519.7m current debt and $3,620.6m long-term debt. The company reported $2,612.2m of additional availability under specified credit facilities and reported covenant compliance.
- Nine-month investing cash outflow was $278.1m, including $251.1m of capital expenditures. Financing cash outflow was $583.6m, including $420.4m of share repurchases and $256.8m of dividends.
Material changes versus comparable periods
- Quarterly revenue increased 0.3%, while gross profit declined 0.4%, operating income declined 0.5%, net income attributable to the company declined 4.2%, and diluted EPS declined from $1.43 to $1.41.
- Nine-month revenue increased 5.0% and operating income increased 4.9%. Net income and EPS rose substantially, primarily because of discrete tax benefits, not solely underlying operating growth.
- Nine-month operating cash flow fell to $907.8m from $1,671.2m. The filing cites increased inventory ($910.8m) and income-tax receivable ($590.2m), partly offset by an increase in accounts payable ($824.1m).
- At June 30, current assets were $29,918.6m and current liabilities $30,631.6m. Accounts payable was $29,145.1m, reflecting the scale and working-capital profile of the distribution business.
Outlook, commentary, risks, and unusual items
- Management expected fiscal 2020 revenue growth in the mid-single digits and approximately $375m of fiscal 2020 capital expenditures. It stated that operating cash flows and borrowing capacity were expected to fund ongoing cash requirements. The filing does not provide a clear quantified earnings or EPS outlook.
- COVID-19 affected purchasing patterns: customers had increased purchases in the March quarter, contributing to fewer purchases in the June quarter. The company also cited lower demand for some animal health products, potential customer credit and collection pressure, supply and distribution disruption, employee health risks, and possible delays to technology initiatives.
- The company permanently exited its PharMEDium compounding business. It recorded $361.7m of PharMEDium asset impairment during the nine months, including $223.7m in the March quarter, plus shutdown costs. The business had faced operational and regulatory challenges and remained subject to an FDA/DOJ consent decree during its wind-down.
- Nine-month tax benefit was $595.3m; the company reported an effective tax rate of (70.1)%. Discrete tax benefits totaled $741.0m, including an estimated $675m benefit tied to a PharMEDium tax deduction and CARES Act net operating loss provisions. A $596.0m current income-tax receivable was recorded.
- Opioid litigation remained a material contingency. The company was discussing a possible broader resolution but had not accrued a liability for it, stating that the outcome and potential loss could not be reasonably estimated. It warned that an adverse judgment or settlement could materially affect financial position, cash flows, or liquidity. Opioid-related legal costs were $86.9m for the nine months.
- In May 2020, the company issued $500m of 2.80% senior notes due 2030 and used the proceeds to retire $500m of 3.50% notes due 2021, paying a $21.4m premium. It also authorized a new $500m share repurchase program; $55.5m remained under the prior program at June 30. The quarterly dividend increased 5%, to $0.42 per share.
- Walgreens Boots Alliance, a related party and significant customer, accounted for $47.0bn of nine-month revenue under various agreements; its net receivable was $5.9bn at June 30. The agreements were stated to expire in 2026.
Important facts for investors to verify
- Confirm the issuer and period: the supplied 10-Q is for AmerisourceBergen Corporation, quarter ended June 30, 2020, not a filing presented under the Cencora name.
- Assess the sustainability of earnings excluding the large discrete tax benefits and PharMEDium impairment and exit-related items.
- Track working-capital cash conversion, particularly inventory, receivables, payables, and the timing or collectibility of the tax receivable.
- Monitor COVID-19 effects on customer demand, supply continuity, credit losses, and operating costs.
- Follow opioid litigation and government investigations, including any change in the company’s ability to estimate or recognize potential losses.
- Review PharMEDium wind-down obligations, consent-decree compliance, and any additional costs or impairments.