01—Abstract
Summary
Summary of the 10-K filed November 25, 2009. Cited figures are marked; the original filing is the authoritative source.
This fiscal 2009 10-K (fiscal year ended September 30, 2009, filed November 25, 2009) is from AmerisourceBergen Corporation, which traded as NYSE: ABC and is now known as Cencora (COR).
The company is one of the largest pharmaceutical services companies in the U.S. and Canada. Total revenue rose 2% to $71.8 billiona, and operating income grew 7% to $883.7 million. Reported net income more than doubled to $503.4 million, but that comparison is distorted by a $224.9 million non-cash charge on the PMSI divestiture in fiscal 2008.
Excluding discontinued operations, diluted EPS from continuing operations rose 17% to $1.69b, helped by a 7% reduction in weighted average shares from buybacks. Gross margin held steady at 2.93% of revenue. Growth was constrained by the loss of roughly $3 billion in annual retail chain business in July 2008.
Strong generic and specialty growth, including a 7% rise at AmerisourceBergen Specialty Group to $15.6 billionc, partly offset that loss. Cash generation was strong, with operating cash flow of $783.8 million, cash and equivalents of $1.0 billion, and total debt of $1.18 billion. The company returned capital through $450.4 million of share repurchases and $62.7 million of dividends.
Management authorized a new $500 milliond buyback and expects to repurchase about $350 million of stock in fiscal 2010. The quarterly dividend was raised 33% to $0.08 per share in November 2009, and a 2-for-1 stock split took effect in June 2009. Management guides to 5% to 7% revenue growth for fiscal 2010.
Investors should weigh concentration risk, since Medco Health Solutions represents 17% of revenue and the top ten customers represent about 41%. Other key risks include declining anemia drug sales, pending Medicaid reimbursement changes, possible health reform, and a qui tam False Claims Act suit tied to Amgen's Aranesp, which fourteen states and the District of Columbia joined in October 2009 alongside an ongoing Department of Justice investigation. From a financial standpoint, the company remains a low-margin, high-volume distributor with a substantial working capital cycle.
Operating cash flow benefited from a $1.26 billion increase in payables, accrued expenses and taxes, partly offset by a $765 million inventory build, some of which reflected about $400 million of September 2009 purchases tied to a product launch and a manufacturer plant shutdown. Investors should monitor whether these timing benefits persist and whether the company can continue to grow profits while absorbing the ongoing Business Transformation ERP investment through fiscal 2011.
02—Key points
Key Highlights
- Total revenue grew 2% to $71.76 billion in fiscal 2009, held back by the July 2008 loss of about $3 billion in annual retail chain business; excluding that loss, growth would have been about 5%.
- Operating income rose 7% to $883.7 million, and diluted EPS from continuing operations increased 17% to $1.69, aided by a 7% reduction in weighted average shares from buybacks.
- Gross profit reached $2.10 billion (2.93% of revenue), supported by generic program growth, a $10.2 million prior-period fee benefit, and ABSG growth, offset by a $15.5 million flu vaccine inventory write-down.
- Operating cash flow was $783.8 million; the company repurchased $450.4 million of stock and paid $62.7 million in dividends, ending the year with $1.0 billion in cash and $1.18 billion in total debt.
- Capital return is expanding: the quarterly dividend was raised to $0.08 (a 33% increase) in November 2009, a new $500 million buyback was authorized, and about $350 million of repurchases is planned for fiscal 2010.
- Customer concentration is significant: Medco Health Solutions accounted for 17% of revenue and the top ten customers for about 41%, while the three largest GPO relationships represented about 10%.
- Legal and regulatory exposure increased with the Amgen Aranesp qui tam case, in which fourteen states and D.C. intervened in October 2009, plus a Department of Justice investigation and pending Medicaid AMP and health reform developments.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Cencora, Inc. kept $0.01.
- Revenue$71.76B100.0%
- Cost of revenue−$69.66B97.1%
- Gross profit$2.10B2.9%
- Operating costs−$1.22B1.7%
- Operating income$883.7M1.2%
- Interest, other & tax−$380.4M0.5%
- Net income$503.4M0.7%
Where FY2009 revenue went
$71.76B- Cost of revenue: $69.66B, 97% of revenue
- Net income: $503.4M, 0.7% of revenue
- SG&A: $1.12B, 1.6% of revenue
- Interest, other & tax: $380.4M, 0.5% of revenue
Kept 0.7% as net incomeNet income $503.4M · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed November 25, 2009Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $71.76B$70.19B | +2.2% |
| Cost of Revenue | $69.66B$68.14B | +2.2% |
| Gross Profit | $2.10B$2.05B | +2.6% |
| SG&A Expenses | $1.12B$1.12B | +0.1% |
| Operating Income | $883.75M$827.86M | +6.8% |
| Net Income | $503.40M$250.56M | +100.9% |
| EPS (Basic) | $1.67$0.78 | +114.1% |
| EPS (Diluted) | $1.66$0.77 | +115.6% |
| Shares Outstanding (Basic) | 300.57M321.28M | −6.4% |
| Shares Outstanding (Diluted) | 302.75M324.92M | −6.8% |
05—Questions
Frequently Asked Questions
Why did net income more than double in fiscal 2009 while revenue only grew 2%?
Fiscal 2008 net income of $250.6 million included a $224.9 million non-cash loss from discontinued operations tied to the PMSI workers' compensation business, which was sold in October 2008. Fiscal 2009 net income of $503.4 million did not repeat that charge. On a continuing-operations basis, income rose 9% to $511.9 million, and diluted EPS from continuing operations rose 17% to $1.69.
How concentrated is the customer base, and what would losing a major customer mean?
Medco Health Solutions, the largest customer, accounted for 17% of fiscal 2009 revenue, and the top ten customers accounted for about 41%. The company notes that a loss of any major customer or GPO relationship could adversely affect future revenue and results. Its largest trade receivable from a single customer, Medco, was about 9% of net accounts receivable at September 30, 2009.
What is the outlook for fiscal 2010 and what are the key growth drivers?
Management expects total revenue growth of 5% to 7% in fiscal 2010 for ABDC and ABSG combined. Growth should be stronger in the first half because of two large new customers added in March and April 2009. Drivers include industry growth of 3% to 5% in calendar 2010 (per IMS), new drug launches, specialty and generic growth, and higher branded drug prices, partly offset by generic substitution and downward reimbursement pressure.
What are the most significant legal and regulatory risks disclosed?
The most prominent item is a qui tam False Claims Act case in the U.S. District Court for Massachusetts. It names Amgen and two AmerisourceBergen units, alleging that ASD Specialty Healthcare and International Nephrology Network conspired with Amgen to promote Aranesp. Fourteen states and D.C. intervened on October 30, 2009, and the Department of Justice is still investigating. Other risks include Medicaid AMP reimbursement changes under the DRA, Medicare reimbursement cuts affecting oncology and anemia drugs, pedigree and track-and-trace requirements, a C$5.8 million Ontario rebate payment order, and pending U.S. health reform legislation. The company says it cannot predict outcomes.
06—Continue