01—Abstract
Summary
Summary of the 10-K filed November 22, 2011. Cited figures are marked; the original filing is the authoritative source.
AmerisourceBergen Corporation (NYSE: ABC; now Cencora) reported fiscal 2011 (year ended September 30, 2011) revenue of $80.2 billiona, up 2.9% from $78.0 billion.
Growth came mainly from AmerisourceBergen Drug Corporation, which grew 5%, partly offset by a 3% revenue decline at its specialty group. Gross profit rose 7.7% to $2.54 billionb, and gross margin improved 15 basis points to 3.17%, helped by launches of three specialty generic oncology drugs and growth in generic programs. Operating income rose 9.0% to $1.20 billion, and net income rose 11.0% to $706.6 million.
Diluted EPS was $2.54c, up 14.4%, which was helped by a 3% reduction in weighted average shares from buybacks. The outlook is more cautious. Management expects fiscal 2012 revenue to be roughly flat to modestly up.
The company will lose Long's Drugs, a roughly $2 billiond revenue customer, after September 30, 2011. Gross profit from the three specialty generics is expected to fall significantly, and management expects that decline to be substantially offset by over 30 brand-to-generic conversions. Concentration risk is significant: Medco Health Solutions, the largest customer at 19% of revenue, announced a merger with Express Scripts, and its contract runs only through March 2013.
Interest expense is expected to rise significantly in fiscal 2012 after the $500 million 3.5% senior notes issued in November 2011. Capital allocation was shareholder-friendly. The company repurchased $848.1 million of stock in fiscal 2011, authorized a new $750 million program, and expects to buy back about $400 million in fiscal 2012.
The quarterly dividend was raised 13% to $0.13 per share in November 2011. The balance sheet is conservatively structured, with $1.83 billion of cash against $1.36 billion of debt. Post-period, the company agreed to acquire TheraCom for $250 million, which the company says will significantly expand its consulting services.
02—Key points
Key Highlights
- Revenue of $80.2 billion grew 2.9%, led by 5% growth at AmerisourceBergen Drug Corporation; specialty group revenue of $15.5 billion fell 3%.
- Gross margin improved 15 bps to 3.17%, and gross profit rose 7.7% to $2.54 billion on specialty generic launches and fee-for-service growth.
- Operating income rose 9.0% to $1.20 billion; net income rose 11.0% to $706.6 million, and diluted EPS rose 14.4% to $2.54.
- Customer concentration is high: Medco (19% of revenue) faces a merger with Express Scripts, and the top 10 customers account for about 43% of revenue.
- Fiscal 2012 outlook is flat to modestly up, with the loss of Long's Drugs (~$2B revenue) and lower specialty generic contributions, partly offset by brand-to-generic conversions.
- Shareholder returns: $848.1 million of buybacks in fiscal 2011, a new $750 million authorization, ~$400 million planned for fiscal 2012, and a 13% dividend increase to $0.13 per quarter.
- Strategic moves include the $250 million TheraCom acquisition (November 2011) and a $500 million 3.5% senior notes offering, with interest expense expected to rise significantly in fiscal 2012.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Cencora, Inc. kept $0.01.
- Revenue$78.70B100.0%
- Cost of revenue−$76.24B96.9%
- Gross profit$2.46B3.1%
- Operating costs−$1.27B1.6%
- Operating income$1.19B1.5%
- Interest, other & tax−$482.9M0.6%
- Net income$706.6M0.9%
Where FY2011 revenue went
$78.70B- Cost of revenue: $76.24B, 97% of revenue
- Net income: $706.6M, 0.9% of revenue
- SG&A: $1.14B, 1.4% of revenue
- Interest, other & tax: $482.9M, 0.6% of revenue
Kept 0.9% as net incomeNet income $706.6M · 0.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed November 22, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $78.70B$77.78B | +1.2% |
| Cost of Revenue | $76.24B$75.45B | +1.0% |
| Gross Profit | $2.46B$2.33B | +5.8% |
| SG&A Expenses | $1.14B$1.15B | −1.1% |
| Operating Income | $1.19B$1.09B | +8.9% |
| Net Income | $706.62M$636.75M | +11.0% |
| EPS (Basic) | $2.59$2.26 | +14.6% |
| EPS (Diluted) | $2.54$2.22 | +14.4% |
| Shares Outstanding (Basic) | 272.47M282.26M | −3.5% |
| Shares Outstanding (Diluted) | 277.72M287.25M | −3.3% |
05—Questions
Frequently Asked Questions
What drove the improvement in profitability in fiscal 2011?
Gross profit rose 7.7% to $2.54 billion, faster than revenue. The main drivers were launches of three specialty generic oncology drugs (Oxaliplatin, Gemcitabine and Docetaxel), growth in non-specialty generic programs, and higher fee-for-service payments from manufacturers. Operating expenses rose 6.7%, mainly from the cost of running dual IT platforms during the ERP transition and a $16 million litigation charge.
How concentrated is the customer base, and what are the risks?
Medco Health Solutions accounted for 19% of fiscal 2011 revenue, the next largest customer for 5.5%, and the top 10 customers for about 43%. Medco is merging with Express Scripts, a customer of a competitor, and the Medco contract runs only through March 2013. Losing Medco or another major customer or group purchasing organization could significantly affect revenue, earnings and cash flow.
What should investors expect for fiscal 2012?
Management expects revenue to be roughly flat to modestly up. The loss of Long's Drugs (about $2 billion in annual revenue) and the expected sharp decline in gross profit from three specialty generic drugs are expected to be substantially offset by over 30 brand-to-generic conversions. Interest expense is expected to be significantly higher because of the November 2011 notes issuance, and capital expenditures are expected to be about $150 million.
How is the company returning cash to shareholders and how strong is its balance sheet?
The company repurchased $848.1 million of stock in fiscal 2011, has $500 million remaining under its August 2011 $750 million program, and plans about $400 million of buybacks in fiscal 2012. It raised its quarterly dividend 13% to $0.13 per share. At September 30, 2011, it had $1.83 billion of cash and $1.36 billion of total debt, with a $700 million revolver and a $700 million receivables securitization facility, both undrawn or partly available.
What are the key legal and regulatory exposures?
The company recorded a $16 million charge for a preliminary settlement of a qui tam (False Claims Act) case involving its ASD and INN units, with a final agreement expected in fiscal 2012. Other sealed qui tam filings remain. Regulatory pressure includes Medicaid and Medicare reimbursement cuts, a federal upper limit change for generics, possible sequestration cuts under the Budget Control Act, DEA controlled-substance enforcement, and a pending Ontario rebate order against its Canadian subsidiary.
06—Continue