10-KPeriod: FY2016

Cencora, Inc. Annual Report, Year Ended Sep 30, 2016

Filed November 22, 2016For Securities:COR

Summary

Cencora, Inc. (COR) demonstrated robust revenue growth in fiscal year 2016, driven by an 8.0% increase attributed to strong performance in its Pharmaceutical Distribution segment, bolstered by acquisitions like MWI and PharMEDium. While gross profit saw a significant increase of 21.1% year-over-year, partly due to a reduction in LIFO expense and antitrust litigation gains, the company's pharmaceutical distribution segment's gross profit margin slightly declined due to pricing pressures and less favorable contract renewals. The company managed its expenses effectively, with distribution, selling, and administrative expenses increasing due to acquisitions but remaining a relatively stable percentage of revenue. A notable factor impacting the year's financial results was the significant decrease in Warrants expense, a positive development for the company. Cencora also continued its commitment to shareholder returns through dividend increases and substantial share repurchases, reflecting confidence in its financial position and future prospects despite facing a competitive market and ongoing regulatory scrutiny.

Financial Highlights

54 data points
Beta

Revenue

$146.85B

2.9% Gross Margin

Net Income

$1.43B

1.0% Net Margin

EPS (Diluted)

$6.32

Total Assets

$33.64B

Cash & Equivalents

$2.74B

Free Cash Flow

$2.71B

Financial Statements
Beta
Revenue$146.85B
Cost of Revenue$142.58B
Gross Profit$4.27B
SG&A Expenses$2.09B
Operating Income$1.53B
Net Income$1.43B
EPS (Basic)$6.73
EPS (Diluted)$6.32
Shares Outstanding (Basic)212.21M
Shares Outstanding (Diluted)225.96M

Key Highlights

  • 1Revenue increased by 8.0% to $146.8 billion, primarily driven by growth in the Pharmaceutical Distribution segment and contributions from recent acquisitions (MWI and PharMEDium).
  • 2Gross profit increased by 21.1% to $4.3 billion, benefiting from a $342.6 million decrease in LIFO expense and a $68.3 million increase in antitrust litigation settlement gains.
  • 3Distribution, selling, and administrative expenses increased by 9.6% largely due to the acquisitions of MWI and PharMEDium.
  • 4Warrants expense decreased significantly from $912.7 million in the prior year to $140.3 million, mainly due to a decline in the company's stock price.
  • 5The company successfully managed its debt, with interest expense, net, increasing by 28.3% primarily due to increased borrowings to finance acquisitions.
  • 6Cencora continued to return capital to shareholders, increasing its quarterly dividend by 7% in November 2016 and repurchasing shares under its authorized programs.
  • 7The company faced some headwinds, including unfavorable trends in brand and generic pharmaceutical pricing and less favorable terms on renewed contracts with key customers like the Department of Defense and Kaiser Permanente.

Frequently Asked Questions

Cencora's revenue grew by 8.0% in fiscal year 2016. Key drivers included strong performance in its Pharmaceutical Distribution segment, with increased sales of both brand and generic products, and significant revenue growth from its Specialty Group. The acquisition of MWI Veterinary Supply in February 2015 also contributed to the overall revenue increase.

The acquisition of MWI in February 2015 and PharMEDium in November 2015 contributed significantly to the company's financial results. MWI boosted revenue in the 'Other' segment by 33.8%. Both acquisitions increased distribution, selling, and administrative expenses and led to amortization of acquired intangible assets. However, they also contributed to overall gross profit growth and expanded the company's service offerings.

Warrants expense decreased substantially from $912.7 million in fiscal year 2015 to $140.3 million in fiscal year 2016. This significant reduction was primarily due to a decline in Cencora's stock price, which directly impacted the fair value measurement of these warrants. The company also noted that the warrants were fully exercised by WBA during fiscal year 2016.

Cencora identified several key risks, including unfavorable trends in pharmaceutical pricing (both brand inflation and generic deflation), intense competition and industry consolidation, the potential loss of significant customers like Walgreens and Express Scripts (which represented 30% and 16% of 2016 revenue, respectively), and increasing governmental regulation of the pharmaceutical supply chain and compounding. The company also noted risks related to its acquisitions, data security, and legal/regulatory compliance, particularly concerning controlled substances.