10-QPeriod: Q1 FY2008

Cencora, Inc. Quarterly Report for Q1 Ended Dec 31, 2007

Filed February 8, 2008For Securities:COR

Summary

Cencora, Inc. (formerly AmerisourceBergen Corporation) reported its financial results for the quarter ended December 31, 2007. The company experienced a modest increase in total revenue to $17.37 billion, up from $16.73 billion in the prior year period, driven by the acquisition of Bellco Health and growth in its core Pharmaceutical Distribution segment. However, net income saw a decrease of 10% to $109.8 million compared to $122.2 million in the same quarter last year. This decline was attributed to increased interest expenses, a decrease in gross profit margins, and a reduction in operating income from the "Other" segment, largely due to the spin-off of its Long-Term Care business. Despite the dip in net income, diluted earnings per share showed a slight increase due to a significant reduction in outstanding shares resulting from an aggressive share repurchase program. The company continues to manage its liquidity through revolving credit facilities and a receivables securitization program. Looking ahead, Cencora anticipates revenue growth but faces ongoing challenges related to evolving reimbursement policies, particularly for anemia drugs, and potential impacts from regulatory changes.

Key Highlights

  • 1Total revenue increased by 3% to $17.37 billion for the quarter ended December 31, 2007, primarily driven by the acquisition of Bellco Health and organic growth in the Pharmaceutical Distribution segment.
  • 2Net income decreased by 10% to $109.8 million, compared to $122.2 million in the prior year period, impacted by higher interest expenses and a decline in the 'Other' segment's performance.
  • 3Diluted earnings per share increased by 5% to $0.66, despite lower net income, due to a 14% reduction in weighted average shares outstanding from share repurchases.
  • 4The company acquired Bellco Health for $162.5 million on October 1, 2007, expanding its presence in the New York City area pharmaceutical distribution market.
  • 5Cencora announced its intention to divest its workers' compensation business, PMSI, in January 2008.
  • 6Merchandise inventories increased significantly by $609.9 million, contributing to a decrease in cash flow from operations.
  • 7The company returned approximately $311.4 million to shareholders through share repurchases during the quarter, as part of an expanded $1.35 billion repurchase program.

Frequently Asked Questions

The acquisition of Bellco Health, completed on October 1, 2007, contributed to a 3.6% increase in operating revenue for the Pharmaceutical Distribution segment, expanding Cencora's presence in the Metro New York City area. However, the integration of Bellco also involved associated operating expenses.

Net income decreased by 10% primarily due to an increase in net interest expense, a decline in gross profit margins, and a significant reduction in operating income from the 'Other' segment. The spin-off of the Long-Term Care business also impacted the comparability of the 'Other' segment's results.

Cencora anticipates operating revenue growth in fiscal 2008 to range from 7% to 9%, an increase from previous expectations, driven by strong growth in certain large, low-margin institutional customers. However, the company faces potential headwinds from declining anemia drug sales and evolving reimbursement policies, which could impact future profitability.

Cencora has a diversified liquidity structure, including a $750 million multi-currency revolving credit facility and a $750 million receivables securitization facility. The company also continues to generate cash flow from operations, which, along with its credit facilities, is expected to fund working capital, acquisitions, capital expenditures, and shareholder returns, including its ongoing share repurchase program.