10-QPeriod: Q1 FY2011

Cencora, Inc. Quarterly Report for Q1 Ended Dec 31, 2010

Filed February 8, 2011For Securities:COR

Summary

Cencora, Inc. (formerly AmerisourceBergen Corporation) reported a solid financial performance for the quarter ending December 31, 2010. Revenue saw a modest increase of 2.9% year-over-year, reaching $19.9 billion, driven primarily by growth in its AmerisourceBergen Drug Corporation (ABDC) segment, which offset a decline in the AmerisourceBergen Specialty Group (ABSG). Net income grew by 6% to $160.5 million, and diluted earnings per share increased by 10% to $0.57, indicating effective cost management and strong operational leverage. Investors should note the company's continued focus on returning capital to shareholders, with increased quarterly dividends and significant share repurchases. Management anticipates continued revenue growth in the low single digits for fiscal year 2011, supported by market trends and new product introductions. However, potential headwinds include the increasing use of generics, industry competition, and ongoing legal matters, particularly the significant 'Qui Tam' litigation, which remains a key area of concern for potential financial and reputational impact.

Financial Highlights

55 data points
Beta

Revenue

$19.84B

2.9% Gross Margin

Net Income

$160.50M

0.8% Net Margin

EPS (Diluted)

$0.57

Total Assets

$14.13B

Cash & Equivalents

$1.40B

Free Cash Flow

-$149.29M

Financial Statements
Beta
Revenue$19.84B
Cost of Revenue$19.27B
Gross Profit$573.75M
SG&A Expenses$273.44M
Operating Income$275.55M
Net Income$160.50M
EPS (Basic)$0.58
EPS (Diluted)$0.57
Shares Outstanding (Basic)275.61M
Shares Outstanding (Diluted)280.69M

Key Highlights

  • 1Revenue increased 2.9% to $19.9 billion for the quarter ended December 31, 2010, compared to the prior year period.
  • 2Net income grew 6.0% to $160.5 million, with diluted EPS rising 10.0% to $0.57, demonstrating improved profitability.
  • 3Gross profit margin slightly improved by 1 basis point to 2.92%, driven by strong generic programs and favorable price appreciation.
  • 4Operating expenses as a percentage of revenue decreased by 3 basis points, reflecting operational efficiencies and strong operating leverage.
  • 5The company increased its quarterly cash dividend by 25% to $0.10 per share.
  • 6Share repurchases remain a priority, with $185.4 million spent in the quarter on buying back common stock.
  • 7The company is undertaking a significant Business Transformation project, including the implementation of a new ERP platform, which is expected to incur incremental costs but is aimed at long-term efficiency gains.

Frequently Asked Questions

The primary driver of revenue growth for the quarter ending December 31, 2010, was the 5% increase in revenue from the AmerisourceBergen Drug Corporation (ABDC) segment, which benefited from overall pharmaceutical market growth and above-market growth from key institutional customers. This growth partially offset a 4% decline in revenue from the AmerisourceBergen Specialty Group (ABSG).

Yes, Cencora is involved in significant legal matters, notably a 'Qui Tam' matter where 14 states and the District of Columbia, along with a relator, filed complaints alleging violations of federal and state health laws related to the promotion of Amgen's anemia drug, Aranesp. Appeals are pending in this matter, and a trial is set for July 2011. The company is also addressing a matter with the Ontario Ministry of Health and Long-Term Care regarding alleged violations of the Ontario Drug Interchangeability and Dispensing Fee Act.

Cencora has a mix of fixed-rate and variable-rate debt, with total debt of approximately $1.4 billion at December 31, 2010. The company has significant availability under its revolving credit facilities and receivables securitization facility, totaling over $1.3 billion, which provides sufficient capital for working capital requirements. Management intends to renew its credit facilities in fiscal 2011, potentially at higher rates.

The ongoing Business Transformation project, including the implementation of a new ERP platform, is expected to incur incremental costs of approximately $40 million per year during the transition period (through calendar 2012) due to maintaining dual IT systems. While management plans to mitigate these costs by reducing other expenses, there is no assurance of success. Capital expenditures related to this project were significant in the current quarter.