10-QPeriod: Q3 FY2013

Cencora, Inc. Quarterly Report for Q3 Ended Jun 30, 2013

Filed August 7, 2013For Securities:COR

Summary

Cencora, Inc. (formerly AmerisourceBergen Corporation) reported a mixed financial performance for the quarter ended June 30, 2013. Revenue saw a significant increase of 13.3% year-over-year to $21.9 billion, driven by growth in both the Pharmaceutical Distribution and Other segments. This growth was bolstered by a new ten-year distribution agreement with Walgreens, expected to contribute substantially in fiscal 2014, and a large contract with Express Scripts. However, profitability was impacted by a substantial LIFO charge of $122.1 million in the quarter, leading to a 15.8% decrease in gross profit to $562.5 million. Operating income also fell significantly by 58.5% to $134.6 million. The company also reported significant warrant expense related to its strategic arrangements with Walgreens and Alliance Boots, impacting the effective tax rate. Discontinued operations, stemming from the divestiture of AndersonBrecon and AmerisourceBergen Canada Corporation, contributed a gain on sale in the current quarter. The company maintained a strong liquidity position with substantial availability under its credit facilities and reported a robust cash flow from operations, although working capital saw some pressure from increased inventory and receivables.

Financial Highlights

54 data points
Beta

Revenue

$21.91B

2.6% Gross Margin

Net Income

$168.44M

0.8% Net Margin

EPS (Diluted)

$0.71

Total Assets

$16.58B

Cash & Equivalents

$1.57B

Free Cash Flow

$25.86M

Financial Statements
Beta
Revenue$21.91B
Cost of Revenue$21.34B
Gross Profit$562.45M
SG&A Expenses$331.17M
Operating Income$134.65M
Net Income$168.44M
EPS (Basic)$0.73
EPS (Diluted)$0.71
Shares Outstanding (Basic)231.00M
Shares Outstanding (Diluted)235.67M

Key Highlights

  • 1Revenue increased by 13.3% to $21.9 billion, driven by the Pharmaceutical Distribution segment and the 'Other' segment, benefiting from new agreements.
  • 2Gross profit decreased by 15.8% to $562.5 million, largely due to a $122.1 million LIFO charge recorded in the current quarter related to increased branded inventory for the Walgreens contract.
  • 3Operating income saw a substantial decrease of 58.5% to $134.6 million, impacted by the LIFO charge and significant warrant expense related to the Walgreens/Alliance Boots strategic partnership.
  • 4The company divested its packaging and clinical trials services business (AndersonBrecon) and AmerisourceBergen Canada Corporation in May 2013, resulting in a gain on sale reported within discontinued operations.
  • 5A strategic partnership with Walgreens and Alliance Boots was announced, including a ten-year pharmaceutical distribution agreement and the issuance of warrants, which are a significant non-cash expense impacting earnings.
  • 6Cash flow from operations remained strong at $819.1 million for the nine months ended June 30, 2013, despite increased working capital needs from higher inventory and accounts receivable.
  • 7The company amended and extended its multi-currency revolving credit facility and increased availability under its receivables securitization facility, maintaining strong liquidity.

Frequently Asked Questions

The significant revenue increase of 13.3% to $21.9 billion was primarily driven by growth in the Pharmaceutical Distribution segment, partly due to the new ten-year pharmaceutical distribution agreement with Walgreens, and a large contract with Express Scripts, Inc. The 'Other' segment also contributed due to the full-year impact of the World Courier acquisition.

The decrease in gross profit and operating income was largely attributable to a substantial $122.1 million LIFO (Last-In, First-Out) charge recorded in the current quarter. This charge was related to the increased branded inventory required to service the new Walgreens contract. Additionally, significant warrant expense associated with the strategic arrangements with Walgreens and Alliance Boots also impacted operating income and profitability.

The strategic agreement with Walgreens and Alliance Boots, announced in March 2013, led to a ten-year pharmaceutical distribution agreement and the issuance of warrants to Walgreens and Alliance Boots. These warrants represent a significant non-cash expense, accounted for as equity-based payments to non-employees, which fluctuates quarterly and impacts the effective tax rate. The company is also engaging in hedging strategies to mitigate potential dilution from warrant exercises.

Cencora (AmerisourceBergen) maintained strong liquidity. The company has a substantial multi-currency revolving credit facility, which was amended and extended in July 2013 to $1.4 billion, and an increased receivables securitization facility. There were no significant borrowings outstanding under these facilities as of June 30, 2013. Cash flow from operations remained robust, providing sufficient capital to fund working capital, debt repayment, dividends, and share repurchases.