10-QPeriod: Q1 FY2015

Cencora, Inc. Quarterly Report for Q1 Ended Dec 31, 2014

Filed February 6, 2015For Securities:COR

Summary

Cencora, Inc. (COR) reported a significant revenue increase of 15.1% year-over-year for the quarter ended December 31, 2014, reaching $33.6 billion. This growth was driven by increased sales across its Pharmaceutical Distribution segment, notably including a full quarter of generic drug distribution to Walgreens Boots Alliance (WBA) and strong performance in specialty drug distribution through ABSG. The "Other" segment also contributed positively. Despite robust revenue growth, the company reported a net loss of $199.9 million, or $0.91 per diluted share, primarily due to substantial warrant expenses and LIFO expense. Warrant expense, related to the strategic relationship with WBA, significantly impacted earnings. The company continues to manage its liquidity effectively, with substantial cash balances and available credit facilities, and has a substantial share repurchase program in place to mitigate potential dilution from warrants.

Financial Highlights

52 data points
Beta

Revenue

$33.59B

2.2% Gross Margin

Net Income

-$200.54M

-0.6% Net Margin

EPS (Diluted)

$-0.91

Total Assets

$24.90B

Cash & Equivalents

$2.30B

Free Cash Flow

$844.41M

Financial Statements
Beta
Revenue$33.59B
Cost of Revenue$32.84B
Gross Profit$752.30M
SG&A Expenses$416.49M
Operating Income-$87.37M
Net Income-$200.54M
EPS (Basic)$-0.91
EPS (Diluted)$-0.91
Shares Outstanding (Basic)219.46M
Shares Outstanding (Diluted)219.46M

Key Highlights

  • 1Revenue increased by 15.1% to $33.6 billion, primarily driven by the Pharmaceutical Distribution segment and a full quarter of generic drug distribution to Walgreens Boots Alliance.
  • 2Pharmaceutical Distribution gross profit increased by 26.6%, benefiting from strong revenue growth, price appreciation, and incremental income from the WBA procurement joint venture.
  • 3The company reported a net loss of $199.9 million for the quarter, a significant swing from a net income of $41.4 million in the prior year period.
  • 4Warrant expense was a major factor, increasing to $371.4 million from $116.3 million in the prior year quarter, significantly impacting net income.
  • 5LIFO expense also increased substantially to $144.0 million from $57.6 million, further pressuring profitability.
  • 6The company maintained strong liquidity with $2.3 billion in cash and cash equivalents and $2.4 billion in additional availability under credit facilities.
  • 7A significant share repurchase program remains active, with $443.3 million remaining under a general program and $265.9 million under a special program to mitigate warrant dilution.

Frequently Asked Questions

Revenue increased by 15.1% to $33.6 billion primarily due to a full quarter of generic drug distribution to Walgreens Boots Alliance (WBA), increased sales of brand and generic products (including those treating Hepatitis C), and strong growth in the specialty drug distribution segment (ABSG) and consulting services (ABCS).

The company reported a net loss of $199.9 million primarily due to a substantial increase in 'Warrant expense,' which rose to $371.4 million from $116.3 million in the prior year quarter. This expense is linked to the strategic relationship with WBA and is sensitive to changes in Cencora's stock price. Additionally, a higher Last-In, First-Out (LIFO) expense also contributed to the net loss.

The warrant expense relates to warrants issued to Walgreens Boots Alliance (WBA) in connection with their strategic relationship. The fair value of these warrants fluctuates with Cencora's stock price, leading to significant expense in periods of stock price appreciation. Cencora is actively managing this potential dilution through a combination of hedging strategies, including capped call option transactions, and significant share repurchase programs.

The company expects fiscal year 2015 revenue to increase by 10% to 11%. Key drivers include continued full-year generic drug distribution to WBA, the introduction of new brand therapies, an expected increase in available generic drugs, and overall industry growth. However, factors such as customer consolidation, manufacturer pricing changes, and reimbursement pressures could impact future revenue.