10-QPeriod: Q3 FY2016

Cencora, Inc. Quarterly Report for Q3 Ended Jun 30, 2016

Filed August 2, 2016For Securities:COR

Summary

Cencora, Inc. (formerly AmerisourceBergen Corporation) reported a strong financial performance for the nine months ended June 30, 2016, with significant revenue growth driven by its Pharmaceutical Distribution segment and contributions from recent acquisitions. Revenue increased by 8.8% year-over-year, reaching $109.3 billion, with notable growth in both the core distribution business and the 'Other' segment, which includes animal health and consulting services. The company demonstrated improved profitability, with gross profit increasing by 23.2% year-over-year, bolstered by a reduction in LIFO expense and substantial gains from antitrust litigation settlements. Despite a rise in distribution, selling, and administrative expenses, largely due to acquisitions, operating income saw a healthy increase, particularly in the 'Other' segment. A significant factor impacting profitability was the favorable tax adjustment related to warrants, which converted a substantial prior-year loss from operations into a significant profit for the nine-month period.

Financial Highlights

53 data points
Beta

Revenue

$36.88B

3.0% Gross Margin

Net Income

$349.15M

0.9% Net Margin

EPS (Diluted)

$1.55

Total Assets

$31.91B

Cash & Equivalents

$1.87B

Free Cash Flow

$61.79M

Financial Statements
Beta
Revenue$36.88B
Cost of Revenue$35.77B
Gross Profit$1.11B
SG&A Expenses$516.44M
Operating Income$528.63M
Net Income$349.15M
EPS (Basic)$1.62
EPS (Diluted)$1.55
Shares Outstanding (Basic)215.69M
Shares Outstanding (Diluted)224.80M

Key Highlights

  • 1Revenue for the nine months ended June 30, 2016, increased by 8.8% to $109.3 billion compared to the same period in the prior year.
  • 2Gross profit saw a substantial increase of 23.2% year-over-year, driven by reduced LIFO expenses and significant gains from antitrust litigation settlements.
  • 3The company completed the acquisition of PharMEDium Healthcare Holdings, Inc. for $2.7 billion in November 2015, which contributed to revenue and expense growth.
  • 4Operating income for the 'Other' segment experienced strong growth of 45.7% year-over-year, largely due to the acquisition of MWI Veterinary Supply.
  • 5A significant tax benefit adjustment of approximately $456 million was recognized due to a private letter ruling regarding the tax deduction for warrants, significantly impacting the nine-month net income.
  • 6The company continued its share repurchase program, with $646.9 million of availability remaining as of June 30, 2016, and increased its quarterly cash dividend by 17% in November 2015.
  • 7Total debt increased to $4.4 billion, with borrowings primarily to finance recent acquisitions.

Frequently Asked Questions

Revenue growth was primarily driven by increased sales of brand and generic products within the Pharmaceutical Distribution segment, particularly sales to Walgreens Boots Alliance (WBA). The 'Other' segment, which includes animal health and consulting services, also contributed significantly, especially with the inclusion of revenue from the acquired MWI business.

While distribution, selling, and administrative expenses increased due to the integration of recent acquisitions like PharMEDium and MWI, the company benefited from a reduction in LIFO expense and significant gains from antitrust litigation settlements, which positively impacted gross profit. The 'Warrants' income/expense also played a significant role in operating results, fluctuating with stock price changes.

The company received a private letter ruling from the IRS allowing for a tax deduction equal to the fair value of warrants at the date of exercise. This resulted in a substantial tax benefit adjustment of approximately $456 million in the nine-month period ended June 30, 2016, which significantly boosted net income and favorably impacted the effective tax rate. The exercise of 2016 Warrants by WBA in March 2016 generated $1.17 billion in cash.

The company's debt increased to approximately $4.4 billion, primarily to finance acquisitions. Despite increased debt, liquidity appears adequate, supported by operating cash flows and available credit facilities, including a $1.4 billion multi-currency revolving credit facility and a receivables securitization facility. The company's operating results have generated sufficient cash to fund working capital, acquisitions, debt repayment, dividends, and share repurchases.