10-QPeriod: Q1 FY2019

Cencora, Inc. Quarterly Report for Q1 Ended Dec 31, 2018

Filed January 31, 2019For Securities:COR

Summary

AmerisourceBergen Corporation (COR) reported solid revenue growth of 12.2% year-over-year for the quarter ended December 31, 2018, primarily driven by its Pharmaceutical Distribution Services segment. This growth was bolstered by contributions from recent acquisitions and consolidations, including H.D. Smith and Profarma. However, net income and earnings per share were significantly lower compared to the prior year period, largely due to a substantial one-time income tax benefit recognized in the previous year resulting from the Tax Cuts and Jobs Act of 2017. The company's operating expenses saw an increase, particularly in distribution, selling, and administrative costs, influenced by the integration of new acquisitions. Despite these increases, operating income grew by 14.0% year-over-year, supported by gains from antitrust litigation settlements and the reversal of a previously estimated opioid stewardship assessment. Management expects continued revenue growth in the mid-single digits for fiscal year 2019, but faces ongoing challenges including industry consolidation, regulatory changes, and legal matters, notably those related to opioid litigation and compounding facility compliance.

Financial Highlights

56 data points
Beta

Revenue

$45.39B

2.9% Gross Margin

Net Income

$393.65M

0.9% Net Margin

EPS (Diluted)

$1.84

Total Assets

$39.27B

Cash & Equivalents

$2.54B

Free Cash Flow

$399.74M

Financial Statements
Beta
Revenue$45.39B
Cost of Revenue$44.09B
Gross Profit$1.30B
SG&A Expenses$656.59M
Operating Income$477.82M
Net Income$393.65M
EPS (Basic)$1.86
EPS (Diluted)$1.84
Shares Outstanding (Basic)212.05M
Shares Outstanding (Diluted)213.97M

Key Highlights

  • 1Revenue increased by 12.2% to $45.4 billion compared to the prior year quarter, primarily driven by the Pharmaceutical Distribution Services segment.
  • 2Gross profit increased by 16.6% to $1.3 billion, aided by gains from antitrust litigation settlements and the reversal of a New York State Opioid Stewardship Act accrual.
  • 3Operating income increased by 14.0% to $477.8 million, supported by favorable legal settlements and expense management, despite higher operating expenses.
  • 4Net income attributable to AmerisourceBergen Corporation was $393.7 million, a decrease from $861.9 million in the prior year, primarily due to a significant tax benefit in the prior year from the Tax Cuts and Jobs Act.
  • 5Diluted earnings per share were $1.84, down from $3.90 in the prior year period, reflecting the impact of the prior year's tax benefit.
  • 6Distribution, selling, and administrative expenses increased by 17.6% to $656.6 million, largely due to the integration of recent acquisitions and consolidations.
  • 7The company repurchased $125.8 million of its common stock under a completed program and initiated a new $1.0 billion repurchase program, buying back $100.0 million in the quarter.

Frequently Asked Questions

The significant decrease in net income from $861.9 million in the prior year quarter to $393.7 million in the current quarter was primarily due to a substantial income tax benefit recognized in the prior year. This benefit stemmed from the Tax Cuts and Jobs Act of 2017, which included provisions like a reduction in the U.S. federal income tax rate and a one-time transition tax on historical foreign earnings. In the current quarter, while operating income increased, the absence of such a large discrete tax benefit led to a lower reported net income.

The acquisitions of H.D. Smith (January 2018) and the consolidation of Profarma (January 2018) are significantly contributing to revenue growth, with both impacting the Pharmaceutical Distribution Services segment. However, these integrations also led to an increase in operating expenses, particularly distribution, selling, and administrative costs. The company's gross profit and operating income benefited from these integrations, but the increased expenses are a notable factor in the quarter's performance.

AmerisourceBergen is facing a significant number of lawsuits related to the distribution of prescription opioid pain medications. The company is named as a defendant in federal and state courts, with many cases consolidated into multidistrict litigation. The company is actively defending itself and is not in a position to assess the likely outcome or its exposure. While litigation costs and opioid-related costs were reported as $14.5 million for the quarter, the potential financial impact of these ongoing matters remains a significant risk factor for the company.

AmerisourceBergen is actively returning capital to shareholders. In the quarter ended December 31, 2018, the company completed a $1.0 billion share repurchase program by purchasing $125.8 million of its stock. Additionally, it authorized a new $1.0 billion share repurchase program and repurchased $100.0 million under this new program, with $900 million remaining availability. The company also increased its quarterly cash dividend by 5% to $0.40 per share in November 2018, indicating confidence in its ongoing cash flow generation and commitment to shareholder returns.