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AmerisourceBergen Corporation (ABC - Analyst Report) posted earnings (excluding employee severance, LIFO expense, warrants, litigation, restructuring and acquisition costs) of 80 cents per share in the third quarter of fiscal 2013 (ended Jun 30, 2013), compared to 76 cents in the year-ago quarter.

The Zacks Consensus Estimate stands at 74 cents per share. As per AmerisourceBergen, earnings came in at 73 cents, excluding LIFO and warrants expense.

Revenues grew 13.3% to $21.9 billion in the third quarter of fiscal 2013. The reported revenues surpassed the Zacks Consensus Estimate of $21.3 billion.

Quarter in Detail

Following the acquisition of the World Courier Group in 2012, AmerisourceBergen made some adjustments in its reporting format. The company decided to report results of the AmerisourceBergen Drug Corporation (ABDC) and AmerisourceBergen Specialty Group (ABSG) units under the Pharmaceutical Distribution segment. Results of the World Courier Group and AmerisourceBergen Consulting Services (ABCS) have been clubbed under “Other."

Revenues from the Pharmaceutical Distribution segment increased 13.2% to $21.5 billion during the reported quarter.

Revenues from the ABDC business increased 16% primarily due to the implementation of a new contract with Express Script, Inc. (ESRX - Analyst Report) effective Oct 2012, partially offset by lower level of generic launches.

We note that AmerisourceBergen signed a three-year supply agreement with Express Script in Oct 2012 wherein the former will primarily supply branded pharmaceuticals to the latter.

The ABSG unit performed well during the quarter with revenues increasing 5%. Results of the segment were driven by solid performance in blood products, vaccine and physician office distribution business. However, the oncology business performed disappointingly.

We remind investors that AmerisourceBergen expected a slowdown in the oncology business due to a decline in reimbursement rates.

Revenues from the Other segment were $466.7 million, up 17.4% y/y. The increase in revenues was due to contribution from an incremental month of World Courier business as compared to the year-ago quarter.

Gross profit for the quarter increased 2.5% to $684.5 million. Gross profit was boosted by contributions from an incremental month of World Courier business but was partially offset by lower contributions from the Pharmaceutical Distribution segment.

Operating expenses (excluding employee severance and acquisition costs) during the quarter grew 14.1% to $392.0 million due to inclusion of the World Courier business and transaction costs related to the deal signed with Walgreens (WAG) and Alliance Boots.

AmerisourceBergen bought back shares worth $401 million in the first nine months of fiscal 2013. We note that the company had planned to repurchase shares worth at least $400 million in 2013. We believe that the buyback program highlights the company’s commitment to return value to shareholders.

Earnings Outlook Narrowed, Revs Maintained

AmerisourceBergen now expects earnings from continuing operations to come in the range of $3.06 – $3.11 in fiscal 2013 compared to the previous guidance of $3.04 – $3.14 per share. The pre-earnings Zacks Consensus Estimate of $3.06 per share was towards the lower end of management’s updated guidance.

Nevertheless, AmerisourceBergen expects revenues to grow in the range of 11% – 13%.

Although earnings beat expectations, we were disappointed by the guidance. 

AmerisourceBergen currently carries a Zacks Rank #3 (Hold). Currently, CVS Caremark Corp. (CVS - Analyst Report) looks well placed with a Zacks Rank #2 (Buy).

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