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AmerisourceBergen Corporation’s (ABC - Analyst Report) third quarter fiscal 2012 (ended June 30, 2012) earnings (excluding employee severance and acquisition costs) of 72 cents per share beat the Zacks Consensus Estimate of 69 cents and the year-ago earnings by 9%. A lower share count aided earnings in the third quarter of fiscal 2012.

Total revenue for the third quarter slipped 1.9% to $19.8 billion. Revenues fell short of the Zacks Consensus Estimate of $20.3 billion.

Quarter in Details

Following the acquisition of World Courier Group earlier in the year, AmerisourceBergen made some adjustments in its reporting format. The company decided to report results of the AmerisourceBergen Drug Corporation (ABDC), 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 the “Other” head from this quarter.

The decline in total revenues in the reported quarter was primarily attributable to the disappointing performance of the ABDC unit, where sales slipped 5%.  Sales were hurt by lower volumes.

Revenues from the Pharmaceutical Distribution segment, which accounted for 98% of total revenues, slipped 3% to $19.4 billion during the reported quarter.

The ABSG unit performed well during the quarter with sales climbing 8%. Results of the segment were boosted by growth in third party logistics and vaccine and physician office distribution business at AmerisourceBergen. Revenues were boosted 1.5% by AmerisourceBergen’s acquisitions of World Courier and CVS Caremark Corporation’s (CVS - Analyst Report) subsidiary TheraCom.

Gross profit for the quarter climbed 5.4% to $689.2 million. Gross profit was boosted by AmerisourceBergen’s recent acquisitions and the encouraging performance of generic pharmaceuticals.

Operating expenses during the quarter climbed 11.6% to $375.5 million. The increase was primarily attributable to acquisition-related expenses and increased depreciation and amortization costs.

The quarter saw AmerisourceBergen buy back shares worth $186 million. The company has brought back shares worth $514 million in the first nine months of fiscal 2012.

We note that in May 2012, AmerisourceBergen authorized an additional share repurchase program of $750 million, having completed the earlier $750 million share buyback program – this should help boost the bottom line. We believe that the buyback program highlights the company’s commitment to return value for shareholders.

Fiscal 2012 Earnings Outlook Narrowed

Apart from releasing third quarter results, AmerisourceBergen narrowed its projected earnings range for fiscal 2012 to $2.80-$2.84 from $2.74-$2.84. The Zacks Consensus Estimate of $2.81 is towards the lower end of the company’s new guidance range.

AmerisourceBergen continues to project flat-to-modest revenue growth. The company continues to expect operating margin to grow in the high single-digit basis points range. Free cash flow, which includes capital expenditures of approximately $200 million, is expected in the range of $800- $900 million.

Our Recommendation

We currently have a Neutral recommendation on AmerisourceBergen. The stock carries a Zacks #3 Rank (Hold) in the short-run.

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