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AmerisourceBergen Corporation’s (ABC - Analyst Report) first quarter fiscal 2013 earnings (excluding employee severance and acquisition costs) of 72 cents per share beat the Zacks Consensus Estimate of 67 cents. A lower share count aided fourth quarter earnings.

Fourth quarter revenues grew 5.7% to $21.5 billion marginally missing the Zacks Consensus Estimate of $21.7 billion.

Quarter in Details

Following the acquisition of 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 ABCS have been clubbed under the “Other” head.

The increase in total revenues in the reported quarter was primarily attributable to the Pharmaceutical Distribution segment.

Revenues from the Pharmaceutical Distribution segment, which accounted for 98% of total revenues, increased 5% to $21.1 billion during the reported quarter.

The ABSG unit performed well during the quarter with sales climbing 10%. Results of the segment were boosted by growth in third party logistics, blood products, and vaccine and physician office distribution business at AmerisourceBergen. Revenues at ABDC segment increased 5% primarily due to increased sales volume resulting from the implementation of a new contract with the company’s largest customer which was partially offset by the loss of a food and drug retail group purchasing organization customer.

Revenues from the Other segment were $427.9 million including significant contributions from recent acquisitions of World Courier and TheraCom.

Gross profit for the quarter climbed 15.1% to $671.9 million. Gross profit was boosted by AmerisourceBergen’s recent acquisitions and gains from antitrust litigation settlements.

Operating expenses (excluding employee severance and acquisition costs) during the quarter climbed 28.0% to $382.7 million.

The quarter saw AmerisourceBergen buy back shares worth $284.7 million.

We note that AmerisourceBergen authorized a new share repurchase program of $750 million, having completed the earlier $650 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 to shareholders.

Outlook for Fiscal 2013

AmerisourceBergen reiterated its guidance for fiscal 2013. The company expects diluted earnings from continuing operations in the range of $3.06 to $3.16 per share, reflecting year over year growth of 11% – 14%. The company expects revenues to grow in the range of 6% – 9%. The company plans to repurchase shares worth at least $400 million in 2013.

Our Take

The stock carries a Zacks Rank #3 (Hold rating).

We believe the company is well positioned for growth given the strong performance of its generics business. However, competition in the pharmaceutical distribution market remains tough, which includes players like McKesson Corporation (MCK - Analyst Report) and Express Scripts Holding (ESRX - Analyst Report). Currently Cardinal Health (CAH - Analyst Report) looks attractive with a Zacks Rank #2 (Buy).

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