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Why Is AmerisourceBergen (ABC) Down 4.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for AmerisourceBergen (ABC - Free Report) . Shares have lost about 4.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AmerisourceBergen due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

AmerisourceBergen Q2 Earnings & Revenues Top Estimates

AmerisourceBergen Corporation reported second-quarter fiscal 2022 adjusted earnings per share (EPS) of $3.22, which beat the Zacks Consensus Estimate of $2.99 by 7.7%. The bottom line improved 27.3% year over year.

GAAP EPS in the quarter was $2.59, up 23.3% from the year-ago period.

Revenue Details

Revenues increased 17.4% to $57.72 billion in the reported quarter. The top line beat the Zacks Consensus Estimate by 0.9%.

Segment Realignment Update

It is worth mentioning that AmerisourceBergen made a strategic evaluation of its reporting structure in order to represent its expanded international presence, courtesy of the June 2021 buyout of Alliance Healthcare. Consequently, starting from the second quarter of fiscal 2022, the company has realigned its reporting structure under two reportable segments —U.S. Healthcare Solutions and International Healthcare Solutions.

Segmental Analysis

U.S. Healthcare Solutions

Revenues at this segment totaled $50.94 billion, reflecting an increase of 5.8% on a year-over-year basis on the back of an increase in specialty product sales coupled with overall market growth. Lower revenues from commercial COVID-19 treatments partially offset the upside.

Segmental operating income was $729.5 million, up 11.4% year over year. Higher gross profit (which included fees earned associated with the distribution of government-owned COVID-19 treatments and gross profit on sales to specialty physician practices) contributed to the upside.

International Healthcare Solutions

This segment includes Alliance Healthcare, World Courier, Innomar, Profarma and Profarma Specialty.

Revenues at this segment were $6.78 billion, up a whopping 585.3% year over year. The upside was mainly driven by the acquisition of Alliance Healthcare (June 2021).

Operating income in the segment was $187.1 million in the quarter, up 260.8% year over year, primarily due to the buyout of Alliance Healthcare.

Margin Analysis

In the fiscal second quarter, AmerisourceBergen reported an adjusted gross profit of $2.22 billion, up 46.6% on a year-over-year basis. As a percentage of revenues, adjusted gross margin was 3.8% in the quarter, up 70 basis points (bps).

The company reported an adjusted operating income of $916.6 million, up 29.7% year over year. As a percentage of revenues, adjusted operating margin was 1.6% in the quarter, which expanded 20 bps from the year-ago quarter.

Financial Position

The company exited the quarter with cash and cash equivalents worth $2.96 billion, compared with $3.17 billion a quarter ago.

Cumulative net cash used in operating activities at the end of the fiscal second quarter totaled $1.13 billion compared with $449.2 million in the prior-year quarter.

Dividend Update

During the quarter, AmerisourceBergen's board of directors declared a quarterly dividend of 46 cents per share, payable May 31, 2022, to shareholders at the close of business on May 16, 2022.

Fiscal 2022 Guidance

AmerisourceBergen has updated its fiscal 2022 outlook, highlighting a revised full-year outlook to represent the stronger-than-anticipated performance of some of its businesses.

Adjusted EPS is now estimated to be $10.80-$11.05 (up from the previously guided range of $10.60-$10.90). The Zacks Consensus Estimate currently stands at $10.76.

The company continues to estimate revenue growth in the high-single-digit to low-double-digit percent range.

With respect to the U.S. Healthcare Solutions segment, revenues are expected in the band of $207 billion to $212 billion, representing growth of 2-5%. Revenues at the International Healthcare solutions business are projected to be $26 billion to $27 billion.

Adjusted operating income is now projected to grow at least in the high-teens percent range (up from the previously guided high-teens percent range).

Operating income at the U.S. Healthcare Solutions segment is now anticipated between $2.42 billion and $2.48 billion (up from $2.38 billion and $2.45 billion), reflecting growth of 7-10%.

For the International Healthcare solutions segment, the metric is estimated to grow in the range of $685 million to $715 million.

Adjusted free cash flow is estimated to be $2 billion to $2.5 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, AmerisourceBergen has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, AmerisourceBergen has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

AmerisourceBergen belongs to the Zacks Medical - Dental Supplies industry. Another stock from the same industry, West Pharmaceutical Services (WST - Free Report) , has gained 1% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.

West Pharmaceutical reported revenues of $720 million in the last reported quarter, representing a year-over-year change of +7.4%. EPS of $2.30 for the same period compares with $2.05 a year ago.

West Pharmaceutical is expected to post earnings of $2.20 per share for the current quarter, representing a year-over-year change of -10.6%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

West Pharmaceutical has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.


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