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AmerisourceBergen (ABC) Beats on Q1 Earnings, FY18 View Up

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AmerisourceBergen Corporation (ABC - Free Report) posted adjusted earnings of $1.55 per share in the first quarter of fiscal 2018, beating the Zacks Consensus Estimate of $1.35 and improving 14% year over year.

The upside can be attributed to strong growth in the company’s Pharmaceutical Distribution Segment and World Courier business.

Revenues improved almost 6% to $40.47 billion in the reported quarter. Revenues also beat the Zacks Consensus Estimate of $40.37 billion.

The stock has a Zacks Rank #3 (Hold).

AmerisourceBergen Corporation (Holding Co) Price, Consensus and EPS Surprise


Segmental Analysis

Pharmaceutical Distribution Segment

Revenues in the segment were $38.94 billion, up 5.8% on a year-over-year basis. Operating income was $388.2 million, up 2.4% year over year.

However, the segment was affected by lower-than-expected production at PharMEDium's Memphis 503B outsourcing facility. Notably, operations in the facility were voluntarily suspended by the company following a few inspections by the FDA in the quarter.

Other Segment

This segment includes AmerisourceBergen Consulting Services (“ABCS”), World Courier and MWI Veterinary Supply. Revenues at the segment came in at $1.54 billion, up 11.6% year over year. Operating income in the segment was $100.3 million in the quarter, down 6.4% year over year.

Despite strong performance in the World Courier unit, sluggishness in the ABCS dampened segmental growth in the first quarter.

Margin Details

In the quarter under review, AmerisourceBergen registered gross profit of $1.1 billion, up 4.5% on a year-over-year basis. As a percentage of revenues, gross margin was 2.8%, down 4 basis points (bps) from the prior-year quarter.

Operating expenses in first-quarter fiscal 2018 were $626 million, up 8% year over year.

AmerisourceBergen registered operating income of $488.1 million, up 0.4% year over year. As a percentage of revenues, operating margin contracted 4 bps to 1.2%.

Guidance Raised

Based upon the expectations from the recently legislated U.S. tax reform, AmerisourceBergen raised guidance for fiscal 2018. The company expects adjusted earnings per share in the range of $6.45-$6.65, up from the previously range of $5.90-$6.15. Revenue growth for fiscal 2018 is expected in the range of 8-11%, higher than the previous range of 7-9%.

However, the company expects adjusted operating expenses to increase in the range of 6-8%, up from the previous range of 4-6%. Adjusted operating income growth is estimated in the range of 1-4%, lower than the previous range of 3-5%.

In January, AmerisourceBergen declared that it has completed the acquisition of H.D. Smith, the largest independent wholesaler in the United States, for $815 million in cash. The deal was initiated in November 2017.  The acquisition is expected to be slightly accretive to adjusted earnings per share in fiscal 2018. Further, the deal is expected to return 15 cents to adjusted earnings per share in fiscal year 2020. It is expected to strengthen the company’s support to community pharmacy and drive long-term, durable value.

Our Take

AmerisourceBergen ended the first quarter of fiscal 2018 on a solid note, beating the Zacks Consensus Estimate on both the counts. A strong guidance instills investor’s optimism on the stock. Strong performance in the Pharmaceutical Distribution Segment and World Courier business holds promise. The recent takeover of H.D. Smith, the largest independent wholesaler in the United States, is a positive.

On the flip side, AmerisourceBergen faces headwinds, thanks to the slowdown in hepatitis C revenues and conversion of branded drugs to the lower price generics. Further, a temporary slowdown in PharMEDium's growth is expected to mar the company’s bottom line. Cutthroat competition in niche space adds to the company’s woes.

Key Picks

A few better-ranked stocks that reported impressive earnings this season are PetMed Express , PerkinElmer (PKI - Free Report) and Accuray (ARAY - Free Report) . While PetMed sports a Zacks Rank #1 (Strong Buy), PerkinElmer and Accuray carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed recently announced third-quarter fiscal 2018 adjusted earnings per share of 44 cents. The bottom line soared 88.3% year over year. Revenues rose 13.7% on a year-over-year basis to $60.1 million.

PerkinElmer reported fourth-quarter 2017 adjusted earnings per share of 97 cents. Adjusted revenues were approximately $641.6 million, up from $567 million in the year-ago quarter.

Accuray reported a loss of 6 cents per share in second-quarter fiscal 2018, narrower by 5 cents than the year-ago quarter’s figure. The top line improved 15% year over year to $100.3 million.

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