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AmerisourceBergen (ABC) Q2 Earnings Top, FY18 View Solid

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Maintaining its streak of positive earnings surprises, AmerisourceBergen Corporation posted adjusted earnings of $1.94 per share in the second quarter of fiscal 2018, beating the Zacks Consensus Estimate by 6% and improving 9.6% year over year.

The upside can be attributed to strong growth in the Pharmaceutical Distribution segment and World Courier business.

Revenues improved almost 10.5% to $41.03 billion in the reported quarter. The figure surpassed the Zacks Consensus Estimate of $40.48 billion.

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

Segmental Analysis

Pharmaceutical Distribution Segment

Revenues in the segment were $39.5 billion, up 10.4% on a year-over-year basis. Operating income was $489.1 million, up 0.9% year over year.

Pharmaceutical Distribution witnessed favorable results in the quarter, courtesy ofsolid expansion in revenues and gross profit, including the acquisition of H.D. Smith.

However, lower sales in the PharMEDium and the operating loss in the Profarma unit partially offset growth.

 

AmerisourceBergen Corporation Price, Consensus and EPS Surprise

 

 

Other Segment

This segment includes AmerisourceBergen Consulting Services (“ABCS”), World Courier and MWI Veterinary Supply.

Revenues in the segment came in at $1.6 billion, up 12.6% year over year. Growth in the segment was driven by consolidation of the specialty joint venture in Brazil and revenues from MWI, ABCS's growth in its Canadian operations and World Courier business.

However, operating income in the segment was $97.1 million in the quarter, down 6.3% year over year. The downside was primarily caused by lackluster performance at ABCS’s Lash Group.

Margin Analysis

In the quarter under review, AmerisourceBergen registered gross profit of $1.3 billion, up 9.2% 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. Increase in gross profit in Pharmaceutical Distribution Services boosted the company’s margins in the second quarter.

Operating expenses were $691.5 million, up 18.9% year over year.  The upside was caused by H.D. Smith buyout and duplicate costs from the implementation of new information technology systems.

AmerisourceBergen registered operating income of $586.3 million, up 0.4% year over year. As a percentage of revenues, operating margin contracted 15 bps to 1.4%.

Guidance

For fiscal 2018, AmerisourceBergen expects revenue growth in the range of 8-11% on a year-over-year basis. Notably, the Zacks Consensus Estimate for revenues is currently pegged at $167.5 billion, up 9.4% year over year.       

The company expects adjusted earnings per share in the range of $6.45-$6.65. Notably, the Zacks Consensus Estimate for earnings is currently pegged at $6.54 per share, which falls within the guidance.   

AmerisourceBergen expects adjusted operating expenses to increase in the range of 8-10%, up from the previous range of 6-8%. Adjusted operating income growth is expected to be flat year over year.

In Conclusion

AmerisourceBergen ended the second quarter of fiscal 2018 on a solid note with strong growth in the Pharmaceutical Distribution Segment. AmerisourceBergen's strong guidance instills investors’ optimism on the stock. Further, joint venture in Brazil, strength in MWI unit, ABCS's growth in its Canadian operations and prospects in the World Courier business are key positives at the moment. Further, the recent takeover of H.D. Smith, the largest independent wholesaler in the United States, is also a positive.

On the flip side, sluggishness in ABCS’s Lash Group is a concern. 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. In this regard, the company faced lower-than-expected production at PharMEDium's Memphis facility.

Q1 Earnings of MedTech Majors at a Glance

A few better-ranked stocks in the broader medical space, which reported solid earnings this season are, Baxter International Inc. (BAX - Free Report) , Varian Medical Systems, Inc. and Intuitive Surgical, Inc. (ISRG - Free Report) .

While Intuitive Surgical and Varian sport a Zacks Rank #1 (Strong Buy), Baxter carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported adjusted earnings of $2.44 per share, which surpassed the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, which beat the Zacks Consensus Estimate by 10.6%.

Varian reported second-quarter fiscal 2018 adjusted earnings of $1.15 per share, which beat the Zacks Consensus Estimate of $1.06. Adjusted earnings improved 27.8% on a year-over-year basis.

Baxter reported first-quarter 2018 adjusted earnings per share of 70 cents, which beat the Zacks Consensus Estimate by 12.9% and improved from the year-ago quarter’s figure of 58 cents.

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