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AmerisourceBergen (ABC) Down 8.7% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for AmerisourceBergen Corporation (ABC - Free Report) . Shares have lost about 8.7% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is ABC 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 drivers.

Recent Earnings

Maintaining its streak of positive earnings surprises, AmerisourceBergen 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.

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 of solid 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.

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been six revisions lower for the current quarter.

VGM Scores

At this time, ABC has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

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




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