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AmerisourceBergen (ABC) Beats on Q3 Earnings & Revenues

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Maintaining the streak of positive earnings surprises, AmerisourceBergen Corporation (ABC - Free Report) posted adjusted earnings of $1.54 per share in the third quarter of fiscal 2018, beating the Zacks Consensus Estimate of $1.45 and improving 7.7% year over year.

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

Revenues improved almost 11.5% to $43.14 billion in the reported quarter. The figure surpassed the Zacks Consensus Estimate of $42.96 billion.

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

AmerisourceBergen Corporation Price, Consensus and EPS Surprise

 

Segmental Analysis

Pharmaceutical Distribution Segment

Revenues in the segment were $41.58 billion, up 11.6% on a year-over-year basis. Operating income was $392.7 million, up 3.3% 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 $1.60 billion, up 8.8% 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 Canadian operations and World Courier business.

 

However, operating income in the segment was $82.3 million in the quarter, down 9.9% 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 $1.21 billion, up 12.2% on a year-over-year basis. As a percentage of revenues, gross margin was 2.8%, up 2 basis points (bps) from the prior-year quarter. The increase was primarily due to consolidation of Profarma and the acquisition of H. D. Smith.

AmerisourceBergen registered operating income of $389.2 million, up 0.9% year over year. As a percentage of revenues, operating margin expanded 46 bps to 0.9%. On an adjusted basis, the company registered operating income of $474.4 million, up 0.7% year over year.

Guidance

The company expects adjusted earnings per share in the range of $6.45-$6.65, up 10% year over year. Notably, the Zacks Consensus Estimate for earnings is currently pegged at $6.54, which falls within the guidance.  

The company expects adjusted effective tax rate of approximately 22%.

In Conclusion

AmerisourceBergen ended the third quarter of fiscal 2018 on a solid note with strong growth in the Pharmaceutical Distribution Segment. The company’s strong guidance instills investors’ optimism on the stock. Further, joint venture in Brazil, strength in MWI unit and growth in Canadian operations are growth catalysts. Prospects in the World Courier business are also a positive. Solid volume growth and expanding operating margins have favored World Courier unit. The takeover of H.D. Smith — the largest independent wholesaler in the United States — is also a positive.

On the flip side, sluggishness in 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 dent the bottom line. In this regard, the company faced lower-than-expected production at PharMEDium's Memphis facility.

Q2 Earnings of MedTech Majors at a Glance

A few better-ranked stocks in the broader medical space, which reported solid earnings this season are Stryker Corporation (SYK - Free Report) , Intuitive Surgical, Inc (ISRG - Free Report) and Illumina, Inc (ILMN - Free Report) .

While Intuitive Surgical and Illumina sport a Zacks Rank #1 (Strong Buy), Stryker 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 $2.76 per share in the second quarter of 2018, which beat the Zacks Consensus Estimate of $2.48. Adjusted earnings improved 38% year over year.

Stryker reported second-quarter 2018 adjusted earnings per share of $1.76, beating the Zacks Consensus Estimate by 1.7%. Earnings improved 15% year over year and also exceeded the high end of the company’s guidance.

Illumina reported adjusted earnings of $1.43 per share, beating the Zacks Consensus Estimate of $1.11.

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