Wed. Sep 27th, 2023
AmerisourceBergen (ABC) Q1 Earnings Top, EPS View Raised - February 2, 2023

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AmerisourceBergen Corporation (ABC Free Report) reported first-quarter fiscal 2023 adjusted earnings per share (EPS) of $2.71, which beat the Zacks Consensus Estimate of $2.62 by 3.4%. The bottom line improved 5% year over year.

GAAP EPS in the quarter was $2.33, up 9.4% from the year-ago period.

Revenue Details

Revenues increased 5.4% to $62.8 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, thanks to the June 2021 buyout of Alliance Healthcare. Beginning the second quarter of fiscal 2022, the company 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 $56.2 billion, indicating an increase of 6.1% on a year-over-year basis on the back of an increased specialty product sales and overall market growth. Lower revenues from commercial COVID-19 treatments partially offset the upside.

Segmental operating income was $572.4 million, up 0.6% year over year. Higher gross profit (which included fees earned from the distribution of government-owned COVID-19 treatments and gross profit on sales to specialty physician practices) contributed to the upside, largely offset by inflationary impacts on certain operating expenses.

International Healthcare Solutions

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

Revenues at this segment were $6.6 billion, down 0.6% year over year.

The segment’s operating income was $161.3 million in the quarter, down 10.4% year over year.

Margin Analysis

In the fiscal first quarter, AmerisourceBergen reported an adjusted gross profit of $2.1 billion, up 5.4% on a year-over-year basis. As a percentage of revenues, the adjusted gross margin was 3.4% in the quarter, flat year over year.

The company reported an adjusted operating income of $734 million, up 2.1% year over year. As a percentage of revenues, the adjusted operating margin was 1.2% in the quarter, which contracted 9 bps from the year-ago quarter.

The decline in revenues and adjusted operating income was primarily due to loss of revenues following its Brazil specialty business divestiture in June last year and unfavorable foreign currency exchange rates impacting International Healthcare Solutions’ sales. On a constant currency basis, revenues and adjusted operating income were up 17.7% and 10.8%. respectively.

Financial Position

The company exited the quarter with cash and cash equivalents worth $1.69 billion, compared with $3.39 billion in fourth-quarter fiscal 2022.

Cumulative net cash used in operating activities at the end of the fiscal first-quarter totaled $710.1 million, compared with $863.4 million in the prior-year quarter.

Dividend Update

During the quarter, AmerisourceBergen’s board of directors declared a quarterly dividend of 48.5 cents per share, to be paid on Feb 27, to shareholders at the close of business on Feb 10, 2023.

Fiscal 2023 Guidance

AmerisourceBergen raised its fiscal 2023 outlook for earnings to reflect lower share count, early closure of PharmaLex acquisition and the impact of currency rates. The earnings outlook also anticipates continued decline in COVID treatment contributions .

Adjusted EPS is now estimated to be between $11.50-$11.75 for fiscal 2023, indicating growth of 4-7% over fiscal 2022. The Zacks Consensus Estimate currently stands at $11.50 per share. Previously, the company expected adjusted EPS to grow by 2-5% to $11.30-$11.60.

The company expects revenue growth to be between 5% and 7% in fiscal 2023. With respect to the U.S. Healthcare Solutions segment, revenues are expected to grow 6-8%. Revenues at the International Healthcare solutions business are projected to decline 1-5%.

Excluding contributions related to COVID-19, adjusted operating income is projected to be up 4-6%, compared with the previous expectation of 3-5%.

Operating income at the U.S. Healthcare Solutions segment is now anticipated to grow 1-4%, compared with the previous expectation of 2-4%.

For the International Healthcare Solutions segment, the metric is now estimated to be down 3% decline to up 1%, compared with the prior expectation of a 3-7% decline. Excluding impacts of merger and acquisition, and currency fluctuations, the metric is likely to improve 1-5%.

Summing Up

AmerisourceBergen exited the fiscal first quarter on a strong note, wherein both earnings and revenues beat the consensus mark. The company witnessed a strong segmental performance in the quarter under review. The expansion of both gross and operating margins is a positive.

Per management, AmerisourceBergen delivered a solid performance by playing a crucial role in the healthcare system while maintaining execution throughout its business. Apart from this, the company’s AB Health Ventures — a dedicated corporate venture capital fund — focused on investing in and collaborating with emerging healthcare startup companies that are involved in transforming healthcare for people and animals worldwide.

However, the company faces headwinds like conversion of branded drugs and lower-price generics. Cut-throat competition in the MedTech space remains a concern.

Zacks Rank

AmerisourceBergen currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some stocks in the broader medical space that are scheduled to release quarterly results this month are McKesson (MCK Free Report) , Cardinal Health (CAH Free Report) and Laboratory Corp. of America (LH Free Report) .You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McKesson has an Earnings ESP of +0.21% and a Zacks Rank of 2 (Buy). MCK has an earnings yield of 6.6%, which compares favorably with the industry’s yield of 4.5%.

McKesson’s earnings surpassed estimates in two of the trailing four quarters and missed twice, with the average surprise being 4.79%.

Cardinal Health has an Earnings ESP of +5.75% and a Zacks Rank of 2. CAH has an estimated long-term growth rate of 11.7%.

Cardinal Health’s earnings surpassed estimates in two of the trailing four quarters and missed twice, with the average surprise being 3.04%.

Laboratory Corp. of America has an Earnings ESP of +2.67% and a Zacks Rank of 2 at present. LH has an earnings yield of 7%, which compares favorably with the industry’s yield of 4.5%.

Laboratory Corp. of America‘s earnings surpassed estimates in three of the trailing four quarters and missed once, with the average surprise being 6.06%.

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By Samy