AmerisourceBergen Corporation‘s (ABC) fourth quarter fiscal 2011 earnings of 54 cents per share missed the Zacks Consensus Estimate of 56 cents a share. However, earnings increased 8.0% from the year-ago period.
Fiscal 2011 earnings also missed the Zacks Consensus Estimate of $2.56 by two cents. Nonetheless, earnings increased 14.4% from the year-ago figure.
The year-over-year increase in earnings was spurred by higher revenues and a lower share count.
Revenues
Total revenue for the fourth quarter climbed 3.5% to $20.4 billion, beating the Zacks Consensus Estimate of $20.2 billion. Annual revenue also increased 2.9% to $80.2 billion, in line with the Zacks Consensus Estimate.
The quarterly year-over-year increase in revenues was the result of a 6% climb in AmerisourceBergen Drug Corporation’s revenue, offset by a 5% dip in AmerisourceBergen Specialty Group revenue.
Revenue growth at the AmerisourceBergen Drug Corporation segment was aided by incremental market growth of certain large customers, while the slip at the AmerisourceBergen Specialty Group was primarily attributable to the termination of an $800 million contract in September 2010.
Quarterly Details
Gross profit for the quarter increased 4.2% to $617.9 million. The improvement was driven by revenue growth, impressive performance under fee-for-service contracts with manufacturers and greater-than-expected growth in generic sales.
As a result of discrete expense items, which more than offset higher gross profit, operating income declined 1.9% to $243.6 million. During the reported quarter, the company bought back shares worth $440 million, bringing the worth of total shares repurchased during this year to $841 million.
Outlook for 2012
AmerisourceBergen expects fiscal 2012 earnings in the range of $2.74 – $2.84 per share. The current fiscal 2012 Zacks Consensus Estimate of $2.81 lies at the higher end of the company’s guidance range.
The company projects flat to modest revenue growth, and intends to spend about $400 million on share repurchases in 2012.
Further, AmerisourceBergen expects operating margin to grow in the high single-digit to low double-digit basis points range. Free cash flow, which includes capital expenditures of about $150 million, is expected in the range of $700 to $800 million.
Our View
We currently have a Neutral recommendation on AmerisourceBergen. The stock carries a Zacks #3 Rank (Hold rating) in the short-run. We believe the company is well-positioned for growth given the strong performance of its generics business. AmerisourceBergen boasts of a robust plasma and vaccine business, with strong revenues expected to flow from it in the coming quarters.
However, AmerisourceBergen operates in a highly competitive pharmaceutical distribution market. The company’s primary competitors are Cardinal Health Inc. (CAH) and McKesson Corporation (MCK).
