AmerisourceBergen off to solid start in fiscal '16.
Reported net results for the three months ended December 31 swung to a profit of $330.4 million, or $1.46 per diluted share, from a prior-year loss of $199.9 million, or 91 cents per diluted share. The rebound was due entirely to a massive $540.8 million tax benefit related to an increase in the fair value of stock warrants, which reversed a pretax loss of $210.4 million (which in turn reflected pretax warrant expense of $467.4 million).
Results for the most recent quarter include the following after-tax items: LIFO expense of $65.7 million; $20.2 million in amortization of acquisition-related intangibles; a $12.2 million charge for employee severance, litigation and other items; and a $31.5 million pension settlement charge. Offsetting those items were a gain on antitrust litigation settlements of $8.27 million and a $159.7 million warrant expense adjustment. The net loss for the fiscal 2015 quarter, meanwhile, reflected $366.4 million in warrant expense; an $88.5 million LIFO charge; $3.28 million for the amortization of acquisition-related intangibles; and $2.15 million for employee severance, litigation and other items.
Factoring out the special items in both quarters, adjusted net earnings climbed 12.1% to $292 million, or $1.27 per diluted share, from $260.4 million, or $1.14 per diluted share, a year ago. Analysts surveyed by Thomson Reuters expected adjusted earnings of $1.25 per share, on average. Adjusted results further benefited from an adjusted tax rate of 34.6%, down from 37.9% in the fiscal 2015 quarter, due to the favorable impact of the growth of the company's international business.
"I am pleased with the solid performance we delivered in the December quarter, " said president and chief executive officer Steven Collis in a statement. "Our recent acquisitions, MWI Veterinary Supply and Phar-MEDium, as well as strong contributions from our specialty business and international businesses, helped overcome a challenging year-over-year comparison and a sharper-than-expected decline in generics inflation."
First quarter revenues gained 9.3% to $36.71 billion from $33.59 billion in the year-ago quarter, driven by the contribution of MWI. However, the top-line growth fell short of analysts' estimates, which averaged $36.86 billion.
Consolidated gross margin expanded 39 basis points to 2.63%, while total operating expenses rose 62 basis points to 3.12% of revenues, largely due to double-digit increases in distribution, selling and administrative expense; depreciation and amortization; and the previously cited warrant expense.
Consequently, the reported operating loss exploded 103.4% to $179.8 million from $88.4 million. However, excluding net pretax items totaling $655 million in the most recent period and $524 million a year ago, adjusted operating profit rose 9.1% to $475.1 million from $435.6 million.
Moving down the income statement, net interest expense skyrocketed 78.1% to $30.9 million due to costs of funding recent acquisitions. This helped swell the previously mentioned pretax loss to $210.4 million from $107.1 million a year ago. Backing out the pretax special items cited above plus $2.16 million in warrant-related interest expense, however, pretax income increased 6.5% to $446.7 million from $419.3 million on an adjusted basis.
In the company's different business units, operating profit for the Pharmaceutical Distribution segment--which includes both AmerisourceBergen Drug Corp. (ABDC) and AmerisourceBergen Specialty Group (ABSG)--fell 2.8% to $379.6 million despite a 6.7% rise in revenues to $35.19 billion. Operating margin shed 10 basis points to 1.08% of revenues, as gross margin lost 9 basis points to 2.19% and operating expenses added a basis point to 1.11% of revenues.
According to the company, ABDC revenues grew 5%, due mainly to organic growth from chain retail, independent pharmacy and health system customers, while ABSG revenues leapt 15%, driven by its oncology business and rising sales of blood products and vaccines, as well as its physician office distribution business.
Executives attributed the drop in segment operating profit to a lower contribution from generic price inflation and the impact of previously disclosed customer renewals.
The company's Other segment--comprising AmerisourceBergen Consulting Services, World Courier and MWI--saw operating income soar 111.6% to $96 million on an acquisition-fueled 126.7% leap in revenues to $1.58 billion. The segment's operating margin fell 43 basis points to 6.06%, reflecting the lower margin of the MWI business, which nonetheless drove both sales and profit growth for the unit.
Looking ahead, management cited the aforementioned impact of lower generics price inflation and reduced expectations from new generic launches in lowering the high end of its prior earnings guidance. The revised range also reflects the early contract renewal and extension with Compliant Pharmacy Alliance Cooperative, AmerisourceBergen's largest independent pharmacy group purchasing organization customer.
Executives now expect adjusted earnings for fiscal 2016 to range between $5.73 and $5.83 per diluted share, down from prior guidance of $5.73 to $5.90 per share. Analysts were looking for $5.83 per share, on average.