ABC Tops EPS, Raises Outlook

Zacks Equity Research, On Thursday July 28, 2011, 4:35 pm EDT

AmerisourceBergen Corporation’s (NYSE: ABCNews) third quarter fiscal 2011 earnings of 66 cents per share surpassed the Zacks Consensus Estimate of 59 cents a share. Earnings also increased 26.9% from the year-ago period. Higher revenues and a lower share count helped boost the bottom line.

Quarterly Details

Total revenue for the quarter climbed 2.9% to $20.2 billion, in line with the Zacks Consensus Estimate. the year-over-year increase was the result of a 4% climb in AmerisourceBergen Drug Corporation’s revenue, partly offset by a 2% dip in AmerisourceBergen Specialty Group revenues.

Revenue growth at the AmerisourceBergen Drug Corporation segment was aided by alternate site and independent customer growth, while the slip at the AmerisourceBergen Specialty Group was primarily attributable to the termination of an $800 million contract in September 2010.

gross profit for the quarter increased 11.1% to $653.6 million. the improvement was driven by greater-than-expected growth in generic sales. Operating income, driven by higher gross profit, went up 12.5% to $317.2 million. During the reported quarter, the company bought back 7.7 million shares for $145 million.

2011 Outlook Raised

AmerisourceBergen raised its fiscal 2011 earnings guidance to a range of $2.52 – $2.56 per share, from the earlier range of $2.41 – $2.49 per share. the current fiscal 2011 Zacks Consensus Estimate of $2.49 is at the higher end of the company’s guidance range.

the company projects revenue growth of 2–4% in 2011, and intends to spend about $598 million on share repurchases in 2011.

Further, AmerisourceBergen expect operating margin to grow in the low double digit range. Free cash flow, which includes capital expenditures of about $175 million, is expected to exceed the guidance range of $625 million to $700 million

Our Take

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 and specialty 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. (NYSE: CAHNews) and McKesson Corporation (NYSE: MCKNews).

AMERISOURCEBERGEN CORP (ABC): Read the Full Research Report

CARDINAL HEALTH INC (CAH): Read the Full Research Report

MCKESSON CORP (MCK): Read the Full Research Report

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ABC Tops EPS, Raises Outlook

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