Amerisource Stung by Cutback

It now expects cash flow from operations to approach $1 billion -- more than double its previous forecast -- in 2005.

"Lower inventories have a silver lining," Coldwell noted. The "higher cash flow provides room for capital structure improvements, including ongoing share repurchases."

During the current quarter, AmerisourceBergen completed a $500 million share repurchase program. The company said that additional share repurchases should help it meet profit targets both this year and next. It pledged that extra cash flow will continue to be "deployed prudently."

Excess Capital

But some question the company's use of cash so far. During a conference call on Monday, one analyst said the company's cash deployment had already fallen well short of his firm's expectations.

"Why are you guys going to get smarter in terms of how you deploy this capital?" the Banc of America analyst asked. "What, really, can we expect to change?"

AmerisourceBergen executives simply said they expect to be "very disciplined" when using the extra cash flow. They said they have considered acquisitions, particularly in their "sweet spot" range of $100 million to $200 million, but have recently found nothing more attractive than shares in their own company. They insisted that some acquisitions, which promise tempting short-term gains, turn out to be bad ideas in the end. Thus, they said, they will continue to invest in "a business we know very well" until something better comes along.

Still, others voiced some concerns about the company as well. Indeed, Bear Stearns indicated that AmerisourceBergen was failing to keep up with its competitors -- Cardinal Health (CAH Quote) and McKesson (MCK Quote) -- in the shift toward fee-for-service contracts. Both of those companies have said they expect half of their branded drug business to be operating under the new fee agreements in a matter of days.