AmerisourceBergen Corporation F2Q 2010 (Qtr. End 03/31/2010) Earnings Call Transcript

AmerisourceBergen Corporation F2Q 2010 (Qtr. End 03/31/2010) Earnings Call Transcript
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AmerisourceBergen Corporation

F2Q 2010 (Qtr. End 03/31/2010) Earnings Call

April 22, 2010 11:00 AM ET

Executives

R. David Yost - President and Chief Executive Officer

Michael D. DiCandilo - Executive Vice President and Chief Financial Officer

Michael N. Kilpatric - Vice-President, Corporate and Investor Relations

Analysts

Lawrence Marsh - Barclays Capital

Eric Coldwell - W. R. Baird

Tom Bellucci - Lazar Capital Market

Robert Jones - Goldsmith Bank

Ms. Ricky Goldwasser from Morgan-Stanley

Elaine Wolf -

Presentation

Operator

Michael Kilpatrick

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Good morning, everybody and welcome to AmerisourceBergen Conference Call covering the fiscal 2010 second quarter. I'm Mike Kilpatrick, Vice President of Corporate and Investor Relations and joining me today are David Yost, AmerisourceBergen President and Chief Executive Officer and Michael DiCandilo, Executive Vice President, and CFO. During the conference call today we will make some forward-looking statements about our business prospects and financial expectations. We remind you that there are many risk factors that could cause our actual results to differ materially from our current expectations. For discussion of some key risk factors we refer you to our SEC filings including our 10-K report for fiscal 2009. Also, AmerisourceBergen assumes no obligation to update the matters discussed in this conference call and this call cannot be taped without the express permission of the company. As always, those connected by telephone will have an opportunity to ask questions after our opening remarks.

And here is Dave Yost, AmerisourceBergen President and CEO, to begin our remark.

David Yost

Good morning and thank you for joining us. As you probably know from our press release this morning, ABC delivered a very strong second quarter that ended in March resulting in a very strong first half of our fiscal year that began October 1, 2009. This outstanding first-half performance followed our last fiscal year's 17% increase in EPS and is ahead of a 16% compounded annual growth rate we delivered over the last 8 years. There's a lot to like about this quarter, Michael will drill down on the details but here are the highlights: revenues once again crossed the $19 billion mark up a road by 11.5% year over year, an instant replay of the last quarter; gross profit also increased in double digits again, expenses were down as percent revenue versus last year driving operating margin of 18 basis point this quarter, the (inaudible) PS were $0.63 on a gap basis up a road by 34% over the last year that's on top of the 17% increase last March. We did a good job of controlling our receivables and inventory and had over $1 billion in cash on March 31st. The quarter reflected the theme of consisting growth that continues to be characteristic of ABC. Our two primary growth drivers, generics and specialty continued to be key elements of our performance and position us well for the future.

Before I address some of the company's specifics, a few words on the industry: First, healthcare reform, health care reform is now the law of the land, though the real work is just beginning as the regulations are written. Though the details remain to be seen, we think our industry and company has fared very well. Though eventually, filling the prescription doing a whole and providing [Rx] coverage for tens of millions of the [uninsured] will not have an immediate impact, the long comeback that for our industry in ABC is very positive.

Eventually, establishing a regulatory framework for via similar could ultimately, be as beneficial to our special business as generics are to our traditional wholesale business. Our lash and (inaudible) consulting business with our category of foreign [bees], PhDs and reimbursement counselors now has the greatest potential work they've ever had. In medicare, generic pricing formula for our retail customers though not as robust as what it would like was ultimately the preferred set of version instead of the house version has featured a better definition of cost.

Our pharmaceutical manufacture partners clearly emerged as part of the solution to the issues facing healthcare, a dramatic reversal of their positioning the last time healthcare reform was addressed. So taking in total we're pleased with the long term impact, healthcare reform will have in our business. It reinforces our long-term confidence in our industry and our company and further validate our two primary growth drivers, specialty and generics.

Second, pharmaceutical industry revenue growth, the IMS were cast of 3% or 5% for calendar 2010 seemed to be in the right zip code to us and is reflected in our strong revenue growth this quarter.

Third, manufactural pricing department, fee for service of course, delegates much of the impact the wholesalers from brand name manufacture price increases. As previously stated, we expect brand name price increases to be down from the 8% to 9% range, we experience the last two years and that continues to be the case, with our [guest and the currently] above our original expectation of 5% to 6%.

Fourth, competitive pricing environment within our industry, I would continue to describe new environment as competitive much stable with few billion dollar pieces of business in [plan] in the next 12 months or so and few billion dollar pieces of business changing wholesalers historically. Now, a closer look at ABC, our [robust] 11.5% revenue increase of $2 billion to over $19 billion reflected the strength of the overall market, strong growth in our larger customers and new business particularly in our drug company where both the retail and industrial segments delivered double-digit revenue growth. New business, largely from 2 group (inaudible) organization, one retail, and one institutional contribute over 4% of the total revenue growth and has now largely at [adversary]. So it should be no surprise, that revenue, growth for the second half of the year will more closely reflect the market growth. Our discussion with CBS regarding the former Long's business and Walgreen regarding the Duane Reade business are on-going.

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