AmerisourceBergen Q4 2010 Earnings Call Transcript

AmerisourceBergen (ABC)

Q4 2010 Earnings Call

November 02, 2010 11:00 am ET

Executives

R. Yost - Chief Executive Officer, President, Director and Chairman of Executive & Finance Committee

Michael Dicandilo - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Chief Operating Officer of Drug Unit

Barbara Brungess - Vice President of Corporate & Investor Relations

Analysts

Lisa Gill - JP Morgan Chase & Co

John Ransom - Raymond James & Associates

Ricky Goldwasser - Morgan Stanley

Robert Jones - UBS

Helene Wolk - Bernstein Research

Garen Sarafian - Citigroup Inc

Thomas Gallucci - Lazard Capital Markets LLC

Glen Santangelo - Crédit Suisse AG

Lawrence Marsh - Barclays Capital

Eric Coldwell - Robert W. Baird & Co. Incorporated

Presentation

Operator

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Welcome, and thank you for standing by. [Operator Instructions] Now we would like to turn the call over to your host for today, Ms. Barbara Brungess. Ma'am, you may begin.

Barbara Brungess

Thank you, Amy, and good morning, everyone, and welcome to AmerisourceBergen Earnings Conference Call, covering our fourth quarter and fiscal 2010 year end. I am Barbara Brungess, Vice President, Corporate and Investor Relations, and joining me today are Dave Yost, AmerisourceBergen President and Chief Executive Officer; and Mike Dicandilo, Executive Vice President and Chief Financial Officer.

During the conference call today, we will make some forward-looking statements about our business prospects and financial expectation. We remind you that there are many risk factors that could cause our actual results to differ materially from our current expectations. For a discussion of some key risk factors, we refer you to our SEC filings, including our 10-K report for fiscal 2010.

Also, AmerisourceBergen assumes no obligation to update the matters discussed in this conference call, and this conference call cannot be rebroadcast without the express permission of the company. As always, those connected by telephone will have an opportunity to ask questions after our opening remarks.

Now here is Dave Yost, AmerisourceBergen's President and CEO to begin our comments.

R. Yost

Good morning, and thank you for joining us. As you probably know from our press release this morning, ABC had a strong fourth fiscal quarter ending in September that completed a record fiscal year that was extraordinary by almost any standard. Mike will drill down on the details, but let me note the fiscal year highlights.

Revenues increased over 8% to $78 billion. Gross margin increased by 11%, while expenses increased 3%, driving operating margins up for the fifth consecutive year this year by a strong 19 basis points. We crossed the $1 billion threshold of pretax earnings for the first time.

EPS was up a whopping 28%, excluding litigation benefits. We generated over $1 billion of cash in the year, and we did all this while we invest in our future by beginning the implementation of business transformation, our SAP-enhanced ERP system that when completed, will meet the future needs of our customers and suppliers for years to come. This year's performance was delivered on top of last year's 17% increase in EPS. Our compounded EPS growth since the company was created in 2001 is also 17%.

Strong performance in our September quarter speaks to the momentum we carry into our new fiscal year that began October 1. Our fourth quarter ending in September was a strong quarter in a series of strong quarters. Revenues increased $1 billion and over 5% to $19.7 billion. Gross profit increased over 10%, as we continue to benefit from our generic programs in both our Growth Company and Specialty Group.

Our DSOs were down one day versus last year's 17 days. We are reporting a lot of strong performance metrics this quarter and year, and our DSO performance is one of the most powerful, because it speaks volumes about the strength of our customer base and the satisfaction of our customers with our total service and program package. So lots to like about the year and the quarter in a series of strong quarters and fiscal years. The standby for ABC would be great performance in a resilient industry with positive momentum going into FY '11, driven by a solid customer mix featuring generics and specialty.

Before I address some company specifics, a few industry insights. First, U.S. pharmaceutical industry revenue growth. The IMS forecast of 3% to 5% for calendar 2010 and 2011 seems to be in the right zip code to us. Next, competitive pricing environment within our industry. I would continue to describe the environment as competitive but stable, with few billion dollar pieces of business in play in the next 12 months or so and a few pieces of business this size changing wholesalers historically. We continue to spend significant time and effort in Washington looking after the interest of our customers and shareholder. And like all of you, we'll be closely watching today's election results.

Now a little closer look at ABC. Among the big news items at ABC this quarter is that we went live with what we refer to as build one of our business transformation process that includes an eventual total conversion to SAP among other things. Build one includes our back-office functions for the Growth Company and corporate. We expect to begin the next phase of business transformation, which we call build two, in the spring and this will entail converting each of the drug company distribution centers to the new system one by one.

When completed, our BT implementation will provide us with insights, flexibility and operating efficiency, which will differentiate our offer to our current and potential customers and meet or exceed their information technology need for years to come. It is important to note that during the phase-in period of business transformation, we will be operating two systems, both SAP and our legacy IT system, putting some pressure on cost containment efforts. The very good news is that when completed, we will get relief from the dual system expenses and have a state-of-the-art ERP system. Our investment in business transformation is an important investment in our future just like our investment in new distribution centers several years ago that is now helping to drive down our operating cost.

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