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Drug Distributor AmerisourceBergen Posts 79 Percent Quarterly Profit Drop

Posted on: Friday, 4 November 2005, 15:00 CST

By Linda Loyd, The Philadelphia Inquirer

Nov. 4--Drug distributor AmerisourceBergen Corp. reported a 79 percent drop in fourth-quarter profit yesterday related to debt retirement charges, facility consolidation, employee severance and competition in its long-term care pharmacy business.

The distribution industry has been under pressure as it has moved to a "fee-for-services" system from one based on stockpiling manufacturers' drugs and then selling them to customers after prices increased.

The Valley Forge-based company reported net income of $19.5 million, or 19 cents a share, for the fourth quarter ended Sept. 30, compared with $91.9 million, or 81 cents a share, in the quarter a year earlier.

Excluding charges, primarily related to debt retirement, AmerisourceBergen earned 95 cents a share in the quarter, beating analysts' average estimate of 93 cents in a Thomson Financial survey. Debt refinancing cost the company $110.8 million.

AmerisourceBergen, the third-largest U.S. drug wholesaler, reported quarterly revenues of $13.9 billion, compared to $13.4 billion in the period last year.

For the 2005 fiscal year ended Sept 30, the company posted net income of $264.6 million, or $2.48 a share, compared to $468.4 million in fiscal 2004, or $4.06 per share.

Chief executive officer R. David Yost said the transition to fee-for-service contracts "is largely complete" and the company anticipates new business opportunities with its recent entry into the Canadian market, completion of a new distribution network, and addition of more generic medicines as generic copies of more brand-name drugs become available.

The company said its PharMerica Inc. subsidiary, which provides pharmacy services to nursing homes and specialty hospitals and workers compensation prescription services to insurers, continued to face "difficult and competitive" pressures "especially around market pricing and government reimbursement," said AmerisourceBergen president and chief operating officer Kurt J. Hilzinger.

The company narrowed the range of its fiscal 2006 earnings forecast to $3.95 to $4.25 a share from $3.60 to $4.40 announced earlier.

AmerisourceBergen, along with No. 1 wholesaler McKesson Corp. and No. 2 Cardinal Health, distributes about 90 percent of the prescription drugs sold in the United States.

Operating revenue, excluding bulk deliveries to customer warehouses, was $12.9 billion in the fourth quarter, up 7 percent from $12.1 billion in the quarter last year. Operating revenue for fiscal 2005 increased 2 percent to $50 billion from $48.8 billion the previous fiscal year.

AmerisourceBergen announced last month it was losing a customer, United Drugs, a purchasing group for independent retail pharmacies, in mid-December. United Drugs' $1.5 billion annual contract accounted for 4 percent of AmerisourceBergen's operating revenue in the nine months through June 30. AmerisourceBergen said, however, it expects that many United members will sever ties with United and continue to do business with AmerisourceBergen.

Yesterday, shares of AmerisourceBergen closed at $76.99, up 77 cents.

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Source: The Philadelphia Inquirer

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