AmerisourceBergen reported that in its fiscal year 2018 first quarter ended December 31, 2017, revenue increased 6.0 percent to $40.5 billion. On the basis of U.S. generally accepted accounting principles (GAAP), diluted earnings per share (EPS) was $3.90 for the December quarter of fiscal 2018, compared to $1.11 in the prior year quarter. GAAP EPS for the December quarter of fiscal 2018 was favorably impacted by new U.S. tax reform legislation. Adjusted diluted EPS, which is a non-GAAP measure that excludes items described below, increased 14.0 percent to $1.55 in the fiscal first quarter and also included a benefit from the Company's expected full fiscal year effective tax rate.
AmerisourceBergen is updating its outlook for fiscal year 2018. The company does not provide forward-looking guidance on a GAAP basis, as discussed below in Fiscal Year 2018 Expectations. Adjusted diluted EPS guidance has been raised from the previous expectation of $5.90 to $6.15 to a range of $6.45 to $6.65, reflecting growth of 10 percent to 13 percent versus last fiscal year. The adjusted diluted EPS benefit from U.S. tax reform is expected to be approximately $0.60 in fiscal 2018, offset by a lower than expected contribution from PharMEDium.
“In the first quarter of the fiscal year, we saw further market, pricing and competitive stability. AmerisourceBergen continued to lead the market in specialty product distribution and pharmaceutical services and our core pharmaceutical distribution businesses executed extremely well - growing volumes with key customers and segments - and continued to effectively manage operating expenses. We are proud of the work our associates have done and pleased with this strong start for the fiscal year,” said Steven H. Collis, Chairman, President and Chief Executive Officer of AmerisourceBergen.
Below, AmerisourceBergen presents descriptive summaries of the Company’s GAAP quarterly results as well as its adjusted (Non-GAAP) quarterly results. In the tables that follow, GAAP results and GAAP to Non-GAAP reconciliations are presented. For more information related to Non-GAAP financial measures, including our fiscal year 2018 expectations, please refer to the Supplemental Information Regarding Non-GAAP Financial Measures following the tables.
First Quarter GAAP Results
Revenue: In the first quarter of fiscal 2018, revenue was $40.5 billion, up 6.0 percent compared to the same quarter in the previous fiscal year, reflecting a 5.8 percent increase in Pharmaceutical Distribution Services revenue and an 11.6 percent increase in revenue within Other.
Gross Profit: Gross profit in the fiscal 2018 first quarter was $1.1 billion, a 7.2 percent increase over the same period in the previous fiscal year, primarily due to the increase in gross profit in Pharmaceutical Distribution Services and the decrease in LIFO expense of $28.3 million. Gross profit as a percentage of revenue was 2.75%, an increase of 3 basis points from the prior year quarter.
Operating Expenses: In the first quarter of fiscal 2018, operating expenses were $693.7 million, compared to $637.7 million in the same period last fiscal year. The increase in operating expenses was primarily driven by operating additional distribution centers in the current quarter and duplicate costs resulting from the implementation of new information technology systems, as well as increased costs to support our revenue growth.
Operating Income: In the fiscal 2018 first quarter, operating income was $419.0 million versus $400.0 million in the prior year period.
Interest Expense, Net: In the fiscal 2018 first quarter, net interest expense of $35.9 million was down 3.0 percent versus the prior year quarter.
Tax Rate: The effective tax rate of (140.1)% for the first quarter of fiscal 2018 benefited from $587.6 million of discrete tax benefits recognized and a reduction in the U.S. federal income tax rate from 35% to 21%, both resulting from U.S. tax reform.
Diluted Earnings Per Share: Diluted earnings per share was $3.90 in the first quarter of fiscal year 2018 compared to $1.11 in the previous fiscal year’s first quarter, primarily driven by the benefit from U.S. tax reform.
Diluted Shares Outstanding: Diluted weighted average shares outstanding for the first quarter of fiscal year 2018 were 220.8 million, a 0.5 percent decline versus the prior fiscal year first quarter due primarily to share repurchases, net of stock option exercises.
First Quarter Adjusted (Non-GAAP) Results
Revenue: In the first quarter of fiscal 2018, revenue was $40.5 billion, up 6.0 percent compared to the same quarter in the previous fiscal year, reflecting a 5.8 percent increase in Pharmaceutical Distribution Services revenue and an 11.6 percent increase in revenue within Other.
Adjusted Gross Profit: Gross profit in the fiscal 2018 first quarter was $1.1 billion, which was up 4.5 percent when compared to the same period in the previous year, primarily due to the increase in gross profit in Pharmaceutical Distribution Services. Gross profit as a percentage of revenue was 2.75 percent, a decrease of 4 basis points from the prior year quarter.
Adjusted Operating Expenses: In the first quarter of fiscal 2018, operating expenses were $624.6 million, an increase of 8.0% compared to the same period in the last fiscal year. Operating expenses as a percentage of revenue in the fiscal 2018 first quarter were 1.54 percent, compared to 1.52 percent for the same period in the previous fiscal year. The increase in operating expenses was primarily driven by operating additional distribution centers in the current quarter and duplicate costs resulting from the implementation of new information technology systems, as well as increased costs to support our revenue growth.
Adjusted Operating Income: In the fiscal 2018 first quarter, operating income of $488.1 million increased 0.4 percent from the prior year period. Operating income as a percentage of revenue decreased 6 basis points to 1.21 percent in the fiscal 2018 first quarter compared to the previous fiscal year’s first quarter.
Adjusted Interest Expense, Net: In the fiscal 2018 first quarter, net interest expense of $35.9 million was up 3.0 percent from the prior year quarter.
Adjusted Tax Rate: The effective tax rate for the first quarter of fiscal 2018 was 24.2 percent, down from 33.1 percent in the previous fiscal year’s first quarter, primarily driven by a reduction in the U.S. federal income tax rate from 35% to 21%, as a result of U.S. tax reform.
Adjusted Diluted Earnings Per Share: Diluted earnings per share was up 14.0 percent to $1.55 in the first quarter of fiscal year 2018 compared to $1.36 in the previous fiscal year’s first quarter, driven primarily by a $0.15 benefit from U.S. tax reform.
Diluted Shares Outstanding: Diluted weighted average shares outstanding for the first quarter of fiscal year 2018 were 220.8 million, a 0.5 percent decline versus the prior fiscal year first quarter due primarily to share repurchases, net of stock option exercises.
Pharmaceutical Distribution Services Segment
Pharmaceutical Distribution Services revenue was $38.9 billion, an increase of 5.8 percent compared to the same quarter in the prior fiscal year. Segment operating income of $388.2 million in the December quarter of fiscal 2018 was up 2.4 percent compared to the same period in the previous fiscal year. The segment was impacted by reduced production at PharMEDium's Memphis 503B outsourcing facility, where, following inspections by the U.S. Food and Drug Administration, operations were voluntarily suspended in December so that the company could execute certain remedial measures.
Recent Company Highlights & Milestones
- Completed the acquisition of H. D. Smith, the largest independent pharmaceutical wholesaler in the U.S., which enhances and expands our strategic scale, strengthens our support to community pharmacy and drives long-term, durable value.
- Recorded our 16th consecutive quarter with 10 percent or greater revenue growth in Specialty distribution.
- Now servicing more than 600 retail pharmacies acquired by Walgreens Boots Alliance through its phased acquisition of certain Rite Aid stores.
- Opened a 6th new distribution center in Newburgh, NY with state-of-the-art automation as part of our commitment to creating the most efficient healthcare and pharmaceutical network.
- Good Neighbor Pharmacy, AmerisourceBergen's independent pharmacy network, was ranked “Highest in Customer Satisfaction with Chain Drug Store Pharmacies” in the J.D. Power 2017 U.S. Pharmacy Study.
- World Courier had a record-setting quarter in both shipments and billable weight. Additionally, the business achieved Good Distribution Practice certification across its global network of 140-plus offices.
- MWI acquired Northeast Veterinary Supply Co., an independent, regional distributor of veterinary pharmaceuticals and medical supplies servicing primarily the northeast region of the U.S.
- The Lash Group successfully migrated its first customers onto its innovative Fusion technology ecosystem with positive user feedback. Fusion was also featured in The Center Watch Monthly's 2018 Top Innovators. This onboarding process is advancing, but at a slower pace than originally anticipated.
- The AmerisourceBergen Foundation launched a municipal support program that aims to promote the safe disposal of opioids by providing communities nationwide with resources to deactivate expired or unused prescription medications.
- US Bioservices, AmerisourceBergen's independent specialty pharmacy, had a record breaking year for new business wins in 2017, further expanding its portfolio of critical specialty therapies.