AmerisourceBergen lowered its fiscal year 2005 estimate for diluted earnings per share from continuing operations to $3.10 to $3.50 from $4.00 to $4.10.
This is mainly due to reduced buy-side profits resulting from lower than anticipated inventory levels associated with its ongoing transition to fee-for-service (FFS) contracts with branded pharmaceutical manufacturers. The Company expects diluted earnings per share from continuing operations in the March quarter to be between $0.75 and $0.85.
With certain manufacturers restricting inventory availability under inventory management agreements and in anticipation of FFS contracts, AmerisourceBergen expects inventory during the March through September fiscal 2005 quarters to be in the low to mid $4 billion range, down significantly from the $5.2 billion at the end of the December fiscal 2005 quarter. The Company continues to expect that the transition to FFS will provide more stable and predictable operating margins with reduced levels of working capital and it is making solid progress toward having most of its branded pharmaceutical revenues under some form of FFS contract by the end of calendar 2005. The inventory decline ahead of the completion of the FFS contracts has resulted in a significantly lower forecast in operating earnings for the March quarter and the fiscal year, but provides a significant increase in expected cash from operations due to lower working capital requirements.
Cash provided from operations for fiscal 2005 is expected to increase to between $900 million and $1 billion from the previous estimate of $375 million to $475 million. Most of the increase in cash is expected in the March quarter. Capital expenditure estimates for fiscal year 2005 remain unchanged at $175 million to $200 million. The Company continues to expect operating revenue growth in fiscal year 2005 to be flat at about $49 billion.
“We are very disappointed in our earnings performance during this tough transition year,” said R. David Yost, AmerisourceBergen’s Chief Executive Officer. “However, the movement to FFS metrics has increased our cash provided from operations, and I can assure investors that we will continue to use this additional capital to benefit our shareholders through efforts such as our aggressive stock purchase programs. During the March quarter, we completed our $500 million share purchase program, which has resulted in the acquisition of 9.3 million shares. Currently, we have 5.3 million shares remaining under our 5.7 million-share purchase program. Further, investors can expect that the anticipated $525 million in additional cash in fiscal 2005 will be deployed prudently.
“As difficult as this fiscal year is, I remain optimistic about fiscal 2006 and beyond. The approximately $20 billion in branded products that are scheduled to convert to generics next year combined with the roll out of our enhanced generic program in April 2005 should improve future margins. Completion of most FFS agreements by the beginning of calendar year 2006 should stabilize our buy-side margin. The implementation of the Medicare Modernization Act in 2006 is expected to add incremental sales beginning in January 2006. The continued contribution of our Optimiz program and the initiation of our Transform program in the pharmaceutical distribution segment are expected to lower our cost structure and improve our profitability from healthcare providers.
“Though we have not yet begun our detailed planning process for the next fiscal year, we currently estimate earnings per share from continuing operations in fiscal 2006 to be between $3.60 and $4.40. The bottom of the range reflects pharmaceutical market growth in the high single digits and the full-year impact of fiscal 2005 capital deployment initiatives. The top of the range depends on our ability to improve our pharmaceutical distribution operating margin, expected to be in the 100 to 110 basis points range in fiscal 2005, by 30 basis points through margin enhancement activities including those mentioned above.”
murdok | Breaking eBusiness News
Your source for investigative ebusiness reporting and breaking news.
