AmerisourceBergen Earnings: Strong Sales Growth and Investment in Specialty Strengthen Its Foothold

Narrow-moat AmeirsourceBergen ABC reported second-quarter results that were higher than expected. Total sales were up 9.9% year over year, driven by strong volume growth. We maintain our fair value estimate of $149 per share as the minor outperformance doesn’t impact our valuation.

U.S. healthcare solutions sales were up 11.3% for the quarter. Despite the difficult comparison, given March and April 2022 had significant contributions from COVID-19-related items, the segment performed better than expected due to strong volume in core distribution thanks to favorable utilization trends as well as growth in specialty business.

International healthcare sales were down 0.2% year over year, mainly due to unfavorable foreign exchange; on a constant currency basis, the segment sales were up 12%. AmerisourceBergen divested Profarma Specialty, a leading pharmaceutical wholesaler in Brazil, in June 2022—this continues to pose difficult comparisons as the business represented 2% of segment operating income in fiscal 2022, but we no longer expect any headwind from this for the remainder of the year given the timing. The decline in sales was slightly offset by World Courier, which continues to post strong growth helped by strong demand for international shipments.

AmerisourceBergen, along with TPG (investment firm), made a minority investment (close to 35% of ownership between the two) in OneOncology, a network of oncology practices with 900 affiliated providers, to further increase its exposure and bolster its leadership in specialty solutions. Specialty, on average, is a higher-margin business compared with core distribution because AmerisourceBergen can offer more services, including group purchasing organization services and data and analytics, so we see this to be a synergistic deal.

Management raised guidance for the year and now expects sales to grow 6%-8% year over year, up from the previous range of 5%-7% percent, driven by a higher expectations for both segments.