Orange Pharmaceutical and Video Distributor : Bergen Brunswig’s Earnings Surge 37%

Benefiting in part from rising drug prices, Bergen Brunswig Corp., a leading distributor of pharmaceutical products and home video cassettes, reported on Monday a 37% increase in net earnings for its last fiscal year.

The Orange-based firm posted net income of $47.6 million on sales of $3.92 billion for the year ended Aug. 31, in contrast with net earnings of $34.7 million on sales of $3.49 billion for the previous year.

In the fourth quarter, the company posted net earnings of $10.7 million, up 39% from $7.7 million for the fourth quarter of fiscal 1988. Fourth-quarter sales increased 11%, to $998 million from $899 million for the same period the year before.

Bergen Brunswig is riding a wave of rising sales among pharmaceutical distributorships. John McRae, vice president of Baer Stearns & Co. Inc., an investment banking firm in New York, said industry consolidation has reduced price competition, as larger regional firms have bought up the smaller ones.

Moreover, McRae said, new drugs are coming on the market at premium prices because of the vast amount of research that has gone into their development.

And the prices of other drugs are increasing, he said, which is passed on to distributors, who generally get a percentage cut of the wholesale price of the drugs.

Also, George E. Reinhardt Jr., Bergen Brunswig’s chief financial officer, said many hospitals and drugstores that once bought drugs directly from manufacturers have been shifting to using wholesalers in a bid to reduce costs associated with maintaining large inventories.

The new customers, Reinhardt said, want to better match their stock to changing market demand. While pharmaceutical firms generally sell drugs in bulk, such wholesalers as Bergen Brunswig will make smaller deliveries on a daily basis, he said.

McRae said Bergen Brunswig has succeeded in expanding its market share by offering customers the convenience of a computerized order entry system that keeps track of their sales and current inventories.

Also, McRae said, Bergen Brunswig has improved its profit margins through the automation of warehouses, which has allowed the company to consolidate operations and cut labor costs.

Commtron Also Grows

Commtron Corp., the home video and consumer electronics side of Bergen Brunswig’s business, has also had growth. Sales totaled $550 million for the 1989 fiscal year, up 16% over $475 million in 1988.

Operating earnings of $11.3 million represented an 88% improvement over $6 million in fiscal 1988. The company credited in part the release of new home videos, especially “Rain Man”--the hit movie starring Dustin Hoffman--in the fourth quarter, and more cost-efficient operations.

Reinhardt said Bergen Brunswig also cut costs in fiscal 1989 by converting $135 million in debentures to common stock. That move, he said, significantly lowered the corporation’s long-term debt and eliminated about $10 million in annual interest payments.

BERGEN BRUNSWIG PERFORMANCE

(In millions of dollars)

12 months 12 months 4th Qtr. 4th Qtr. Ending Ending 1989 1988 Aug. 31, 1989 Aug. 31, 1988 Revenues $998 $899 $3,920 $3,490 Net Income 10.7 7.7 47.6 34.7 Per Share (in dollars) 0.37 0.33 1.85 1.51

Source: Bergen Brunswig Corp.