Hard to Swallow: Bergen Profit Off 55%
Plagued by two companies it bought last year, Bergen Brunswig Corp. reported Wednesday that its fiscal second-quarter profit fell 55% to $17.3 million from the previous year’s first three months.
The news from the nation’s third-largest drug distributor sent its stock down 9% during trading, but the Orange-based company recovered to lose 19 cents a share, or 3.5%, and close at $5.25.
Similarly, McKesson HBOC Inc. in San Francisco, the nation’s largest wholesale drug supplier, posted a 51% drop in quarterly operating earnings, partly reflecting continued weakness in the health care information business it acquired early last year.
Bergen’s earnings, amounting to 13 cents a share, were far below last year’s first-quarter net income of $38.4 million, or 35 cents a share. The per-share figure also was a penny less than the 14 cents a share that analysts expected it to earn, according to the average estimate of analysts polled by First Call/Thomson Financial.
Its revenue rose to $5.9 billion for the quarter ended March 31 from $5 billion in the year-ago period. Excluding bulk shipments, its quarterly revenue rose 14% to $4.9 billion from $4.3 billion last year.
Bergen’s stock has fallen 74% in the last 12 months as performance lagged at specialty-drug distributor Stadtlander and nursing-home-pharmacy operator PharMerica, the two companies it bought last year.
Bergen acquired the Stadtlander pharmacy unit for $400 million, but alleged after the deal was concluded that the company’s former owners had overstated its earnings.
“We clearly have further evidence of the perils of acquisitions. Both companies strayed from their expertise and went into areas that perhaps they shouldn’t have,” said Michael Krensavage, an analyst at Brown Brothers Harriman.
Drug distributors moved to diversify as price competition in the industry pushed profits lower and they ran out of ways to cut costs, but the acquisitions have so far been ill-fated, the analyst said.
“They’ve gotten themselves into the ditch with two bad acquisitions,” said John Ransom, a Raymond James analyst.
Stadtlander lost $2.3 million before interest, taxes, depreciation and amortization in the quarter. That excludes $1.2 million in restructuring costs.
PharMerica earned $19.4 million before interest, taxes, depreciation and amortization on sales of $320 million. The company didn’t provide year-ago comparisons for those numbers.
“Nursing homes have been whacked by cuts in government reimbursements,” Ransom said. “Any time your customers get hit, that pain generally spreads back to the vendors.”
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Acquisitions Hurt Bergen Brunswig
Drug wholesaler Bergen Brunswig Corp. said a drop in second-quarter profits resulted from disappointing performances by recently acquired companies.
Second quarter ending March 31
Revenue (in millions)
2000: $5,862.9
1999: $5,008.5
Net income (in millions)
2000: 17.3
1999: 38.4
*
Per share
2000: .13
1999: .35
*
Six months ending March 31
Revenue (in millions)
2000: $11,791.9
1999: $10,028.8
Net income (in millions)
2000: 31.9
1999: 66.3
*
Per share
2000: .24
1999: .62
Source: Bergen Brunswig Corp., Orange
