Bergen Brunswig Profits Fall 47%

Drug wholesaler Bergen Brunswig Corp., hurting from stiff competition and problems at recently acquired companies, said Wednesday that its quarterly profit fell nearly 47% and its earnings this year won’t be as high as first expected.

The nation’s third-largest distributor of pharmaceuticals and medical supplies said net income was $14.7 million, or 11 cents a share, for its fiscal first quarter, which ended Dec. 31. The profit was what Wall Street had anticipated.

The company, based in Orange, earned $27.9 million, or 27 cents a share, in the previous year’s first three months. Quarterly revenue rose 18% to $5.9 billion from $5 billion.

“We are not satisfied with our year-over-year earnings decline and continue to pursue corrective actions to restore our profitability to acceptable levels,” Robert E. Martini, the company’s chairman, said in a prepared statement Wednesday.

Bergen’s stock price, which has fallen 75% since last January when it was trading at more than $29 a share, dropped again Wednesday on news of its quarterly results. The stock lost $1.06 a share to close at $6.94 in New York Stock Exchange trading.

“There’s been some uncertainty about Bergen, and today’s announcement confirms that the uncertainty remains,” said Seth Teich, an analyst at First Union Securities.

Analysts agree that the problems facing Bergen Brunswig are similar to those that have plagued rival McKesson/HBOC Inc.

McKesson’s performance has suffered for the last year since the company bought its health care information systems business, formerly known as HBO & Co. Pending shareholder lawsuits accuse the company of failing to uncover a scheme by HBO executives to inflate revenue figures before the sale.

Last January, Bergen completed its purchase of specialty-drug distributor Stadtlander and said it would buy PharMerica, which supplies pharmacy services to nursing homes.

Since then, PharMerica’s operations have suffered from reduced payments under Medicare health coverage for the elderly, and Stadtlander has continued to lose money.

In October, Bergen sued Counsel Corp., the former owner of Stadtlander, claiming it fraudulently induced Bergen into buying the unit by overstating Stadtlander’s profitability. Counsel has denied the charges.

Bergen and McKesson “have turned to acquisitions outside their core expertise, and they are suffering,” said Michael Krensavage, an analyst at Brown Brothers Harriman.

But Bergen’s problems also stem from competitive pressures and deteriorating profit margins, analysts said.

“We are not surprised given the heightened competition in the [drug distribution] industry. These companies have razor-thin margins. If they get compressed even a small amount, that can have a significant impact on overall earnings,” said Leonard Yaffe, a Banc of America Securities analyst.

In a conference call Wednesday afternoon with Wall Street analysts, Neal Dimmick, Bergen’s chief financial officer, attributed part of the drop in earnings to a drop in gross profit margins--even though revenue rose 18%. That pressure on margins is expected to continue through the rest of the year.

Martini said the company will combat the problems hammering away at its profitability by curtailing future external expansion and focusing efforts on internal operations.

Yaffe contends that a turnaround for Bergen Brunswig, though not likely this year, could come as soon as 2001.

Bergen’s pharmaceutical distribution business met targets for both sales and earnings growth, reporting a 17% revenue hike to $4.4 billion and a 12% gain in operating earnings to $77.7 million.

The pharmaceutical services segment, which consists mostly of PharMerica and Stadtlander, reported operating earnings of $200,000 on revenue of $456.4 million. PharMerica reported fiscal first-quarter operating earnings of $7.8 million, in line with company expectations, but Stadtlander losses dragged down the operation, according to company statements.

Meanwhile, PharMerica continues to experience some stabilizing trends amid indications that Medicare admission may be growing.

At Stadtlander, Bergen hired Ernst & Young Consulting to conduct a thorough review. As a result of that review, Bergen is starting a major restructuring to reorganize Stadtlander management and sales department, reduce operating expenses and dissolve a joint venture.

Bergen said it is continuing to pursue other strategic opportunities for Stadtlander.