Cencora(COR) - 2024 Q2 - Quarterly Results

Executive Summary & Highlights Cencora reported strong Q2 FY2024 results with a 7.8% year-over-year revenue increase to $68.4 billion and an 8.6% rise in adjusted diluted EPS to $3.80 Q2 FY2024 Key Financial Metrics | Metric | Q2 FY2024 | YoY Change | | :--- | :--- | :--- | | Revenue | $68.4 billion | +7.8% | | GAAP Diluted EPS | $2.09 | -1.9% | | Adjusted Diluted EPS | $3.80 | +8.6% | - The company raised its full-year fiscal 2024 adjusted diluted EPS guidance from a range of $13.25-$13.50 to $13.30-$13.50[3] - CEO Steven H. Collis highlighted the company's critical role in the pharmaceutical supply chain and its focus on customer experience, innovation, and infrastructure investment to drive value[4][5] Consolidated Financial Performance This section provides a high-level comparison of GAAP and Adjusted (Non-GAAP) results for the second quarter of fiscal year 2024, showing significant adjustments for operating expenses Q2 FY2024 GAAP vs. Adjusted (Non-GAAP) Summary | Metric | GAAP | Adjusted (Non-GAAP) | | :--- | :--- | :--- | | Revenue | $68.4B | $68.4B | | Operating Income | $553M | $1.0B | | Net Income Attributable to Cencora | $421M | $765M | | Diluted Earnings Per Share | $2.09 | $3.80 | Second Quarter GAAP Results GAAP results for Q2 FY2024 showed revenue growth of 7.8% to $68.4 billion, but operating income decreased by 1.3% due to higher litigation and opioid-related costs Q2 FY2024 GAAP Performance vs. Prior Year | Metric | Q2 FY2024 | YoY Change | | :--- | :--- | :--- | | Revenue | $68.4 billion | +7.8% | | Gross Profit | $2.5 billion | +10.6% | | Operating Income | $553.3 million | -1.3% | | Diluted EPS | $2.09 | -1.9% | - Operating expenses increased 14.4% year-over-year, primarily due to higher litigation and opioid-related expenses[88] - Diluted weighted average shares outstanding decreased by 1.5% to 201.2 million, mainly due to share repurchases[14] Second Quarter Adjusted (non-GAAP) Results Adjusted Q2 FY2024 operating income grew 10.9% to $1.0 billion, driven by segment growth, leading to an 8.6% increase in adjusted diluted EPS to $3.80 Q2 FY2024 Adjusted (Non-GAAP) Performance vs. Prior Year | Metric | Q2 FY2024 | YoY Change | | :--- | :--- | :--- | | Adjusted Gross Profit | $2.5 billion | +7.4% | | Adjusted Operating Income | $1.0 billion | +10.9% | | Adjusted Diluted EPS | $3.80 | +8.6% | - Adjusted operating expenses rose 5.2% to $1.5 billion, driven by increased distribution, selling, and administrative expenses to support business growth[17] - Net interest expense was flat year-over-year at $64.1 million, as increased interest expense from higher borrowings and rates was offset by higher interest income[1][12] Segment Performance Both U.S. and International Healthcare Solutions segments delivered revenue and operating income growth in Q2 FY2024, driven by specialty products and strong European, Canadian, and Brazilian performance - The company is organized into two reportable segments: U.S. Healthcare Solutions and International Healthcare Solutions[21] U.S. Healthcare Solutions The U.S. Healthcare Solutions segment reported an 8.1% revenue increase to $61.3 billion and an 11.2% operating income increase, driven by GLP-1 class drugs and specialty products U.S. Healthcare Solutions Q2 FY2024 Performance | Metric | Q2 FY2024 | YoY Change | | :--- | :--- | :--- | | Revenue | $61.3 billion | +8.1% | | Segment Operating Income | $841.1 million | +11.2% | - Key growth drivers included increased sales of products in the GLP-1 class (for diabetes and/or weight loss) and specialty products[22] International Healthcare Solutions International Healthcare Solutions revenue grew 5.3% to $7.1 billion and operating income increased 9.5%, with stronger constant currency growth from Europe, Canada, and Brazil International Healthcare Solutions Q2 FY2024 Performance | Metric | Q2 FY2024 | YoY Change | | :--- | :--- | :--- | | Revenue | $7.1 billion | +5.3% | | Segment Operating Income | $192.7 million | +9.5% | - On a constant currency basis, the segment's revenue and operating income increased by 9.8% and 22.1%, respectively[23] Corporate Updates & Outlook Cencora announced a CEO succession plan, raised its FY2024 adjusted diluted EPS guidance, updated its segment outlook, and authorized a new $2.0 billion share repurchase program Recent Company Highlights & Milestones Cencora announced a CEO succession plan with Robert P. Mauch succeeding Steven H. Collis, effective October 1, 2024, and received recognition as one of 'America's Greenest Companies' - A leadership succession plan was announced: Steven H. Collis will transition to Executive Chair, and Robert P. Mauch will become President and CEO, effective October 1, 2024[24] - Gina Clark, EVP and Chief Communications & Administration Officer, announced her intention to retire, effective September 30, 2024[24] - The company was recognized on Newsweek's inaugural list of 'America's Greenest Companies'[24] Fiscal Year 2024 Expectations (Adjusted Non-GAAP) Cencora raised its fiscal 2024 adjusted diluted EPS guidance to $13.30 to $13.50, updated its segment operating income growth expectations, and adjusted its effective tax rate and share count Updated FY2024 Guidance | Metric | Previous Range | Updated Range/Expectation | | :--- | :--- | :--- | | Adjusted Diluted EPS | $13.25 - $13.50 | $13.30 - $13.50 | | Adjusted Consolidated Operating Income Growth | 8% - 10% | 9% - 11% | | U.S. Healthcare Solutions Op. Income Growth | 9% - 11% | 10% - 12% | | Adjusted Effective Tax Rate | 20% - 21% | Approx. 21% | | Weighted Avg. Diluted Shares | 200 - 202 million | 201 - 202 million | - The company does not provide forward-looking guidance on a GAAP basis due to the inability to reasonably estimate certain financial information[24] Capital Allocation The Board of Directors declared a quarterly cash dividend of $0.51 per share and authorized a new $2.0 billion share repurchase program in March 2024 - A quarterly cash dividend of $0.51 per common share was declared[27] - A new share repurchase program was authorized in March 2024 for up to $2.0 billion of common stock[28] Financial Statements This section presents Cencora's unaudited consolidated financial statements as of March 31, 2024, including the income statement, balance sheet, and cash flow statement Financial Summary (Income Statement) For the three months ended March 31, 2024, Cencora reported revenue of $68.4 billion and net income of $420.8 million, with six-month revenue at $140.7 billion and net income at $1.02 billion Income Statement Summary (Three Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Revenue | $68,414,307 | $63,457,205 | | Gross Profit | $2,538,023 | $2,295,442 | | Operating Income | $553,259 | $560,519 | | Net Income Attributable to Cencora | $420,775 | $435,402 | | Diluted EPS | $2.09 | $2.13 | Income Statement Summary (Six Months Ended March 31) | Metric (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Revenue | $140,667,140 | $126,304,037 | | Gross Profit | $5,006,835 | $4,441,395 | | Operating Income | $1,376,134 | $1,193,662 | | Net Income Attributable to Cencora | $1,022,275 | $915,147 | | Diluted EPS | $5.07 | $4.46 | Condensed Consolidated Balance Sheets As of March 31, 2024, Cencora's total assets increased to $63.9 billion, with total liabilities at $62.6 billion and total equity at $1.2 billion Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,068,858 | $2,592,051 | | Total current assets | $44,161,052 | $42,798,826 | | Total assets | $63,868,046 | $62,558,746 | | Accounts payable | $46,320,774 | $45,836,037 | | Total current liabilities | $49,761,811 | $48,831,198 | | Total equity | $1,227,022 | $666,287 | Condensed Consolidated Statements of Cash Flows For the six months ended March 31, 2024, net cash provided by operating activities significantly decreased to $6.7 million, with $232.3 million used in investing and $228.5 million in financing activities Cash Flow Summary (Six Months Ended March 31, in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,714 | $1,339,588 | | Net cash used in investing activities | ($232,287) | ($1,599,895) | | Net cash used in financing activities | ($228,499) | ($1,733,391) | | Decrease in cash, cash equivalents, and restricted cash | ($467,743) | ($1,904,876) | GAAP to Non-GAAP Reconciliations This section details reconciliations of GAAP to non-GAAP financial measures for Q2 FY2024, adjusting for items like litigation expenses, acquisition amortization, and restructuring costs Q2 FY2024 GAAP to Non-GAAP Diluted EPS Reconciliation | Description | Per Share Impact | | :--- | :--- | | GAAP Diluted EPS | $2.09 | | Litigation and opioid-related expenses | $0.87 | | Acquisition-related intangibles amortization | $0.57 | | Restructuring and other expenses | $0.29 | | Other adjustments (net) | ($0.02) | | Adjusted Non-GAAP Diluted EPS | $3.80 | Summary Segment Information This section provides a tabular breakdown of Q2 FY2024 revenue and operating income for U.S. Healthcare Solutions and International Healthcare Solutions, along with reconciliation to consolidated GAAP operating income Q2 FY2024 Revenue by Segment (in thousands) | Segment | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | U.S. Healthcare Solutions | $61,292,897 | $56,693,456 | 8.1% | | International Healthcare Solutions | $7,123,385 | $6,764,935 | 5.3% | | Total Revenue | $68,414,307 | $63,457,205 | 7.8% | Q2 FY2024 Operating Income by Segment (in thousands) | Segment | Q2 2024 | Q2 2023 | % Change | | :--- | :--- | :--- | :--- | | U.S. Healthcare Solutions | $841,064 | $756,137 | 11.2% | | International Healthcare Solutions | $192,720 | $175,991 | 9.5% | | Total Segment Operating Income | $1,033,784 | $932,128 | 10.9% | Supplemental Information Regarding Non-GAAP Financial Measures Cencora explains its use of non-GAAP financial measures, detailing exclusions like LIFO impacts and litigation expenses, and defining 'constant currency' metrics for clearer core performance evaluation - Management uses non-GAAP measures to evaluate operating performance, perform financial planning, and determine incentive compensation[69] - Key items excluded from non-GAAP measures include: gains from antitrust litigation, LIFO expense/credit, acquisition-related intangibles amortization, litigation and opioid-related expenses, and restructuring costs, as they are considered unusual, non-operating, or non-recurring[76][77] - The company presents certain results in 'constant currency' by translating current period results at the foreign currency exchange rates used in the comparable prior-year period to remove the impact of currency fluctuations[85]