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1、Equity Research Americas | United StatesHealthcare DistributionCY2Q20 Earnings Recap: A Strong Quarter As Expected, 2H Expectations ReasonableHealthcare Technology & Distribution | Quarterly Strong CY2Q20 Results. All four distributors came in ahead of both adjusted EBIT and adjusted EPS expectation

2、s. Among the three major distributors, MCKs beat was the strongest in terms of percentage on both adjusted EBIT and EPS. ABC, CAH, and MCK all came in ahead on our top-line revenue estimates (CAHs revenues were slightly below consensus), while OMI came in below. OMI in particular, while falling shor

3、t on top-line revenue, handedly beat profitability expectations due to better trends in the companys Global Products segment, which the company alluded to in its CY2Q earnings pre-release. Performance by Segment. The three major distributors reported an average top-line growth in CY2Q20 of up 0.7% Y

4、/Y, an expected slowdown after the stockpiling behavior experienced during CY1Q20, which was up 11.4% Y/Y on average. Pharma operating profits in CY2Q20 were down, on average, 5.8% Y/Y. ABC was the only company to report a Y/Y increase in pharma EBIT in the quarter. In terms of Pharma segment EBIT m

5、argin, the three drug distributors reported an EBIT margin of 1.13%, on average, in CY2Q20, a Y/Y decline of 7 bps. With respect to the Medical segment, both CAH and MCK reported a Y/Y decline in revenue. However, CAHs Medical segment EBIT increased Y/Y largely due to a beneficial Y/Y comparison cre

6、ated by a charge related to the exclusive distribution agreement with a supplier of Cordis, in addition to benefits from cost-saving initiatives. Guidance Updates. ABC, MCK, and OMI all raised their full year adjusted EPS guidance by more than the beat in CY2Q, implying not only CY2Q trends came in

7、better than prior expectations but the companies also now have a relatively favorable view about the trends in 2H. CAH introduced its FY21 guidance at $5.25-$5.65, bracketing the “then” consensus expectations. Quick Highlights from Our Investor Sentiment Survey on Distributors. We recently surveyed

8、59 institutional investor clients. Our survey respondents indicate an opioid global settlement charge of $22.8 bln, with an expected upfront cash of 15.6% (both figures on a weighted average basis). ABC and MCK were tied in terms of investors expectations of the drug distributor likely to outperform

9、 over the next 12 months (each selected by 38% of investors). Long-only investors have a slight preference for ABC (50%) vs MCK (36%) while hedge funds equally selected CAH & MCK to outperform (both at 36%). Updating TP Methodology. We are rolling forward our PT multiple onto CY2022 adjusted EBITDA.

10、 We are also updating our present value analysis (included in our valuation framework) for the expected opioid litigation settlement. Our revised approach contemplates a total payout of $21.14 bln (consistent with the most recent proposal by 12+ state AGs) in addition to 15% of the total sum being p

11、aid upfront with the remainder spread out over 18 years. These two changes (along with our unchanged TP multiples) result in our TP for ABC at $118 (unchanged), CAH at $57 (vs. $55 prev), MCK at $174 (vs. $162 prev), and OMI at $18 (vs. $16 prev).Research AnalystsJailendra Singh212 325 8121 HYPERLIN

12、K mailto:jailendra.singh jailendra.singhJermaine Brown212 325 8125 HYPERLINK mailto:jermaine.brown jermaine.brownAdam Heussner212 325 4727 HYPERLINK mailto:adam.heussner adam.heussnerDISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS,LEGAL ENTITY DI

13、SCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that couldTable of Contents HYPERLINK l _TOC_250017 Detailed CY2

14、Q20 Recap 3 HYPERLINK l _TOC_250016 CY2Q20 Earnings Summary 3 HYPERLINK l _TOC_250015 Q&A Our Way Notes 4 HYPERLINK l _TOC_250014 Detailed Review of Trends by Segment 4 HYPERLINK l _TOC_250013 U.S. Pharma Segment 4 HYPERLINK l _TOC_250012 Medical Segment 6 HYPERLINK l _TOC_250011 Comments on Key Top

15、ics 8 HYPERLINK l _TOC_250010 Generic Pricing Environment 8 HYPERLINK l _TOC_250009 Retail to Mail Channel Mix Shift 9 HYPERLINK l _TOC_250008 Elective Surgery & Physician Visits Recovery 10 HYPERLINK l _TOC_250007 Specialty Businesses 11 HYPERLINK l _TOC_250006 Opioid Lawsuits and Settlement 13 HYP

16、ERLINK l _TOC_250005 Cash Flow and Capital Deployment 14 HYPERLINK l _TOC_250004 Price Performance & Valuation 16 HYPERLINK l _TOC_250003 AmerisourceBergen 17 HYPERLINK l _TOC_250002 Cardinal Health 19 HYPERLINK l _TOC_250001 McKesson 21 HYPERLINK l _TOC_250000 Owens & Minor 23Detailed CY2Q20 RecapC

17、Y2Q20 Earnings SummaryABC, CAH, and MCK all came in ahead on our top-line revenue estimates, while OMI came in below. OMI in particular, while falling short on top-line revenue, handedly beat profitability expectations due to better trends in the companys Global Products segment, which the company a

18、lluded to in its CY2Q earnings pre-release. All four distributors came in ahead of both adjusted EBIT and adjusted EPS expectations. Among the three major distributors, MCKs beat was the strongest in terms of percentage on both adjusted EBIT and EPS.Figure 1: CY2Q20 Actual Results vs. Credit Suisse

19、Estimates & ConsensusRevenueABCCAHMCKOMIActual$45,367$36,689$55,679$1,808Y/Y Change0.3%(1.8%)(0.1%)(23.9%)CS Estimate$44,217$36,013$53,897$1,961Variance$1,150$676$1,782($154)Variance %2.6%1.9%3.3%(7.8%)Consensus$44,687$36,978$53,770$1,917Variance$680($289)$1,909($110)Variance %1.5%(0.8%)3.6%(5.7%)Op

20、erating IncomeABCCAHMCKOMIActual$508$442$707$39Y/Y Change0.2%(12.6%)(24.2%)11.2%CS Estimate$442$406$579$41Variance$66$36$128($2)Variance %14.9%8.8%22.1%(4.9%)Consensus$447$393$608$33Variance$61$49$99$6Variance %13.5%12.5%16.3%17.8%Adj. EPSABCCAHMCKOMIActual$1.85$1.04$2.77$0.21Y/Y Change5.1%(6.6%)(16

21、.3%)94.8%CS Estimate$1.56$0.85$2.27$0.20Variance$0.29$0.19$0.50$0.00Variance %18.9%22.9%22.1%0.7%Consensus$1.58$0.90$2.36$0.19Variance$0.27$0.14$0.41$0.02Variance %17.1%15.6%17.3%8.0% Source: Company data, Credit Suisse, FactSetABC raised its FY20 revenue guidance from LSD-MSD growth to MSD growth.

22、Further, the company updated its Adj. EPS outlook for FY20 from $7.35-$7.65 to $7.80-$7.95. MCK updated its existing FY21 guidance with total revenues now expected at the high-end of 2-4% growth Y/Y (up 2-4%, prev) and Adj. EPS expected at $14.70-$15.50 ($13.95-$14.75, prev). OMI, consistent with th

23、e companys CY2Q20 pre-announcement, is expecting $1.00-$1.20 in Adj. EPS for 2020. In addition, OMI now expects 2020 revenues at $7.9-$8.1 bln versus commentary of the company coming in below its prior official outlook of $8.3-$8.5 bln. In the companys newly issued guidance for FY21, CAH is expectin

24、g MSD growth in Pharma revs and LSD growth in operating profit, while in Medical, CAH sees LSD growth in revs and a HSD decline in operating profit. As for Adj. EPS, CAH is expecting $5.25-$5.65.Each of the distributors raised its full year adjusted EPS guidance by more than the beat in CY2Q. For OM

25、I in particular, the company was initially expecting EPS of $0.50-$0.60 prior to the CY2Q20 pre-announcement. In addition, commentary by OMI during the CY1Q20 earnings call alluded to CY2Q20 Adj. EPS as “highly unlikely to breakeven”. As a result, the $0.50-$0.60 raise to EPS guidance exceeded the $

26、0.20 beat in the quarter. As for ABC, the company raised FY20 Adj. EPS guidance by $0.45-$0.30 despite a beat of $0.27 in the quarter. MCK raised guidance by $0.75 on both the low and high end of the range while coming in ahead by $0.41 in CY2Q. CAH introduced newly issued FY21 guidance where the co

27、mpany bracketed consensus estimates with an adjusted EPS expectation of $5.25-$5.65.Figure 2: Adj. EPS Guidance Overview & AnalysisNew EPSOld EPSGuidance Raise Range% Guidance Raise (at CY2Q Midpoint)BeatABC$7.80 - $7.95$7.35 - $7.65$0.45 - $0.305%$0.27CAH$5.25 - $5.65NM*NM*NM*$0.14MCK$14.70 - $15.5

28、0$13.95 - $14.75$0.75 - $0.755%$0.41OMI$1.00 - $1.20$0.50 - $0.60$0.50 - $0.60100%$0.02Source: Company data, Credit Suisse estimates, *CAH issued FY21 guidance, OMI old EPS based on existing guidance prior to CY2Q pre-announcementQ&A Our Way NotesWe had post conference call discussions with manageme

29、nt teams at each of the four distributors in our coverage universe to review CY2Q20 trends and expectations for the remainder of 2020.AmerisourceBergen: Exposure to Some Resilient Businesses Paying OffCardinal Health: Gradual Recovery Reflected in FY21 OutlookMcKesson: Encouraging Recent Trends, but

30、 a Gradual Pace of Recovery Reflected in the OutlookOwens & Minor: Strong PPE Demand Seen for the Foreseeable FutureDetailed Review of Trends by SegmentIn the text and figures that follow we discuss CY2Q20 performance and expected trends for the remainder of 2020 as well as 2021 for key segments. Fo

31、r reference, the fiscal year-ends for the distributors are as follows: ABC (9/30), CAH (6/30), MCK (3/31), and OMI (12/31).U.S. Pharma SegmentIn the commentary that follows, we provide our review of the large three drug distributors (ABC, CAH, and MCK) performance in CY1Q20 for the U.S. Pharmaceutic

32、al segments. Note, ABC & CAH have just two segments: Pharma & Medical. Conversely, MCK reports U.S. Pharma results in its U.S. Pharmaceutical and Specialty Solutions segment whereas European retail pharmacy and distribution operations are reported in the European Pharmaceutical Solutions segment and

33、 Canadian distribution and retail pharmacy operations are reported in MCKs Other segment. Another difference to highlight, ABC includes only the actual distribution of specialty pharmaceuticals and revenue from its GPO in its Pharma segment with any ancillary services (e.g. commercialization, logist

34、ics, and consulting services) being reported in the Other segment. This differs with MCK and CAH in that they report these types of businesses in their U.S. Pharma segment.The three major distributors reported an average top-line growth in CY2Q20 of up 0.7% Y/Y, an expected slowdown after the stockp

35、iling behavior experienced during CY1Q20, which was up 11.4% Y/Y on average. Recall that, MCK specifically called out a $2 billion incremental revenue pull forward into CY1Q20, which was expected to reverse in CY2Q20. Though ABC and CAH did not quantify the effect of the volumes pulled from CY2Q20 i

36、nto CY1Q20, we would anticipate the reversal of pharmaceutical volumes had a similar impact in CY2Q20.Figure 3: Pharma Segment Revenue Y/Y Growth (Calendar Year)2Q183Q184Q181Q192Q193Q194Q191Q202Q203Q20E4Q20EABC12.3%10.8%12.3%5.6%4.7%5.1%5.2%9.3%0.1%5.0%5.0%CAH6.4%8.6%8.3%5.5%6.2%6.4%5.9%12.0%-0.5%4.

37、0%4.4%MCK1.7%2.5%5.5%2.9%7.8%10.5%6.0%13.1%2.0%4.5%5.5%Avg6.7%7.1%8.7%4.6%6.2%7.4%5.7%11.4%0.7%4.5%5.0%Source: Company data, Credit Suisse estimatesPharma operating profits in CY2Q20 were down, on average, 5.8% Y/Y. ABC in particular, reported a 3.6% increase in pharma operating income in the quarte

38、r, which was driven by lower corporate administrative expenses, and higher gross profit, in addition to a $9 mln tailwind due to the exit of the PharMEDium business. By way of background, ABCs Pharma segment is expected to realize a $35 mln tailwind for all of FY20 due to the exit of the PharMEDium

39、business, with an $18 mln expected in CY3Q20 (ABCs FY4Q20). MCK reported a 1.8% decline in operating profit, which was primarily driven by lower Rx volumes in the quarter as a result of the COVID-19-induced reversal of volumes pulled forward to CY1Q20. Partially offsetting the impact of lower Rx vol

40、umes in MCKs US Pharma business, was continued growth in the specialty provider businesses.CAHs pharma business experienced the most adverse impact at the operating profit line, down 19.7% Y/Y. This was driven by lower Rx volumes caused by COVID-19, which had a particularly adverse impact on the Nuc

41、lear business and CAHs generics program. Pharma segment operating income was also adversely impacted due to large customer contract renewals (i.e. CVS and Kroger, which renewed July 1, 2019). Recall that CAHs Nuclear pharmacy business, although typically operating at a HSD profit margin in a normal

42、environment, has a higher fixed cost structure relative to the rest of the Pharma segment. As a result of lower elective surgeries and physician office visits experienced in the quarter, the pharmaceutical inventory used within the Nuclear business becomes less efficient (e.g. inventory is produced

43、using radioactive raw materials that deteriorate). In terms of the generic program contributing the operating profit pressure in the quarter, CAH attributed the decline more-so related to the COVID impact on overall pharmaceutical volumes.Figure 4: Pharma Segment Operating Profit Y/Y Growth (Calenda

44、r Year)2Q183Q184Q181Q192Q193Q194Q191Q202Q203Q20E4Q20EABC3.3%-10.7%-3.9%5.7%4.9%3.5%5.0%8.9%3.6%18.5%4.9%CAH-17.6%-12.4%-13.8%-10.1%7.5%-2.7%4.3%-0.4%-19.7%-2.2%-1.1%MCK2.1%-5.2%-2.0%-1.3%11.1%0.9%11.0%2.7%-1.8%-2.6%5.5%Avg-4.6%-8.8%-6.5%-2.3%8.2%0.5%7.3%3.5%-5.8%3.1%3.3%Source: Company data, Credit

45、Suisse estimatesIn terms of Pharma segment EBIT margin, the three drug distributors reported an EBIT margin of 1.13%, on average, in CY2Q20, a Y/Y decline of 7 bps. By way of background, margins for the distributors pharma businesses are seasonally the most strong in CY1Q20 as a result of brand-name

46、 drug prices being increased during the quarter, which drives the sequential decline from CY1Q20 to CY2Q20. ABCs pharma segment EBIT margin was up 3 bps Y/Y, while CAH and MCK reported a Y/Y deterioration of 26 bps and 5 bps, respectively.MCKs pharma segment EBIT margin was once again the highest (1

47、.31% in CY2Q20) among the three drug distributors, which we believe is attributable to MCK reporting some of its higher margin businesses (e.g. patient access, adherence programs, commercialization services, etc) within its US Pharma segment (CAH follows this same practice). ABCs pharma segment EBIT

48、 margin was the lowest (0.98%), which we believe is attributable to the fact the ABC includes revenue only from actual distribution of specialty products as well as from GPO activity, whereas any services (e.g. patient access, adherence programs, and commercialization services) are reported within A

49、BCs Other segment.Figure 5: Pharma EBIT Margins (Calendar Year)2Q183Q184Q181Q192Q193Q194Q191Q202Q203Q20E4Q20EABC0.94%0.86%0.85%1.24%0.95%0.84%0.85%1.24%0.98%0.95%0.85%CAH1.32%1.30%1.31%1.71%1.34%1.19%1.29%1.52%1.08%1.12%1.23%MCK1.32%1.53%1.34%1.84%1.36%1.39%1.40%1.67%1.31%1.30%1.40%Avg1.18%1.22%1.16

50、%1.58%1.20%1.14%1.17%1.47%1.13%1.13%1.16%Source: Company data, Credit Suisse estimatesMedical SegmentCAH and MCK operate medical distribution businesses where they distribute medical-surgical supplies and equipment to healthcare providers throughout the healthcare system. OMI, a non- pharmaceutical

51、distributor, but rather a pure-play medical distributor with a small services business, also distributes medical-surgical supplies across the U.S. These businesses have important variances between each other, which accounts for some of the difference in performance metrics. For example, CAH and OMI

52、both focus on the acute sites of care (e.g. hospitals), whereas MCK primarily focuses on the alternate site market, which is made up of physician offices, long-term care facilities, and surgery centers. Additionally, we note that CAH and OMI both manufacturer some of their own medical supplies, wher

53、eas MCK strictly operates as a distributor in the medical-surgical market. Between CAH and OMI, however, there is another notable difference in that CAH combines its manufacturing and distribution operations in its Medical segment, whereas OMI reports its traditional distribution business in its Glo

54、bal Solutions segment and manufacturing business in the Global Products segment.CAHs Medical business was most adversely impacted in the quarter, primarily on products and distribution. Given that CAHs Medical business is highly focused on products for the operating room and surgical procedures, the

55、 declines in elective surgery volumes across the U.S. put pressure on the business in CY2Q, with revenues down 12.7% Y/Y. Within CAHs Medical segment, the Medical Distribution and Products business saw a 15.7% Y/Y revenue decline while the Cardinal Health at-Home Solutions business witnessed an incr

56、ease of 10.2% Y/Y. Notably, after CAH ran out of PPE safety stock during CY1Q, PPE volumes were not enough to offset the volume declines in non-PPE products.MCKs Medical business experienced a 5.4% Y/Y decline in top-line driven by lower primary care patient visits. Recall that 60% of MCKs Medical-S

57、urgical segment supports primary care sites, physician offices, ambulatory surgery centers, and reference lab locations. According to IQVIA data, in-person primary care visits were down nearly 70% in April, but improved to down 10-15% in late June. In June, MCK experienced a sharp increase in demand

58、 across primary care sites, as physician offices reopened and elective procedures rebounded. Towards the end of CY2Q, primary care volumes stabilized.OMIs Global Solutions revenue declined 27.4% Y/Y as a result of the impact of COVID-19 on elective procedure volumes in addition to the impact of cust

59、omer non-renewals. Recall that heading into CY2Q, OMI was assuming elective procedure volumes would maintain at levels experienced in late March would continue throughout all of CY2Q. However, volumes inventible returned to some extent, which drove OMIs original assumption of a $480 mln relative to

60、previous expectations to a sequential revenue decline of $300 mln.OMIs Global Products business, which manufactures PPE as well as other medical-surgical products, experienced a 1.8% Y/Y increase in revenue. Lower elective procedure volumes had an adverse impact on non-PPE products, which was partia