Wholesale drug distributor AmerisourceBergen (NYSE:ABC) reported a 17% rise in its first-quarter profit, which boosted its stock at least for a little while Monday. Despite the upbeat earnings, there's still reason for investors to wonder what's waiting on the horizon, after veterans turned their backs on the company's longstanding contract and the company decided to fight back.
Earlier this month, Amerisource's loss of its $3 billion Veterans Administration deal to rival McKesson (NYSE:MCK) shook up the industry. Not only did it call into question Amerisource's fortunes, but it enflamed rumors of a price war that would impact all the players, which also include Cardinal Health (NYSE:CAH). At the time, Amerisource lowered its guidance related to the high-profile loss.
On that front, a Wall Street-style legal drama unfolded last week, when Amerisource said that it will fight the contract loss, seeking to overturn the decision, as well as get a restraining order on McKesson's contract until the complaint is decided. That makes for an interesting year ahead, considering the resolution was expected to take anywhere from three to 12 months.
That move followed comments by Amerisource's CEO, who called McKesson's bid a "mistake" that showed its rival was "pricing in no regard to particulars of the industry," according to a news story by Reuters.
Monday, Amerisource reported first-quarter net income of $108.5 million, or $0.94 per share, on revenues of $13.4 billion. In the same quarter last year, the numbers stacked up like this: net income of $92.7 million, earnings per share of $0.84, and revenue of $12.4 billion. Positive elements of the earnings report today included the planned purchase of MedSelect, for $13.4 million, although the company did not comment on when and by how much the acquisition will impact revenues.
In other news, the company's chairman, Robert Martini, will step down in March, to be followed by what will be an independent chairman.
The earnings gave the stock an early boost -- about 3% -- and it hit a high of $58 at one point before it fizzled, but that's still about 20% off its 52-week peak. Despite what many may see as a bargain stock price, the possible pricing situation and its potential impact on revenue growth in the industry should give investors something to be nervous about.
As for the legal squabble, some may cheer Amerisource's defense of its turf, as well as growth-inspiring pricing in the industry. However, a complaint like this against a former customer seems a risky way to keep the peace later.
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