Jul 26, 2012
Executives
Barbara A. Brungess - Vice President of Corporate & Investor Relations Steven H.
Collis - Chief Executive Officer, President, Director and Chairman of Executive Committee Tim G. Guttman - Chief Financial Officer and Senior Vice President
Analysts
Thomas Gallucci - Lazard Capital Markets LLC, Research Division Lawrence C. Marsh - Barclays Capital, Research Division Robert P.
Jones - Goldman Sachs Group Inc., Research Division Glen J. Santangelo - Crédit Suisse AG, Research Division Robert M.
Willoughby - BofA Merrill Lynch, Research Division Eric W. Coldwell - Robert W.
Baird & Co. Incorporated, Research Division Lisa C.
Gill - JP Morgan Chase & Co, Research Division John W. Ransom - Raymond James & Associates, Inc., Research Division Ricky Goldwasser - Morgan Stanley, Research Division
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the ABC Third Quarter Earnings Conference Call.
[Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to our host, Barbara Brungess.
Please go ahead.
Barbara A. Brungess
Thank you, Mary. Good morning, everyone, and welcome to AmerisourceBergen's Earnings Conference Call covering our fiscal 2002 -- 2012 third quarter results.
I am Barbara Brungess, Vice President of Corporate and Investor Relations, and joining me today are Steve Collis, AmerisourceBergen's President and CEO; and Tim Guttman, Senior Vice President and CFO. During the conference call today, we will make some forward-looking statements about our business prospects and financial expectations.
We remind you that there are many risk factors that could cause our actual results to differ materially from our current expectations. For a discussion of some key risk factors, we refer you to our SEC filings, including our 10-K report for fiscal 2011.
Also, AmerisourceBergen assumes no obligation to update the matters discussed in this conference call, and this call cannot be rebroadcast without the expressed permission of the company. As always, those connected by telephone will have an opportunity to ask questions after our opening remarks.
Now here is Steve Collis to begin our comments.
Steven H. Collis
Thank you, Barbara, and good morning, everyone. I am pleased to report that AmerisourceBergen once again overcame a challenging year-over-year comparison and delivered solid quarterly results.
In the June quarter, our revenues were down 2% to $19.8 billion, but our GAAP earnings per share were up 8% to $0.71. We made excellent progress integrating recent acquisitions including World Courier, which closed in early May.
Our strong cash generation and high-quality balance sheet continue to provide us with outstanding financial flexibility, and give us the ability to fund our strategic initiatives, grow our business and return funds to shareholders. Through 9 months, we are well positioned to meet objectives for the full year.
Our diverse revenue base continues to position us well to benefit from organic growth across the entire spectrum of pharmaceutical care, and our customer mix helps drive benefits from the historic influx of generics. Even as generics mitigate the top line dollar growth in our industry, IMS Health's compounded annual sales growth in the U.S.
in the range of 1% to 4%, and 4% to 6% worldwide through 2016. In addition, continued scrutiny of health care expenses and cost-containment efforts underway by the U.S.
Federal government and commercial payers demand continues improvement in efficiency, productivity and effectiveness across all aspects of health care. One of the hallmarks of the U.S.
market in particular is the quality of the relationship wholesalers have with pharmaceutical manufacturers. Over the last several years, AmerisourceBergen has significantly strengthened our relationship with pharmaceutical manufacturers, and we continue to put an emphasis on looking for meaningful ways to provide additional services across the supply channel in order to help manufacturers meet the challenges of today's changing health care landscape.
This is the strategic rationale for the material acquisitions we have made in the past 12 months. As we sit here today, we believe that both the TheraCom and World Courier acquisitions have significantly enhanced our spectrum of services at the supply channel.
Moreover, they have brought a cadre of valuable new customers, employees and capabilities, which have exceeded our pre-closing expectations. As our provider customers face similar challenges regarding cost containment and reimbursement for services provided to patients and new challenges such as accountable care organization, they also increasingly turn to AmerisourceBergen for help in making their health care practices run as efficiently and effectively as possible.
Our provider customers deliver world-class patient care on navigating a complex wave of reimbursement. And we believe they deserve fair compensation for the professional services they provide.
AmerisourceBergen continues to be an active participant in policy discussions in Washington with the objective of helping legislators understand our industry and our importance to the health care system. AmerisourceBergen associates remain focused on meeting objectives for the year both in terms of our financial performance and in delivering outstanding service to our customers.
I take great pride in the enthusiasm and dedication of our team, and I'm honored to work beside them everyday. They meet challenges with creativity and determination, and they tirelessly seek new ways to meet the needs of the diverse markets we serve through collaborative innovation and by maximizing efficiency.
As we noted in our press release, we believe it was prudent to separate our manufacture services business from pharmaceutical distribution for financial reporting purposes. We believe that disclosing this additional level of detail will increase investor understanding of our business and further improve the overall transparency of our financial reporting.
Tim will cover the financials for the 2 segments, and I will now cover some of the key trends in our business units during the quarter. AmerisourceBergen Drug Corporation revenue declined 5% due in large part to a decline in sales to our largest customer, as well as the previously reported loss of a large retail customer beginning last September.
In addition, we anniversaried last year's addition of a new alternate site customer in May, and top line growth continues to be mitigated by the impact of generic conversions. Year-to-date, the drug company revenues are only down slightly as anticipated.
Over the course of the year, the wave of generic launches has progressed as planned and the Drug Company saw significant gross margin expansion in the quarter even as the 2 largest generics of Zyprexa and Lipitor came off exclusivity. We look forward to a few more launches still to come in our fourth quarter.
Back in June, we held our annual trade show for our independent retail customers and we continued to be impressed with their resilience and their ingenuity in providing personalized patient care in the committee -- community they serve. Our Good Neighbor Pharmacy members participate actively in the largest independent network of community pharmacies in the U.S.
AmerisourceBergen and our independent customers strongly believe that they play a critical role in health care throughout the country by offering a compelling value proposition to patients and payers alike. ABDC is focused on ensuring that our network, Good Neighbor Pharmacy, remains dynamic by continuous investment in programs and services to meet the challenges of community pharmacy today and in the future.
The implementation of our SAP platform continues on schedule with 14 distribution center conversions complete, representing over half of our distribution centers and 2/3 of our revenues. We've made excellent progress and we expect additional conversions occurring in our fourth quarter and the remainder planned through the beginning of fiscal year 2013.
We also continue to strengthen our Canadian operations in support of previously reported new business wins in that market. We are confident that these and other investments will meaningfully increase the value we bring to all of our customers in the U.S.
and Canada. As we noted in the press release, we continue to participate in negotiations for the distribution contract to serve the newly combined business of Express Scripts and the former Medco.
We believe we are nearing the end of the process, and while we don't have a firm date for an announcement, we do hope that the decision will be made within the next few weeks. We continue to be optimistic about our chances to win the business.
However, it is a competitive process and we believe Express Scripts will ultimately choose a partner that they believe provides the best overall value. AmerisourceBergen's Specialty Group had another strong quarter with revenues up 8%, driven by another particularly strong performance in third-party logistics and in our vaccine and physician distribution business.
Our Oncology business performed well, while facing another very difficult comparison due to the strong performance of the 3 large Specialty generic products in the June quarter last year. The comparison will ease in the September quarter as Oxaliplatin returns to the market.
ABSG continues to benefit from the launch of a branded ophthalmology product earlier this year, continuing to help establish significant market share for the manufacturers. Our experience with their product demonstrates the potent value of our Specialty franchise.
While our undisputed strength in Specialty is Oncology business, we have expanded those capabilities to become an instrumental part of the commercialization strategy for any infusible product launched into the physician marketplace. As I previously discussed, we now have a keen interest going forward in further expanding those capabilities into select global markets.
The acquisition of World Courier has given us not only a premium quality clinical trial logistics services provider, but also an international framework upon which to further capitalize on our strengths by driving our specialty logistics, consulting, commercialization and reimbursement services into other geographic markets. The integration of World Courier is going very well and we are very excited about the new insights and opportunities that are being discovered as we bring these 2 great organizations together and gain operational exposure to international markets.
Our Consulting Services group continues to have a strong year as demand for commercialization, reimbursement and patient support services continues to be robust. We believe these combined service offerings distinguish AmerisourceBergen in the marketplace, provide unmatched value to manufacturers and will be an important driver of our growth going forward.
As manufacturers seek to bring new products to market or expand sales of existing products in a challenging health care environment, we believe that demand for these services will only increase. In terms of financial performance, the Consulting Services group delivered a solid quarter while making excellent progress in the further integration of TheraCom, which is performing well.
Even setting aside the contribution from TheraCom, the Lash Group alone had outstanding results. As Tim will detail, the solid performance across our business contributed to excellent cash flow in the quarter.
Given the strength of our balance sheet, we continue to explore opportunities to deploy our capital in order to increase shareholder value, including searching for acquisitions that meet the criteria we have in place for quite some time. They should increase our value offering to existing customers, both up and down the channel.
They should be within our established core competency and they should increase shareholder value. While we have not contemplated any further contribution from acquisitions in our guidance, we continue to be receptive to acquisitions and we continue to be interested in opportunities in pharmaceutical and specialty distribution and services, as well as consulting services.
We also remain committed to returning a minimum of 30% of our free cash flow to shareholders in the form of dividends and share repurchases, a hurdle that we have handily exceeded over the last several years. Looking ahead, the results we've had in the first 9 months of our fiscal year put us well on our way to meeting our objectives for the full fiscal year.
As we said in our press release, we have narrowed the range of our diluted EPS expectations for the full year to $2.80 to $2.84. Tim will provide the details on our assumptions for the remainder of the year, but I want to highlight that as a result of that tremendous financial flexibility, we have repurchased $540 million of our shares in the year when we spent over $800 million on acquisitions, and we'll pay down about $400 million in debt in September.
This speaks to the enormous strength and resilience of our business in a year of significant change for AmerisourceBergen, and indeed for the health care industry more broadly, as well as the quality of our financial planning and financial stewardship. As you know, we are deeply engaged in our business planning process for our fiscal 2013, and we do not yet know the future status of the business we do with our largest customer.
As we noted in our press release, however, we do expect that new generic launches in both ABDC and ABSG, as well as contributions from our recent acquisitions and other favorable items will help drive earnings growth next fiscal year. The impact of customer consolidation and competitive market dynamics on our margins is expected to offset some of that growth.
As our provider customers across the health landscape prepare for the full implementation of the federal government's health care reform initiatives, we are being challenged to help find new ways to reduce costs. Across the industry, big customers are getting bigger, whether they are mail order pharmacies, acute care networks or independents seeking greater strength in number through joining buying groups.
Over the long term, this should lead to an even more stable and resilient industry. Of course, we will continue to manage our own expenses and working capital.
In addition, the strength of our balance sheet affords us additional opportunities to drive shareholder value through acquisitions, share repurchases and dividends. With all that in mind, our preliminary expectation is for high single digits to low double-digit diluted EPS growth in fiscal 2013.
Over the last year, we made important investments in our business with an eye to the future while we continued to focus on helping our customers and ourselves take advantage of the unprecedented growth in generics and the many opportunities in Specialty. Demand is strong and growing for the core products we distribute, and we play an essential role in the pharmaceutical supply chain, ensuring the integrity and security of the distribution of life-improving and life-saving therapies.
Our manufacture services businesses help ensure products get to market as efficiently as possible and that patients have access to both traditional medications and the most innovative and complex products. As cost-containment efforts mount across the health care spectrum, our customers increasingly turn to us for help in meeting the challenges of the marketplace without sacrificing patient care.
I take great pride in the energy and creativity our associates bring to our business. Each day, I see the results of their innovative thinking and their dedication to exceeding customer expectations, and I'm proud to be their leader.
Here is Tim.
Tim G. Guttman
Thanks, Steve. And good morning, everyone.
As you just heard, ABC delivered a solid quarter and through 9 months, our performance is tracking well to our financial targets. The key highlight this quarter was our ability to overcome the oncology generic headwind we've mentioned in the past.
Going into this fiscal year, we knew that Q3 would be our toughest EPS comparison. We consistently called out a $0.33 headwind this year from Specialty generics.
Of this headwind, we anticipated about half of the $0.33 would negatively impact the third quarter. We're pleased that we are able to successfully overcome this Q3 headwind and show solid EPS growth.
Two other highlights for the quarter. We continued our discipline in terms of managing expenses across the organization and we integrated World Courier into ABC reporting.
Our results include 2 months of their operations. Before I start with the quarterly financial details, let me highlight that in our press release, we expanded our disclosures to include detail for 2 reporting segments in addition to our ABC consolidated results.
The Pharmaceutical Distribution segment includes our Drug and Specialty Group operating segments. The Other segment includes our manufacturer and services businesses, which consists of the Consulting and World Courier operating segments.
Upon review of the financial reporting requirements, we determined that there was a need to separate drug distribution and manufacturer services due to the nature of their business operations and different revenue growth rates and operating margins. The disclosure of our 2 reporting segments will improve investor transparency going forward.
Now back to the quarterly details. I'll cover ABC consolidated results first.
Starting with the top line, revenues were $19.8 billion, a 1 .9% decrease over last year's quarter. Drug Company revenues were down about 5%, offset by higher Specialty revenues of nearly 8%.
We also had the benefit in our June '12 revenues from 2 of our acquisitions, TheraCom and World Courier. They contributed a combined $300 million of new revenues in the current quarter.
Moving along, gross profit was $689 million in the quarter, up 5.4% from last June with a gross margin of 3.49%. Just to remind everyone, World Courier is included in our financial results and they have a fairly high gross profit margin due to their best-in-class service model.
World Courier and our other acquisitions contributed nearly $60 million to our gross profit in the current quarter. Our LIFO charge was $4.7 million in the quarter, down $6.7 million from last year.
We expect a LIFO charge of between $12 million and $15 million for the full year, down significantly from last year. Finally, the generic benefit we received in the current June quarter from new generic launches and price appreciation was in line with our expectations.
Let's move to operating expenses. This quarter, operating expenses were $375 million, up 11.6%.
But this amount includes approximately $50 million of operating expenses related to our recent acquisitions, as well as approximately $5 million of non-recurring charges related to the World Courier transaction. Excluding the impact of acquisitions, our operating expenses would have decreased about $10 million quarter-over-quarter.
Our businesses continue to do an excellent job at managing their expenses. Operating income of $314 million in the quarter decreased about 1%, while operating margin was up by 2 basis points compared to last June.
Our third quarter was slowed by the World Courier transaction cost, and more importantly, the difficult comparison versus the prior year. Moving below the operating income line and other income, we had income of $4.8 million primarily related to an increase in evaluation of a note that was due to ABC from the October 2008 sale of our prior PMSI business.
Interest expense of approximately $25 million in the June quarter increased 33% compared to last year as a result of our $500 million senior notes that we issued back in November. Our effective income tax rate of 38.3% was slightly higher than last year's 38.2% and is in line with our expected annualized rate of 38.4%.
Our GAAP diluted earnings per share in the quarter of $0.71 increased by $0.05 or just under 8% over the last quarter -- over the same quarter last year. Our EPS benefited from a reduction in our average diluted shares outstanding due to our ongoing share repurchase programs.
Average diluted shares for the quarter were approximately $256 million, down just over 8% from last June. At June 30, 2012, we had 251 million outstanding shares.
Let's spend a few minutes discussing our segment results for the June quarter. Starting with Pharmaceutical Distribution, total revenues were $19.4 billion, down about 3.3% over last year's quarter.
Drug Company revenues were down about 5% due primarily to lower sales with former Medco and the impact from the loss of a large chain customer last year , the former Longs Drugs. Slightly over half of the decline came from lower sales to former Medco, driven by generic conversions and changes in their book of business.
Without these 2 negative impacts, our Drug business would have had growth of 2%. Also during the quarter, the Drug Company anniversaried a large customer win from the prior June quarter.
Specialty Group's revenues increased nearly 8%, led by strong performance in 2 of its businesses with growth significantly above market rates, ICS, our third party logistics business, and Besse Medical, our vaccine and physician office distribution business. From a segment standpoint, gross profit decreased about $25 million and our gross profit margins slipped somewhat.
Most of the dollar decrease is due to the oncology generics headwind, a high-margin contributor last June quarter, offset by the contribution from generic Lipitor and Zyprexa, both of which had their exclusivity periods end during the June '12 quarter. We did have other generic launches during the quarter and also gross profit contributions from our specialty businesses.
These positives were offset by the decrease in our revenues and margin pressure. It should be noted that Drug Company as viewed on its own, had gross profit margin expansion of 20 basis points in the June 2012 quarter.
This segment managed operating expenses very effectively, especially payroll and benefit expenses, as well as external consulting expenses, which enabled us to offset some of the gross profit dollars we lost with the oncology generic headwind. Overall, we're very pleased with the operating results for this segment.
Moving to the Other reporting segment which again is Consulting, which includes our Packaging business and World Courier. As mentioned previously, our 2 large acquisitions accounted for nearly $300 million of new revenues in the third quarter.
World Courier revenues are tracking well against our expectations, which we provided back in our press release that announced the acquisition. Operating income from the Other segment increased $11 million from last year's quarter.
Of this increase, about $8 million is related to our fiscal '12 acquisitions. The remaining increase is related to our legacy businesses.
I'd like to highlight that our non-recurring charge of about $5 million is not included in our segment level reporting. For the June quarter, the impact of our World Courier acquisition was essentially breakeven due to the transaction costs.
Now let's turn to our consolidated balance sheet and cash flows where trends continue to be favorable. We generated $92 million of cash from operations in the quarter, bringing our 9 month's total to $760 million.
Our businesses continue to focus on working capital. In fact, our cash conversion cycle, based on a rolling 4-quarter average, improved by 1 day to 1.7 days based in the current June quarter, from 2.7 days in the June 2011 quarter.
Capital expenditures were $39 million in the quarter and $128 million for the 9 months. For the full year, we are still tracking to our guidance for CapEx of $200 million.
During the quarter, we bought back $186 million of our shares. For the 9 months, we purchased $514 million of shares and this slightly exceeds our March quarter guidance of $500 million.
At June 30, we have $744 million left on our May 2012 share repurchase authorization. Our cash balance at June 30 was $1.7 billion.
As we've discussed in the past, we need approximately $500 million in available cash to account for swings in working capital and to run the business. As a reminder, in mid-September, we will be using cash to retire our $400 million 5 5/8% senior notes.
Now let's turn to updated fiscal 2012 guidance. We now expect our GAAP diluted EPS to be in the range of $2.80 to $2.84.
This includes an estimated $20 million of non-recurring costs related primarily to transaction and severance expenses. With narrowing our EPS range, this means that we will have EPS growth of 10% to 12% this year after absorbing the $0.05 negative impact from non-recurring charges.
Revenue. We continue to expect revenue growth to be flat or up modestly for the full year.
We expect our operating margin expansion to be in the high single digits. As previously communicated, Q4 is our easiest operating income comparable for the year.
Because of this, we expect most of our operating margin expansion to be achieved in the fourth quarter. Free cash flow is still tracking to finish in the $800 million to $900 million range.
Looking ahead. We are deeply engaged in our business planning process for fiscal 2013, and there are still many moving parts including, of course, the Express Scripts RFP.
As Steve outlined, as large customers consolidate, they are seeking better pricing which includes generic pricing. And as recent contract discussions have demonstrated, our customers want us to be part of the solution in helping them meet the economic demands of the new health care landscape.
Our high single digit to low double-digit EPS growth range is based on assumptions on several moving parts, and includes possible outcomes on the Express Scripts contract. Our EPS range is preliminary and we still have quite a bit of work to complete in our planning process, but it does incorporate the best information we have right now.
So before I turn it back to Barbara, let me reiterate that 9 months into our fiscal year, we are well positioned to meet our financial targets for fiscal '12 and we are hard at work on our fiscal '13 plan. Here is Barbara to start our Q&A.
Barbara A. Brungess
Thank you, Tim. We will now open the call to questions.
[Operator Instructions] Please go ahead, Mary.
Operator
[Operator Instructions] And our first question comes from the line of Tom Gallucci with Lazard Capital Markets.
Thomas Gallucci - Lazard Capital Markets LLC, Research Division
I guess my first question was, on some of the commentary that you had in the press release, and I think you echoed it a bit on your prepared remarks where you sort of talked about competitive pricing pressures and sort of the competitive landscape, can you expand a little bit on what you mean there? Is it sort of something that we always see as a persistent part in the business or are there really new dynamics that you're referring to?
Steven H. Collis
No. I think -- thanks for the question, Tom.
What we're seeing is that the larger customers are getting larger, and we've always said that the larger customers get the biggest -- the best deal and we're seeing some of that. I think in addition, we've got much more generics as a percentage of sales.
Don't forget, we have a very diverse customer base, almost all of them buy generics from us. So generics as a percentage of overall portfolio have increased.
So I think we just -- people are looking at their businesses and their potential financial impacts from health care reform and reimbursement pressure, and we -- they're expecting us to participate with them in a much tougher future. So a tougher future where we all have to be more efficient, and I think we're just not immune from some of that.
So those are the trends that I'd point out.
Thomas Gallucci - Lazard Capital Markets LLC, Research Division
Okay. And then just to clarify your comments on guidance, I guess just to ask specifically, it sounds like it's early, maybe there;s some conservatism because there are so many moving parts.
On Express specifically, we all know that's a pretty big moving parts. Would you be able to meet this guidance range if tomorrow you found out you didn't retain the Medco, the legacy Medco business?
Tim G. Guttman
Hey, Tom, this is Tim, and I'll answer your question this way. I mean our guidance includes, like you said, different assumptions on moving parts, one of which is Express Scripts, and it contemplates both scenarios, winning it and losing it.
Again, it's Express Scripts and other factors looking out over the next years.
Operator
And our next question comes from the line of Larry Marsh with Barclays.
Lawrence C. Marsh - Barclays Capital, Research Division
Just my question is elaboration on comps around next year. So -- and I appreciate providing some clarity here with, perhaps, a tone of trying to be prudent here.
But I guess, Steve, if we think about a scenario where your largest customer, Express, chooses not to continue to do business with you or splits the business, can you remind us of some of the factors that you would, could, go through to help mitigate some of those lost revenues from the cost side that would keep you still in the range of guidance? And along with that, is there -- could there be a situation where they might be a quarter or 2 of timing mismatch between revenues and costs that could cause you to vary around your guidance ranges?
Steven H. Collis
Thanks for the question. We really are deep in this.
In fact, we're going -- the team's going out to visit all our drug regions next weak, which really is the start for us in detail, in the detailed planning process. But we had information that -- we have information that we think is material that want -- that we felt was incumbent on us to share with all of you, and that's the way AmerisourceBergen is run.
And we're proud of that. We're not backing off that.
So absolutely, if we lose Express Scripts, don't forget our current business is -- really a lot of the greenfield that we set up during the merge is really set up to handle big mail order business that we've done with Medco traditionally for as long as I can remember. I've been with the company 8.5 years.
We've always had the count. But it's very little expense.
In fact, many of the characteristics of this business are what we used to call dock to dock business and of course, you remember that very well. So there's not too much expense there.
And coincidently, a lot of the facilities that we service in Medco are our most highly efficient modern facilities, but we would -- we absolutely have opportunities to cut down our cost. And like Tim said, this current thinking, while it's early, really contemplates all the way from us entirely losing this business to winning it, including winning the part that we currently do not service, based on our basic understanding what the economics can be.
But it honestly is early.
Lawrence C. Marsh - Barclays Capital, Research Division
Okay. I appreciate the reflection there.
And I guess my follow-up is around your LIFO charge. So, Tim, you're communicating a reduction in your range of LIFO expectations versus what you had suggested back in April by, say, a couple of million dollars.
I know at the time you had said you anticipated big impact relative last year with the generic introductions and some moderation in brand price inflation. What's causing you to further moderate your views on that inflation-based cost?
And as you think about your guidance for next year, can you give us any sense of general ranges of LIFO charges you're anticipating for fiscal '13?
Tim G. Guttman
Yes, Larry, it's probably a little bit early to talk about LIFO for '13. I mean, we're still looking through that.
In terms of LIFO for the June quarter, at the end of the June quarter, we saw a pretty good brand pricing, increased percentages for our top 75 brand drugs, a little bit off from last year. So I mean there is some moderation there in terms of brand pricing.
And we're seeing a little bit steeper generic deflation especially with generic Lipitor and Zyprexa. So that's driving the change, the slight change in our full year LIFO forecast.
But again, for next year, we're probably -- it just depends on where brand price inflation is. It's a little bit early.
Operator
And our next question comes from the line of Robert Jones with Goldman Sachs.
Robert P. Jones - Goldman Sachs Group Inc., Research Division
Steve, I just wanted to go back, I know you touched on some of the changing market industry dynamics and specifically, Tim mentioned the generic pricing. I was just wondering maybe for perspective, if you could share your thoughts or recent trends on both the buy side margin that you've seen recently and then maybe separate out the sell side margin just to give us some perspective on your dealings on both with the manufacturer and the customer.
Steven H. Collis
Many times -- I'll just talk about the buy side first. Many times on the fee-for-service agreements, we're really in our third generation and we've dealt with a lot of pharma consolidation, and we feel that we've -- the industry on the manufacturer side really understands the value we represent and there's no significant erosion there or anything at all.
Obviously, the generic mix at AmerisourceBergen has opportunities to sell generics to almost all of our customers. As you know, we believe we have the most diverse customer base.
It has really been driven by this generic wave, and we have set out our whole portfolio in both Drug and Specialty to really recognize the strength in generics. I hope you would have buy [indiscernible] someday and really capitalize on the opportunity that we have for generics and specialty.
The sell side, I think, the biggest things we can point to is somewhat of an anxiety of compressed reimbursement and just a lot of consolidation. I mean, just read the headlines.
It's not just that particular one that's on everyone's mind. It's -- there's just a lot of consolidation.
We have community oncologists, for example, that are constantly getting a lot bigger, and our bigger customers get a better deal. We have independent customers joining buying groups.
So these are the biggest trends that I can point to. And we -- I think also there's a lot of marquee customers up for bid.
It's been pretty well-publicized. VA process, definitely the SR process has really kicked up some dust, I could say, from other customers.
So those -- without being too specific, and we don't like to comment on individual contracts, we have been in this business a long time. We understand how to contract with customers, and we believe that our best bet is to maintain our key customers and customers that we believe are going to represent us growth in the years ahead.
Robert P. Jones - Goldman Sachs Group Inc., Research Division
I appreciate that. And just maybe around the preliminary guidance, I was hoping maybe you could talk a little bit more about the major swing factors.
Obviously, I think, we all are well aware of the Express contract, but maybe just how you're thinking about other important contracts. I know you don't want to name names, but I think PharMerica is one that's out there.
And then just some of the other major contributing factors, what's the assumption around buyback. It looks like there's obviously some nice contribution from lower interest expense and clearly, World Courier next year.
Maybe just some of the pushes and pulls around the guidance range would be helpful.
Tim G. Guttman
Yes, this is Tim. In terms of the guidance, I mean, we're not going to talk specifically about other contracts.
Certainly, we made an assumption about Express in there. And as we start the plan process, we always look out over the 12-month horizon of what other contracts we may renew and renegotiate.
So there's an assumption in there about other contracts. And some of the other things, too, would be Oxaliplatin and an assumption about how that's going to perform next year.
I mean that's a big unknown. We don't know how the pricing will stick in the market, how many suppliers, and so that's a factor.
Certainly, we make an assumption about expenses. And finally, in terms of share repurchases, the assumption is, I think if you look back to what we've done historically, the last 2 or 3 years, we've been around about the $500 million range, so that's probably a pretty safe number to be in at for the -- that's our thinking.
Operator
Our next question comes from the line of Glen Santangelo with Credit Suisse.
Glen J. Santangelo - Crédit Suisse AG, Research Division
I just want to follow up on generics. And I'm not sure exactly how you're thinking about this with respect to your guidance, but, Tim, you mentioned in your prepared remarks, right?
You went into fiscal '12 with a $0.33 hole. Obviously, everyone's focused on this generic calendar.
And so as you think about your guidance for fiscal '13, could give us a sense for maybe what the contribution you're expecting in '13 versus '12, what that looks like?
Tim G. Guttman
Glen, I mean, we're just, again, we're early in the plan process. We don't want to get into specifics.
I mean we do have generics, a couple of good ones that launched at the end of our Q4 that carry over into fiscal '13 that will definitely help us. We're encouraged, I mentioned before, Oxaliplatin will be back.
We only have it for 6 weeks, we get it next year. There are some unknowns about that.
But overall, it's -- you're not going to have a generic Lipitor and Zyprexa, but there are some good generics that helped us early in the year. But again, we're not ready to kind of dial in any specific EPS impact numbers.
Glen J. Santangelo - Crédit Suisse AG, Research Division
Okay, that's fair. Maybe I could just ask Steve one follow-up question.
Steve, I just want to talk about a comment you made with respect to acquisitions. You said, I think, the company is still receptive to the idea of acquisitions.
And it sounds like you're pretty pleased with the progress at both TheraCom and World Courier Group. And as you think about where you are with respect to those integrations, I mean, you feel like the company could handle additional acquisitions in fiscal '13 or you kind of going to just see how it goes?
Steven H. Collis
Well, Glen, that's a great question. I do think that we are operationally well-situated.
And I think actually, TheraCom is a very good example. I mean, we've had some work to do at the corporate office, yes, but obviously, we bought this from a well-run company and it was in good shape.
And really, most of the integration work is carrying on in our Consulting Services business. So I think they're very well equipped to run that.
And World Courier was definitely a different expansion for us. We've had a lot of work to do.
I think Tim pointed out one of the highlights for this year was really getting World Courier into the financial reporting criteria for a public company and that's gone well, but we do think that one of the reasons we're investing in this company was the platform opportunity and now, when we go consider anything internationally, we have local intelligence, which is huge. Local understanding of tax laws, of who the good players are, who the bad players are.
So we do think that this opens up some attractive markets to us, which we started out our release by talking about, obviously, the obvious fact that pharmaceutical growth in the rest of the world will be higher than the U.S. So we're not rushing in here.
We don't think that there's any nirvana market or anything. But it is important to us to drive our Specialty and Consulting practices throughout the world, and we think we have leading practices in those areas and a lot of good intelligence and methodologies to share with the rest of the world.
Tim G. Guttman
Glen, this is Tim. I'll just say, after 100 days, we're really pleased with what we have so far, and they're performing right on our expectations.
So, like I said, neutral in Q3, and we expect them to contribute $0.01 or $0.02 in 4. So again, very encouraged this year and looking forward to what they're going to do in '13.
Operator
Our next question goes to the line of Robert Willoughby with Bank of America Merrill Lynch.
Robert M. Willoughby - BofA Merrill Lynch, Research Division
Tim, what's left on deal expenses? Will we see much going forward in the numbers?
And I think you hinted at it, but what was the actual dilution from new generics year-over-year to revenues?
Tim G. Guttman
The actual dilution -- in terms of revenues?
Robert M. Willoughby - BofA Merrill Lynch, Research Division
Yes, in terms of revenue growth rate.
Tim G. Guttman
Yes, we -- what we said in terms of the Medco, I mean Medco was down probably about half. I mean, it's probably in the $500 million or $600 million range, that's from our largest customer, Medco by itself.
And again, not all that is -- some of that is book of business, right, and some of it is the generic conversions. In terms of your other question, I would say, Robert, that we don't have much left in terms of World Courier.
I mean I think we're at $17 million in terms of non-recurring costs through Q3. In my comments I said I thought we'd end up about $20 million.
We probably still have some other non-recurring charges that will come through, about $3 million, not related to World Courier in Q4.
Operator
And our next question comes from the line of Eric Coldwell with Robert W. Baird.
Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division
Okay, I'm going to ask 2 if it's all right. Regardless of correlation or causation in the past, we have seen some rather funky behavior from the manufacturers around major U.S.
elections. I'm specifically thinking about the September quarter of 2004, where price inflation contracted fairly dramatically.
Have you considered the possibility of that hitting into this election or do you think it's really not in the limelight here? I guess any signal on pharma behavior on pricing here in the near term.
And then I have a follow-up.
Steven H. Collis
The pharma pricing has been a little bit less than last year, the price increases, but still very robust. And as I said, we're spending more time internationally and everyone's very envious of an environment where we can have price increases.
So it's an excellent thought, Eric. I credit to you for thinking of that.
We'll pay it more attention, but we haven't really seen anything concerning. I think more of the price increases have to do with patent expirations, is what we're seeing a trend there, some price increases and pricing strategies ahead of large patent expirations.
But as you know, we've got some significant launches in this quarter and less exciting year in brand to generic conversion next year, but still very robust. And we will see some impact on brand prices from those.
Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division
That's great. And my follow-up is related to business transformation, the ASP program.
You seem to continue to be ahead of schedule and doing great there. Just curious if you could give us an update on the incremental benefits to OpEx compared to your original thoughts for the implementation, and then whether you might be looking to fiscal '13 and '14 and thinking that there could be some additional juice on that $10 million and $40 million of OpEx savings that you had previously talked about.
Steven H. Collis
Yes, I'll let Tim mainly handle this, but I'll just say that generally, we spend -- we've done most of our capital spend, then now, it's really operational spend. So the depreciation is starting to hit us financially.
The consulting expenses, the external consulting is definitely an opportunity we've had to reduce cost. And we've actually done well against our plan for our BT budget for this year, but I'll let Tim give you some color on this.
Tim G. Guttman
Yes, thanks, Steve. Yes, Eric, actually, to Steve's point, I mean I just want to make sure I stress this.
I mean, we're starting to see a little bit of expense savings now. Again, when I mention external consulting, a chunk of that is from our IT department and the fact that we're moving along and deploying SAP really efficiently and effectively.
So we're seeing a little bit now, but we're still -- we're not -- we're still believing that the $10 million's appropriate. That's one of those when we talked about moving parts in our range, that's one of the assumptions kind of factored in to our range for '13, and we're still on the $40 million for '14.
So at this point, we're just not ready to commit any upside or juice as you called out there.
Operator
Our next question comes from the line of Lisa Gill with JPMorgan.
Lisa C. Gill - JP Morgan Chase & Co, Research Division
Steve, I just wanted to follow up on a comment that you made around the Express Scripts new contract. You said it would be the best overall value.
I'm just wondering if there's any changes to the types of services that they're looking for versus what you previously provided for Medco? And then just on the follow-up side for that, I think I read in a Philadelphia paper some comments around specialty and your growth in specialty and perhaps, moving more towards the patient.
I was wondering if maybe you could just also comment on that, as well as potentially competing with a customer like the PBM.
Steven H. Collis
Let me just talk about that. I think our business in specialty is -- and we're talking about this with a customer the other day that everyone has a different definition of specialty.
When AmerisourceBergen says specialty, we're really talking about physician administrative products and related services to manufacturers. I think when a PBM says specialty, it usually means patient self-administrative products.
And so I think that, that's pretty well defined. And we actually think that there's a lot of opportunities to collaborate in those areas including with our Good Neighbor Pharmacy network and there's an opportunity to do potentially more specialty in the community.
And we do take our specialty franchise and expertise very seriously there, and think that we afford a lot of AmerisourceBergen customers that are interested in this area, an opportunity to gain from our expertise, including in the policy area and the manufacturer relations area. The first part of your question had to do with Express Scripts and the overall value we provide.
I think that was more of a comment that the economic deals. I mean, there's a very few companies that are qualified to be the provider to Express Scripts so it's a small universe.
And I think economics is part of it, experience is part of it. And I don't think, honestly, that any of the qualifications have really materially changed since the start of this process, which has been pretty quick if you think about it compared to some of the other ones that we've seen in the recent past.
Lisa C. Gill - JP Morgan Chase & Co, Research Division
Just so I understand that, Steve, though, so your comments around commercialization of a product and perhaps, working in partnership with a PBM, you don't view that as an opportunity with a new potential contract with the new Express Scripts or is that a future opportunity, but not part of this RFP process?
Steven H. Collis
No, we see -- I think quite the opposite. I said I think that our market presences and our market expertises are very complimentary.
But the focus on this has really been on the core economics, and I think our idea is obviously to win an account and then we can work on an alignment and future opportunities together. So that's really what our strategy is there.
Operator
The next question comes from John Ransom with Raymond James.
John W. Ransom - Raymond James & Associates, Inc., Research Division
Just a couple of things, just drilling down to your assumption for next year. Oxaliplatin comes back, Express, is that -- could be a mover for you?
Steven H. Collis
We are obviously excited to have Oxaliplatin back and at the end of May, we were thrilled that the comp is out now. We enjoyed the ride, but it was good timing to have the comp out.
And August, we're going to have the product back, but it's going to be very different. The ASP's pretty high so that's a positive, but there's no at risk, there's no exclusivity period, so we're going to have several manufacturers and we think that the pricing will be very dynamic.
It's probably going to be more akin to, again, the specialty drugs and they're different than all the solids. The prices never get quite as low, but it's going to be more akin to the expiry of 180-day exclusivity period than it is to a new generic injectable launch is what I'd say.
So while we're expecting with our market share that we have and the expertise we have in oncology, we expect them to do very well here as we did with docetaxel and gemcitabine. We don't expect that you're going to be hearing half of our earnings call be devoted to Oxaliplatin in the future.
John W. Ransom - Raymond James & Associates, Inc., Research Division
The said question, if you just look at the totality of your -- for all generics, the contribution that you think you'll get next year compared to the contribution [indiscernible], and my specific view is, I think, from all accounts, Lipitor was just off the charts [indiscernible] during the exclusivity period. Obviously, you're losing that.
And we were just having more troubles still at the calendar and thinking is it going to better, worse, the same next [indiscernible]?
Steven H. Collis
Yes, I don't think it's going to be quite as robust, but, Tim, you...
Tim G. Guttman
Yes, John, you were breaking up a little bit, but I think what you're asking is what next year looks like. And again, we have a little bit of a benefit from our fiscal year with a couple of large generics launching at the end of our Q4.
But overall, talking to our generics guys, I mean, we think it will be a good year. It's going to probably be a little down compared to this year.
It's tough to replace generic Lipitor and Zyprexa. But again, there are a couple of other ones out there that we're encouraged about.
So down a little bit, but not bad.
Steven H. Collis
And again, Lipitor, because of the class of customers we service here, who buys generics from us, might not have been as big for us as it was for the other players in the industry. Just keep that in mind.
Tim G. Guttman
And I guess I would like, again, going back to that, I mean let's go back and highlight Steve's comment earlier, is a lot of our volume is coming through larger customers on generics. So again, they get their pricing -- they bring us more volumes but they're pricing is a little bit more favorable.
Operator
Our last question comes from the line of Ricky Goldwasser with Morgan Stanley.
Ricky Goldwasser - Morgan Stanley, Research Division
So just some quick follow-up questions here. So first of all, Steve, I think on your last comment around the volume, a lot of your generic volume coming from larger customers, so can you clarify that a little bit for us?
Because when I think about AmerisourceBergen, I think, really, it's going to affect a big portion of your customer base being kind of like the smaller independents. So when you comment about the generic volumes, are you referring to kind of the PBM and the Omnicare of the word?
Or is that -- or are you talking about comp like your Specialty segment? So if you can just clarify as to who those large customers are.
And then secondly, from data that we've seen recently, it seems like that there have been some good generic price increases taking place. So how are you thinking of generic inflation in the context of your forward outlook?
Steven H. Collis
Well, 2011, we did very well on generic price inflation. It's been much more moderate this year.
And I think we even pointed out the numbers because it was significant to the interpretation. We haven't seen anything as robust this year.
Ricky, apologies for your last name, [indiscernible] but we do have, we believe, the most diverse customer base within our industry. And we are very proud of the strong independent business that we have.
We're also doing more business within the health systems on generics, which is a great trend for us given our health systems presence. We also, as you know, we never used to talk about generics and specialty, we talk about a lot.
So there are a lot of really good trends for us in generics. But another trend is obviously, our large PBM customer doesn't really buy any significant generics from us, which we've talked about a lot.
And the larger customers, a lot of them say -- when we do -- during our last round of contract negotiations, they may have been buying 4% to 7% of their purchases were generics and now, it's a lot higher. And those customers are getting bigger.
And we have to share more of the economics on generics with them because it's a much bigger part, they're much higher profile product category to them. So those are some of the trends that we've been pointing out.
And you're absolutely correct to think of AmerisourceBergen as specialty customers and independent pharmacies and large health system presence and big ultimate start or closed-door pharmacy businesses, and that's definitely one of the strengths of us, is our diversity in our business that we serve.
Ricky Goldwasser - Morgan Stanley, Research Division
So in that line, just another clarification, when you think about CapEx fiscal year '13 and when you say that it might be done a little in terms of generic contribution, you're really looking at a basket which includes a specialty generic and Oxaliplatin, as well as solid orals rather than separating the 2. Is that fair?
Steven H. Collis
The top line brand to generic conversions, and some of this fall -- it's complicated because some of it will have fourth quarter launches that would impact our fiscal year '13, but you know it was $13 billion in fiscal year '12, and it's about $11 billion to $12 billion in fiscal year '13. And again, the quarters move and we're early in our guidance and we're busy looking at it.
But again, $11 billion is a very -- is a good year for us. It's -- if you look at our performance over the last 10 years, it's not -- it's a good year.
So yes, we look forward to providing more guidance. We just wanted to give you a benefit of our early look at 2013 and what we know about some large contract negotiations that are going on.
And I hope you appreciate the foresight that we've given you and the approach that we've taken, which is always being as transparent and as communicative with our investors as we can. So I think with that, we'll wrap up.
Ricky, thanks for your questions. And, Barb, you want to make some comments?
Barbara A. Brungess
Do you have a...
Steven H. Collis
Okay, I have -- all right [indiscernible] Okay. I'm up for the strong close.
All right. So my strong close is that I recently completed my first full year as CEO of AmerisourceBergen, which I'm very proud to serve in this position.
And I unequivocably and very confidently state that ABC's franchise and our place in the industry and our long-term prospects are really outstanding. We have just repeated -- we have just reported an excellent quarter and we are well on our way to completing a successful 2012.
And I thank you for your attention today. I believe that ABC's making the right investments to secure our future and we look forward to seeing some of you in September at various conferences.
And, of course, we'll have our full fiscal year '13 earnings in November. Thank you.
Barbara A. Brungess
Thanks, Steve. And just a couple of calendar items.
We'll be at the Robert W. Baird Health Care Conference in New York on September 5 and at the Morgan Stanley Conferences also in New York on September 11.
So that concludes our call for today. I'll now turn it back to the operator.
Thank you.
Operator
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