Jul 23, 2015
Executives
Barbara Brungess - Vice President of Corporate & Investor Relations Steve Collis - CEO, President, Director and Member of Executive Committee Tim Guttman - CFO and Executive Vice President
Analysts
Glen Santangelo - Crédit Suisse Robert Willoughby - Bank of America Merrill Lynch Ricky Goldwasser - Morgan Stanley Robert Jones - Goldman Sachs Garen Sarafian - Citigroup Lisa Gill - JP Morgan Eric Percher - Barclays
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the AmerisourceBergen Earnings Call. [Operator Instructions] And as a reminder, today's conference is being recorded.
Now I'll turn the conference call over to Ms. Barbara Brungess.
Barbara Brungess
Good morning, everyone, and welcome to AmerisourceBergen's earnings conference call covering our third quarter of fiscal 2015. 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, Executive 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 2014 and other filings. Also, AmerisourceBergen assumes no obligation to update the matters discussed in this conference call, and this call cannot be rebroadcast without the express permission of the company.
As always, those connected by phone will have an opportunity to ask questions after our opening remarks. Now here is Steve Collis to begin our comments.
Steve Collis
Thanks, Barbara, and good morning, everyone. I'm pleased to report that AmerisourceBergen associates once again delivered strong performance in our third fiscal quarter of 2015.
As we reported this morning in our press release our revenues increased 13% to $34.2 billion. And our adjusted earnings per share were up over 19% to $1.2 billion -- a $1.26 and we generated an exceptional $1.1 billion in free cash flow.
Our results were driven by solid performance across all of our core businesses and include a full quarter impact of MWI Veterinary Supply which is performing better than expected. The progress we've made in strengthening our existing platforms and investing in new ones demonstrate our commitments to provide our customers and suppliers with market dealing solutions that enable to collaboratively address the challenges of the fast changing landscape.
We constantly seek to expand our knowledge, reach and partnerships in an effort to drive innovation in both human and animal healthcare services. The quality of our offerings our seamless execution and our disciplined capital management gives us a flexibility to grow our business in ways that help ensure we will generate long-term value from manufacturers at healthcare provider customers, our stakeholders and our other stakeholders for many years to come.
Our excellent performance through the first nine months of this fiscal 2015 pace us up very well to meet our objectives for the four year. As expected we have began to take some headwinds in the second half of fiscal 2015 and we are beginning to anniversary many of the significant benefit of our long-term strategic relationship with Walgreen Boots Alliance.
However organic growth rate remains strong. Literally is growing fast in our overall markets and I feel our excellent portfolio of leading pharmaceutical services companies positions us extremely well to continue to take advantage of opportunities across the entire pharmaceutical supply channel.
Let's turn now to the performance of AmerisourceBergen in the June quarter. Holding on the exceptional momentum we had in the first half of the year our performance in the third quarter was very solid.
Strong revenue and gross profit growth drove excellent adjusted earnings per share growth and continuing improvement in working capital terms lead to very strong cash flow. Tim will provide further details but I want to call out some highlights from our business units.
AmerisourceBergen Drug Corporation had a good quarter with revenues up [indiscernible] even as we continue to anniversary the on boarding of the Walgreens business. Solid organic growth and strong brand drug pricing contributed to ABDC's revenue growth; while generic drug inflation is slightly increased.
Generic sales are strong across all of ABDC's customer segments. We are very pleased that our good neighbor pharmacies chain, health systems and alternate site customers all performed well in the quarter.
Next week we'll be hosting our annual trade show for our independent pharmacy customers in Las Vegas and we're looking forward to presenting our health offerings and new programs to this important customer segment. I have never been more excited about the opportunities that exist for ABC's partner with pharmacies to impact the delivery of healthcare in the U.S.
We have invested in several new initiatives that will enable us to offer independent pharmacies a set of enhanced capabilities that will support their efforts to improve patient care and to receive fair and accurate payments from payers with a new level of transparency. We're proud to be the advocate for community pharmacies that increasingly provide some of the most important cache points to ensure patients have access to medications and to other aspects of care.
And you'll be hearing more about how we'll further empower the efforts and evolve our GNP network over the next few weeks. We're also very active with regulators and legislators both independently and through our trade associations to expertly advise and inform those important constituents on pertinent issues for our industry and our customers.
We continue to be very pleased with the progress we've made in our long-term strategic relationship with Walgreens Boots Alliance. This unique industry tracking relationship has been both strategically and operationally important to ABC.
Significantly as a customer, we continue to enjoy a wide market growth on WBA this quarter. While we've almost for the anniversary the onboarding of the distribution business we are not finished growing the relationship and we are both focused on exploring additional way to create new value points through WBAD and other share opportunities.
As our retail business is growing substantially over the last two years we both had strong performance in our health systems and all [indiscernible] segments. During the quarter we were very pleased to receive acute distributor of the year in the Mark McKenna Supplier of the Year Award from Novation which is been a valued partner for many years.
I believe this recognition from Novation in a year of tremendous change for AmerisourceBergen highlights the tireless efforts our associates make every day to ensure that all of our customers are well served. AmerisourceBergen specialty group had impressive results in the quarter with a number of different factors driving strong sales.
Setting aside the impact of some previously reported manufacturing post changes on certain oncology products which moved some revenues from Drug Company into specialty. ABSG revenues were up 13%.
Apposition distribution business ASD and our community oncology businesses all performed very well in the quarter. While reimbursement issues with ASP drugs persist the market leadership and credibility the specialty company and their leaders enjoy is a continual source of pride and differentiation from AmerisourceBergen.
I worked with many of these leaders and associates. Where in some cases [indiscernible] decades and they are always passionate, constantly innovative and importantly remain very customer centered.
Their performance this year has been especially strong and positions us well to continue to drive and be the leader in the specialty arena. The decades we have spent broadly developing our portfolio of specialty offerings and bolting up the capabilities and expertise in the industry to handle complex product and services have enabled us to play a leading role in dealing with products for special needs.
Our capabilities excel, extend well beyond sophisticated logistics and into the distinct requirements for the specific disease states and unique classes of products. The combination of services and expertise we offer helps those manufacturers and healthcare providers manage the opportunities and challenges of this most dynamic segment of the market.
Whether we are dealing with a new branded chemical or biologic product, a generic version or a mature therapy or a product in growth areas such as biosimilars, AmerisourceBergen has the expertise required to help ensure product success across the entire lifecycle of the drug. As health reform and other economic realities bring even more focus on the specialty products segments.
AmerisourceBergen is best positioned to help our partners maximize the benefits of advanced specialty products. Regarding biosimilars specifically, we continue to believe that their introduction to US market will give us a tremendous opportunity to further develop us demonstrate our strength in these areas.
But we are not certain on the timing of specific product launches. While we remain excited about the opportunity to demonstrate the value we can bring to this new type of products majority of the benefits from biosimilars are so likely a way forward.
Of course our collaborative efforts are no longer confined to the US. We are very pleased with the progress we’ve made as we have expanded our international presence while improving the services we offer our manufacturer and provider customers of our Bluepoint private label program and ABC swift are progressing well and are demonstrators of the innovative services and solutions we will continue to develop in the years ahead.
In addition we are pleased with the progress we have made with our specialty joint venture in Brazil. In the US we continue to add new manufacturers to our programs running through our national distribution center in Columbus.
Wholesalers have never been more important to the pharmaceutical supply channel, as we move through a wave of customer and supplier consolidation and the healthcare landscape continues to evolve with the rapid pace there is great opportunity for our industry and for AmerisourceBergen in particular to demonstrate the full value we can provide. Let's turn now to the other segments.
As I mentioned earlier, this was the first time we had a full quarter of MWI in our results and we are very pleased with their performance. We’ve made excellent progress on the integration and on the identification of synergies I am very confident that MWI will continue to deliver excellent performance and will make important contributions to the value we provide to the pharmaceutical supply channel as we expand our efforts into animal health.
We continue to believe we acquired a first rate company and organization with MWI. [Indiscernible] are the acknowledged leaders in this field and are enthusiastic about the way they can further enhance the offering with the expanded opportunity under the ABC umbrella.
Their willingness to embrace and implement new ideas and their commitment to both outstanding execution and customer service bodes well for the future of their business and the role that they will play as part of ABC. Our manufacture services businesses also had a solid June quarter.
Our expertise in developing patient access adherence programs and the experience we bring to bear in the regulatory compliance and policy areas is a differentiator today. Our increasingly global reach our manufacture services businesses further expand our value proposition to manufacturers as we look to expand our ability to also fully cadence global clinical and consulting solutions or virtually any specialty products launched in the developed world.
These are great times to the pharmaceutical services industry in both the human and animal health segments. Organic growth rates in the U.S.
pharmaceutical market are being driven by better economic conditions, health reform initiatives, exceptional launch of the new brand products and population demographics. Advances in veterinary medicine have improved the quality of life in of companion animals and given pet owners far more choices in maintaining their health.
In addition increasing global demand for proteins drives the production side of the market and creates opportunities to extend the expertise MWI has gone in the US into developing global markets. Looking ahead to the fourth quarter of 2015, we again expect the strong trends in overall market growth to continue while trends in certain specific areas will moderate.
Tim will provide more detail but given these trends and our performance in the June quarter we are narrowing our guidance range for adjusted earnings per share for the full fiscal year to 492 to 497 which represent outstanding growth of 24% to 25% over last year. As we look further ahead to fiscal 2016 it is too early to give detailed guidance but we can see a path to earnings per share growth in the low teens.
We are still working through our in depth planning process but there are few headwinds and tailwinds that we think you should bear in mind as you think about our growth rate for fiscal 2016. First the tailwinds, continued solid organic revenue growth and brand growth inflation; secondly, better generic launches and five incremental management benefits from MWI acquisition.
The headwinds are; significant impact from DoD contract repricing in the first half of the year. As a customer we also anticipate in fiscal 2016 includes [indiscernible] late in the fiscal year and declining contribution from generic inflation.
There are few additional functions to concentrate as you think about fiscal 2016. We assume no valuation for [indiscernible] exercises because we have the 2016 warrants 100% hedged.
We expect to repurchase $300 million in shares under our normal program. No contribution from M&A is planned in 2016 and no meaningful contribution from biosimilars in 2016.
We remain hopeful that biosimilars are a great opportunity for ABC particularly for the physician administered products. But it’s too difficult to predict the timing of any launches at this time.
However, the underlying fundamentals of our business remain strong I want to reiterate that these are preliminary thoughts and that we will give our detailed guidance when we report our fourth quarter in the fall. Before I turn it over to Tim I want to commend our ADC associates for delivering stellar performance through nine months of fiscal 2015.
Over the last few years we've challenged our people to develop our talent in new leadership areas, both with our existing associates and by recruiting high quality individuals externally in order to ensure that we can grow our business by remaining the partner of choice in the pharmaceutical supply channel. The value creation we generate is the result of flawless execution, creative thinking and the courage to implement bold new ideas.
Our associates share my conviction as we make vital contributions to the health and well being of humans and animals. And by extending in that growth we can continue to provide excellent returns to our shareholders and other stakeholders.
Now here is Tim.
Tim Guttman
Thanks Steve and good morning everyone. Consistent with past quarters my remarks will focus primarily on our adjusted results.
Let me point out that all financial comparisons are for our third fiscal quarter ended June 30th 2015 compared to the same period of the prior fiscal year unless otherwise noted. I have three topics to cover this morning.
First I'll recap consolidated and segment P&L performance. I'll also cover few consolidated cash flow highlights.
Second topic; I'll briefly recap our large hedging progress to date and my third topic I'll wrap up with comments about guidance for fiscal year '15 and also provide some preliminary thoughts in fiscal '16. So with that we can begin our Q3 review.
Revenues increased $3.9 billion to $34.2 billion, up 13%. On an overall basis sales to Walgreen stores accounted for roughly 50% up our revenue dollar increase, as a reminder this is now our third quarter of having this key customers business in all their brand and generic volumes for the entire quarter consequently a majority of their growth continues to be related to year-over-year business ramping.
Additionally, MWI contributed roughly 20% of our overall revenue dollar growth. The quarters adjusted gross profit increased $184 million or 22%, to just over $1 billion.
About 70% of the dollar growth came from our other segment. Primarily as result of adding a full quarter of MWI's results.
The remaining dollar growth was from our pharmaceutical distribution segments driven primarily by revenue growth. Operating expenses, our total adjusted operating expense increased about $122 million or 28%, to approximately $551 million consistent with a change in gross profit dollars and I've just covered the other segment drove about 70% of the dollar growth again primarily due to MWI.
Operating income, our adjusted operating income was $455 million, up about $52 million for a very strong 16% growth rate. Our adjusted operating margin was 1.33%, up three basis points, due to adding MWI as they have a higher margin profile than our core drug businesses.
Moving below the operating income line, interest expense net was about $28 million and roughly half of the quarterly expense was related to the MWI acquisition financing. Income taxes, our adjusted income tax rate was 35.3% for the current quarter, down from the prior year.
We continue to realize the decrease in our cash rates due to income growth in our international businesses. Additionally this quarter, we realized about a 40 basis points improvement in our tax rates related to the filing of our 2014 tax return and recognizing a favorable cash provision to return adjustment.
For the full year we now expect our cash rate to be between 36% and 36.5%. For the quarter our adjusted diluted EPS increased 19% to $1.20, driven by organic operating income growth, the addition of MWI and the benefit of a lower consolidate cash rates.
Our adjusted diluted share count at 231.3 million shares was essentially flat to last year's quarter. Let's move forward and discuss our segment result starting with pharmaceutical distributions.
Total segment revenues were about $32.8 billion up 10%, as mentioned earlier by key Drug Company head growth in revenues of 9% driven by two items. The first item; market growth continues to be good, driven by volume and strong pricing especially in the brand drug side.
I should note that sales of hepatitis C drugs did not contribute meaningfully to the overall revenue growth in our Drug Company. And the second item; we have an anniversary of full implementation of the Walgreens contract yet, so we continue to realize a revenue benefits here also.
In terms of mix, Drug Company totaled generic revenues increased year-over-year, just over 20% in dollars. Most of it increased is the result of service in Walgreens fully this quarter while last year in the June '14 quarter we're servicing about 70% of their locations of brands and generics.
Our specialty business group had overall revenue increased to 22%, similar to the past few quarters, adjusting for the shift in certain oncology revenues from our drug company to our specialty business, our specialty business grew an impressive 13% from higher volumes, a good pricing environment and new brand drug introductions. Specialty growth came primarily from sales of oncology and ophthalmology drugs from our large businesses, ASD oncology supply and specialty medical.
This is the fourth quarter in a row with solid revenue growth in oncology supply our business that focuses on serving community oncology. These sales growth percentages for drug company and specialty that I just provided are before intra-segment elimination consistent with how we have reported these growth rates in past quarter.
Moving to gross profit, the segment’s gross profit was $746 million up about 8% we saw a very good gross profit growth in our specialty business due to higher revenue growth. Our drug company had solid gross profit growth from higher revenues but as discussed in the past these contributions were negatively impacted by two items, one that started the Department of Defense contract that we renewed at a margin in line with markets and two we had fewer generic drug price increases in the quarter and our total dollar contribution for the generic inflation was down somewhat sequentially for the March quarter and meaningfully compared to last year’s quarter.
Segment operating expenses were $368 million and were up about 11% this increase is primarily related to payroll, delivery cost, depreciation and IT cost to support the segment’s large volume growth and operational complexity. Additionally we continue to ramp our national distribution center in Ohio and our Switzerland business both are performing well but are not yet fully optimized.
Finally operating expense also include the additional incentive compensation accruals related to the strong year-to-date performance of the two business groups in this segment. Segment operating income was $378 million and up about 5%, our specialty business group had good growth this quarter offset by lower growth in our core drug business, due to the items I just highlighted.
We can now move to our other segments, which include consulting services, world courier and MWI. In the quarter total segment revenues were $1.5 billion up significantly due to the addition of MWI on a comparable basis excluding MWI the revenue growth would have been as a percentage in the mid teens with a majority of the revenue growth coming from our fair comp distribution business and the remainder from our core consulting business including Canada.
MWI had a very good revenue quarter as a result of strong companion animal revenues. On a comparable basis the last year the consolidated revenues increased in the high single digits as a percentage as a result of increased volumes, new product introductions and a solid pricing environment.
From an operating income standpoint, we had significant increase of $44 million to total operating income of $77 million. The segment benefited from having MWI included in the quarterly results.
In terms of MWI we are pleased with our overall operating margin as a result of higher companion animal revenues and we are tracking right on schedule in terms of integrating the business and capturing synergies. Finally we’re also very pleased with both consulting and world courier we had solid income growth in the June growth as a result of better than expected revenues.
This completes our segment review so let me switch and cover our two large GAAP items warrants and LIFO. Warrants, the fair value of warrants decreased to $2.4 billion as of June 30th, this decrease in value was due primarily to the 6% decrease in the ABC share price from March 31st to June 30th.
This decrease in the ABC share price also drove a GAAP P&L credit of $15 million for the quarter. LIFO this quarter we recorded an expense of $159 million our full year LIFO estimate is now revised at $602 million, this represents an increase of $254 million versus the prior year.
The increase is due primarily to an expected higher annualized brand inflation rate now estimated to be in the mid teens and also a slightly higher inventory balance through the overall business growth. This wraps up our P&L review.
Let me switch and cover cash and capital deployments. This quarter we had excellent free cash flow of nearly $1.1 billion, a record quarter for ABC, as I highlighted earlier a significant increase in generic revenues for last two quarters and the benefits of scale help to drive our improved working capital metrics.
We ended the quarter with cash of $2.6 billion which is very good considering we paid down $250 million on our term loan we also repurchased about $112 million of stock under our regular share repurchase program bringing our year-to-date total under this program to $260 million. We also continued to make steady progress under our special share repurchase program.
As you remember this program is designed to cover our hedging. This quarter we purchased 1.2 million shares for about $133 million.
We also exercised half of the call options that we executed back in March 2015 meaning we purchased 3 million shares for $287 million. This quarter we included a table in this morning's earnings release that covers a large hedging progress and as said you refer to the table to the details on our coverage.
We are pleased that we are now 100% hedged against our 2016 warrant, meaning to our investors that we'll avoid adjusted EPS dilutions upon the first warrant exercise. As we go forward we expect to deploy the appropriate capital to remain 100% hedged.
Offsetting the remaining potential warrant solution on the 2017 warrant remains a top priority as we thoughtfully consider our capital deployment. Let's move to our third and final topic this morning, our guidance.
And first one; we'll provide updated guidance for fiscal '15 and few key areas. Adjusted EPS we expect our fiscal '15 adjusted EPS to be in the range of $4.92 to $4.97 which reflects growth in 24% to 25% last year's adjusted EPS.
Share repurchases, our guidance for regular share repurchases increases to $300 million for the full year and wrapping up with free cash flow, we now expect to be into the $3 billion range for the full year driven primarily by a much improved generic revenue mix. Let me switch and provide a few additional details followed by key commentary on fiscal '16.
One based on trends including activity in July to date. We continue to see the slowdown in generic drug price inflation as a result of fewer drugs having price increases in addition to generic price increases being more modest in comparison to recent history.
Consequently we have changed our view this area and we are now expecting that the associated income contribution in fiscal '16 will be lower. Two, our working assumption is that operating income and adjusted EPS growth will be higher in the second half of fiscal '16 given that we still have significant Department of Defense contract headwind at first two quarters of fiscal '16.
Also these first two quarters we'll have tougher comparable related to generic price depreciation. And three, our free cash flow is benefiting in fiscal '15 due to the one time ramping of the Walgreen's generic business which also gives us significant scale.
We expect to see some moderation in cash flow area in fiscal '16. As I wrap-up my prepared comments, I want to thank you for your time and your attention this morning, we are in the home stretch of fiscal '15 and we're very pleased with the progress we made to date.
We'll provide specific fiscal '16 guidance on our fourth quarter earnings call in late October. Thank you for your interest in ABC and now here's Barbara to start our Q&A.
Barbara Brungess
Thank you, Tim. We'll now open the call to question.
We ask that you please limit yourself to one question and a brief follow-up so we can accommodate as many callers as possible. Please go ahead [Tom].
Operator
[Operator Instructions] Our first question's from the line of Glen Santangelo with Crédit Suisse. Please go ahead.
Glen Santangelo
Thanks and good morning. Tim, I appreciate all the guidance that you just gave on the cash flow.
My first question was really around you know your free cash flow guidance now is 2.8 billion to 3.2 billion and just kind of looking at last quarter's press release it was only 2 billion to 2.3 billion. So, could give us a sense or maybe what changed in the last 90 days and maybe you know when you think about your new cash flow expectations.
Could you give us a sense or maybe how much might be a one time working capital benefit so we can think about more and more normalized will help us model more normalized cash flow in fiscal '16?
Steve Collis
Yes Glen. Yeah, we've been -- cash flow has been super this year.
It's gone up, I would say that we've been pleasantly surprised by just a mix and higher generic again last quarter and in to this quarter. There's always a little bit of a lag on cash flow with the way we pay invoices, I think the other, we've done very well managing inventory level through the summer that’s certainly has helped us.
So it's been a good story for ABC in terms of next year we'll have a moderation. We did have a onetime benefit this year, earlier in the year and reducing inventory.
But I think at this point still lot of moving parts and we're seeing for '16 we'll see a moderation but I don’t think we really want to quantify yet, still trying to finish up our planning process.
Glen Santangelo
Okay. That’s fine.
Maybe I just ask one follow-up on your initial fiscal '16 commentary. It seems like you only included the $300 million of capital deployment.
I'm guessing that from the share repo to offset some anticipated dilution. At this point, if you don’t buy anything or buyback more of your stock you will be net cash flow positive and I don’t you going to do that.
So just really a question of you not sure how you are going to deploy the capital but I'm assuming that’s going be a reasonable part of the growth over the next 12 to 18 months.
Tim Guttman
Yes, I’ll start Glen and Steve can certainly jump in but we have tremendous financial flexibility we’re in good position here. We started off in our guidance with a number of -- it’s closer this year and I think our investors know that we’re a very prudent and thoughtful if we have opportunities to deploy capital and buyback shares at a good price.
We will assuming we don’t have other value creation ideas out there like M&A, so certainly smart M&A comes first but given the opportunity we’ll look at share repurchases.
Steve Collis
We don’t have anything that we sample as I said in my prepared comments but we’re very active and certainly if we can find you know another MWI health business or World Courier or a TheraCom which are the three acquisitions we made in the last couple of years that are great strategic and operational benefits to our company and with the very strong culture if you look back I just reflecting on this in my remarks when I prepared my remarks you know oncology supplies almost 20 years ago since we reported and that was $7 million and it’s pretty remarkable and then two years after that with eye on [indiscernible] safety we started ASD, RTS and we acquired [indiscernible] it is not only the contributions from those businesses it’s a contribution from the people that we brought in. So and now we see that’s with some of the people we brought in from World Courier and MWI as well which is a larger organization.
So bringing in the right mix of culture, people there are can associate with the core business that’s really a key that differentiates AmerisourceBergen we have great home with people who want to stay with the organization and grow their business. So I think that’s one of the things that we're very thoughtful of along with the attributes of the business but as an act of common M&A and we certainly participating in things [indiscernible].
Tim Guttman
And I guess Glen, just to remind everyone we’re still planning to balance right between we still have hedging, we still have about two years to go maybe on the second warrant most likely to March of 17th we have to balance purchasing shares to offset that potentially and also the regular share program. So, so far walked a while and be opportunistic in both areas.
Barbara Brungess
Thanks Glen. Next question please.
Operator
Robert Willoughby, Bank of America Merrill Lynch. Please go ahead.
Robert Willoughby
Can you give us a sense on MWI maybe what portion of the growth that you’re pointing to was more from the industry and what may have been share gains? And can you also mention pricing, is that across the board strategy by you to raise pricing or is that just simply passing on to manufactured bumps in the latest period?
Tim Guttman
Bob, this is Tim. No it's certainly the latter, it's a good pricing for manufacturers that we’re able to pass through and there is a benefit [indiscernible] on the drug side.
And we’re particularly strong in the companion animal segment and we think a lot of that is demographics there is a couple of new products some of the things that we talked about for ADC are definitely true for MWI, their private label programs are strong, their generic growth is very strong. We’ve had a little bit below expected on the production side but we have a very strong offering there and there is some changes in the market, we still have some integration work going on our acquisitions of MWI completed which will drive some SG&A benefit.
So we could not be more thrilled with how things are going and the group has just fitted in tremendously to ABC and is a great illustration of what I said about how important the culture is and acquisitions we make particularly like one for MWI.
Robert Willoughby
So just to be clear on the companion side, you are then really just kind of growing with the industry or are you pulling share from anybody there?
Tim Guttman
I think it might just be one or two percent I think the market is just growing, I mean we did the acquisition, we modeled global growth around 8% and the data is not quite as good as we have on the human side, but it’s good enough and certainly I don’t think we picked up after market share I think there is a very healthy growing market.
Barbara Brungess
Thanks Bob. Next question please.
Operator
Ricky Goldwasser with Morgan Stanley. Please go ahead.
Ricky Goldwasser
So, just kind of slightly couple of questions here, so first of all on generic inflation can you just give us a little bit more color, if you kind of like look at the type of drugs and how they behave, drugs that went up in price last year did they go up in price again or did they just make some and increases that you saw this quarter did they represent kind of increases from new drugs that you haven’t seen pricing action on before? So that was question one.
And then the second part of my question is around just kind of like organic top line growth that you’re seeing on the distribution segment I know that you said it like about half of the growth is coming from Walgreens. But I mean there is also kind of [indiscernible] so how should we kind of like there're lot of moving parts.
So how should we think about kind of that just the top line kind of like growth if we can think about it, go for the run rate.
Steve Collis
Yes. We give a range of earnings for the year because generic price increases have been particularly, quarterly sensitive and even may vary between us and our competitors.
One thing we point on that we haven't see major increases in any one product, you know very large increases, but definitely moderate to the last quarter of order between second and third quarter and we seen that also for the fourth quarter. So our outlook has moderated a bit, hey Tim you want to just add any.
Tim Guttman
Yes. I would say, Ricky on the revenue question we did call out the drug had a 9% revenue growth and clearly -- maybe a small part but half of that is Walgreen's -- but again there are, to your point there are moving parts, maybe probably lots of percent or so on and for America as a headwind and we also had [indiscernible] which is a very large brand drug that converted during the quarter as a a little bit of a headwind.
So those moving part, we thought so far 4% plus. It's still pretty good concerning a couple of the headwinds out there.
RickyGoldwasser
Okay. And when we think about kind of like the EBIT growth on any distribution EBIT growth worth about kind of 5%.
So is this kind of reflection of the WBA business representing half of the book and once you kind of anniversary that we should see kind of like EBIT growth nearing the top line?
Steve Collis
Well in pharmaceutical distribution add a mix to specialty business and growth. You know just it's really tracks very well, our larger customers are probably growing faster than overall market so.
You got lots of different mix issues, but overall as you point out a solid operating income growth of about 5% in pharmaceutical distribution.
Tim Guttman
Again a little bit lower because of some of the headwinds that we called out, the generic price depreciation being lower the Department of Defense. The drug company also postponed a couple of contracts and [indiscernible] for the '16 and the '15.
I guess that book of business to cure itself. We still feel pretty good about the growth rate and net income in that segment going into '16.
RickyGoldwasser
Okay Thank you.
Operator
Question is from Robert Jones with Goldman Sachs. Please go ahead.
Robert Jones
Thanks for the questions. Actually I just want to ask on guidance for fiscal '16 and the potential swing factors, special relative to the last two years.
You guys have beat your initial guidance for last couple of years by -- an average about 10%, obviously a large part because as Walgreens and related benefits. I'm just curious as you think about fiscal '16?
Are there big swing factors that you see out there? That could drive that potential kind of upside that we seen you guys put forth the last two fiscal years relative to initial guidance.
Steve Collis
I guess, well thanks for the question. I guess that we had in our extra quality out there and maybe it's the new traditional growth but from what we understand about how they would be accessed in market base.
As it doesn’t look like they'll sort out right away in a multi-million dollar drugs if it is in at-risk biosimilar launch in physician administered products. Certainly first five [indiscernible] that we expect to come to market is not a big enough product to really cause a couple of [indiscernible].
We've got a lot of stuff with a lower hanging fruits out of our businesses like say World Courier in particular we after the first year we had some opportunities to really restructure the business and add some opportunity. We continue to work on WBAD opportunities and I think one of the things we do just into -- if you think of it as a static model, we meet constantly with our counterparts at WBAD and we have the group in Berlin, they exchange a lot of ideas and so I think that is definitely an opportunity.
And we continue to be very optimistic about our global growth prospects. We had a little bit of a rough start in Brazil particularly on the currency side but the specialty JV's doing well.
Our thesis that we can add value to a company that has some presence in specialty distribution in Brazil was the market that we choose to really invest behind -- it is definitely we think bearing fruit and we helping the JV get more access to manufacturers products which is frankly more of a product problem than you've realized. We take for granted here, that ASD and a bit oncology supply that have access to all the manufactures so far in [indiscernible] segments.
That is not being the case there so we worked hard and we being successful at that and getting the people right is different and also we learning a lot and those will be opportunities for us. But I think the revenue growth beyond what we expect early renewals on some customers as rates may be better than we expected but nothing beyond that I can think of -- I'm really -portraying to anything I think of.
Tim.
Tim Guttman
I would just echo what Steve said and again we've been very fortunate we worked hard we've beaten the initial numbers we put out but we also had a unique and extraordinary business relationship with Walgreen. Lots of variables you know moving parts, timing so that added complexity and that all worked out, it worked out really well better than we ever expected.
And of course generic price appreciation externally was a big factor on helping us too. So you create your own kind of destiny here we’re working hard and I think some of the others that Steve mentioned that we’re optimistic that sales will come to fruition and help us out.
Robert Jones
And I guess Tim just if I could get one clarification question on the comment you made on generic inflation. I am just trying to get a sense of are you still assuming an inflationary environment in fiscal ’16 and if so just any order of magnitude relative to what we’ve experienced in this past year would be helpful.
Tim Guttman
Good question I mean definitely we definitely are assuming an inflationary environment, we still expect to have a contribution from generic price increases we’re just saying it’s going to moderate and just in pure dollars it’d be less so be a little bit of a headwind for us in '16.
Barbara Brungess
Thanks Bob. Next question please.
Operator
Garen Sarafian, Citigroup. Please go ahead.
Garen Sarafian
So just to clarify some of the other responses that you’ve made, so the commentary of low double digit growth rate for fiscal ’16 does not include biosimilar, meaningful contribution from biosimilars and also it does include a meaningful slowdown in generic inflation, correct?
Steve Collis
That would be true, but meaningful again we haven’t really thought of it yet, we just thought of doing corporate reviews of plan and we’re doing the business units in the next few weeks. And we’ll get a better read on how we feel about generic price increases after we see what some of the trends in the fourth quarter are, which help us understand what Q1 and Q2 could look like.
So, Steve just tried to jump in I mean we did say and I guess we should be very clear because I said no meaningful contribution from biosimilar and just declining contribution from generic inflation.
Garen Sarafian
And then just switching gears little bit, I think you’re having your good neighbor pharmacy trade show again in the couple of weeks. So as you compete against your peers independent could you talk a little bit more about how you’re improving your programs to gain more independence and maybe the key messages that you’re trying to get out to the independent so that you can stay ahead?
Steve Collis
It’s a great question, and this is an area I think our industry as a whole has been at the best friend that community pharmacy has and some of the programs and services that we offer really do enable us to complete in a more challenging industry so also with opportunities there a 82% of the scripts being generics with some of the specialty products like the new [indiscernible] and traditional growth being in community so there are going to be opportunities for them to access patients. We’re also working very hard on the regulatory front.
But we’ve done a lot of work and we have Bob Marsh as leader of our drug company who really comes from an analytics and self consultative background. And we’re doing a lot of work to understand exactly what our customers value and what they want to help with this is reimbursements, making sure that they get everything that they’re entitled to, the mergers out in front.
Our family works for the Good Neighbor Pharmacy here in area in Philadelphia we live and I was actually there yesterday because we did some transformation there. And I tell you, I was taking to a patient there Medicare patient and he was just saying, he was saying this is the guy who brought the people in, he's the guy who brought the people in to help make this store look like a [indiscernible] she just about gave me a hug and said thank you, I mean it’s just real fantastic and the pharmacies taking in already know how to take care of my patients on how to run backend of the store and lot of merchandise, I don’t do the front end of the store that well and you guys have helped make it look very professional, very bright, organized it.
For example they never had a power station before. So we have the whole American Greenhornets coming in they've got a whole station there and you can really like and they have it.
We never had a [indiscernible] before with anniversary, like a birth date so all that is there now and we did that all for the pharmacy so just a very fragmented illustration of the sort of the things that we do and our industry does it and it’s very-very value creating and hopefully engenders a lot of a loyalty from our customers. And then we have the tools we also recently for example the inside tenant we’ve shown what that has meant to his practice as he is able to track our scripts or manage from a 30 days or 90 days script to pick, very-very interesting and last we had in D.C.
and one of the things that we do is and I've said that to you before on these calls the reason that is thank us for being a good advocate for our customers is helping share their issues. No other companies large companies come here and talk about the customers as much as you do.
So I think we tried very hard I think our customers appreciate it, our tenant next week will be up 15% so we’re looking forward to actually some, it will be a very significant increase in the level of services and offerings that we have with Dave Hugh taking fulltime over the Good Neighbor Pharmacy position. I think you're going to see a whole lot of innovation and new ideas and new services, what we called a next level of Good Neighbor Pharmacy Services, so thanks for the question.
We're excited as you can tell, I probably took too long to answer that question but I'm very excited about what we're going to be doing in this area.
GarenSarafian
Got it. Great thank you.
Barbara Brungess
Thanks Garen. Next question please.
Operator
Lisa Gill, JP Morgan. Please go ahead.
Lisa Gill
Thanks very much. Good morning everyone.
Steven in your prepared comments you talked about consolidation and the impact on the industry. Can you maybe just give more color as to how you're thinking about it or you talking about specifically generic manufactures that are potentially consolidating and what that will mean for the industry or were you talking about the managed care consolidation and the impact on the industry?
Steve Collis
Yeah. Thanks Lisa.
That’s a great question. You know and our board asked this question a lot and in last month Barbara and Tim and I were in London we got a lot of these questions because we were [indiscernible] the timing, of course to manage the consolidation so I think first of all consolidation awaited us simplified number of parties to talk to you and work on programs.
There is no doubt that we are in the midst post -- the Affordable Care Act implementation of significant change in our industry and it's important for large companies like AmerisourceBergen to participate and give voice to the smaller customers and we think about oncologists, we think about independent long term care providers, we think about community pharmacists, and w think about also working with trade association in a more larger customers like our PDM customer, and our large chain customers to make sure that their issues get voiced. But in short I think the scale and efficiency that we continue to provide will always be [indiscernible] not a surprised that’s what we've done for [indiscernible].
The services that we provide need to be more thoughtful and provide new efficiencies to the customers, that’s why comments about the talent that we have in knowledge of the market and the role of the wholesalers that we made I think are all very permanent. You know what, just one thing that I think is worth mentioning, a lot of workers on [indiscernible] and contracting on pharmacy items.
It is post our belief and so it happens on the back end side, often negotiations between PDMs and manufactures directly, they don’t impact our economics directly but I'd say that we all in a same ecosystem and that ultimately does have an impact on description and pharmaceutical supplies. Just last comment in maybe -- it is a big question.
You know on the generic side we've been through these massive merges, you look at all the work in elegance done and others how sales have grown over the years. We're confident that the value that we provide to generic manufactures will sustain through any combinations and that's also was true for brand manufactures and harboring models as well.
Lisa Gill
I'm sorry. I was going to actually ask you a follow-up around that.
When you think about inflation. How much visibility do you have [indiscernible] thinking about '16 right now.
Are you just looking at the trends, here's what we're seeing now and this is what we know best in the market, so we're going to conservatively say on '16 we expect that trend to continue or do you have any kind of visibility based on your relationships with the manufactures that you have an idea of what potentially price inflation could be six or nine months from now which would actually impact '16?
Steve Collis
Lisa. Interesting question.
I mean, yes it's clearly the fact that we're looking at trends. Trends over the last 90 to 120 days, our [indiscernible] group track the drugs and changes, but we do not have any visibility into the forward thinking of manufactures and we're like everybody else, we're kind of notified early before.
So again our thinking is based on what we're seeing and projecting that out.
Lisa Gill
Okay that’s helpful. Thank you.
Barbara Brungess
Thanks Lisa. Given that we're approaching the top of the hour.
We'll take one more question.
Operator
Well go to Eric Percher with Barclays. Please go ahead.
Eric Percher
Thank you. So this is the second quarter that you've called out brand inflation and the number of the life service quite a bit higher than I expected.
It's been hard to flush out what's going on with brand inflation given the Hep C elements. How long do you believe that we've seen our expansion of brand inflation?
And are you seeing it both in the specialty book as well as the traditional products?
Tim Guttman
Steve, I'll start and certainly you can jump in. Brand inflation is -- I called out that our LIFO is just pretty significant and again that's true though that brand inflation, we just carry so much brand inflation and in brand inventory.
But it's -- I called out Eric that’s in the mid teens and that’s up over the last few years, we used be kind of 10% to 12%. At least for the inventory that we carry for our customers on our mix it may be different for others but at least for our inventory we're kind of in the mid teens and I really can't comment on how long that will last or kind of go forward, I just know what we've experienced and in our LIFO is based off our drug company and their inventory.
Our specialty business is an addon LIFO so they don’t factor into that. But they have also as an aside they have also seen some price increases on the brand side in that business as well.
Steve Collis
As far as ASP drugs they tends to be smaller and maybe more frequent that increases there but it's hard in an ASP environment to take a double digit increase and be good. Your customers would be under water but that’s also just you know here are therapies coming in and comparable therapies that have been in the market for a while looking at their price opportunity so I think really that difference and maybe a little bit stronger than we had expected.
So definitely looking at the GAAP numbers Eric, so…
Eric Percher
I appreciate that, so one last one before the next train, on generic inflation so I understand the elements that you’ve walked us through. We've seen tremendous growth and the Progen [ph] book 20% this quarter 50% last we’ve seen Walgreens come in and buying a lot of but you’re now distributing a lot of generics.
So I’d expect that even on lower inflation you’ve got now that a larger book to see benefits on. Is that not the case?
Tim Guttman
So we did our monthly business review for the drug company and we look at you know, we don’t just look at the revenues we look at units and we very focused on this our key area of how we value customers is around compliance with contracts. So and honestly some of the customers that are most interesting to us post Walgreens world are the ones where we have big generic opportunity.
So, we are very focused on it. So Steve do you have any additional comments?
Steve Collis
I would say remember that we do carry a fair amount of generic inventory but as we’ve talked about in the past generic price increases are on a relatively lower percentage of that inventory and you just never know how that’s going to impact your inventory, which items are going to increase. It’s not across the entire portfolio where brand it tends to be at some point during the year tends to be across the portfolio.
Tim Guttman
I think in oncology we’re very bullish about the value that we provide and again it’s a very innovative model and [indiscernible] and her team are focused on driving a everyday value and creating value for the suppliers long term. I think it’s not all about profits, it's also about quality of supply and some of the recent generic launches we’ve been able to give our customers supply which has been very much appreciated by them.
So, I think that wraps up Eric, the last question.
Eric Percher
Thank you.
Steve Collis
So I’d just end by saying that we are proud of the nine months that we reported for fiscal year ’15 and these are definitely stellar numbers that our associates have produced use. So let me just wrap by saying that passion, innovation and partnership drive everything we do in AmerisourceBergen, our work is centered on being strategically relevant, economically competitive and easy to do business with.
We believe our relationships with our customers and suppliers are excellent and we do not take it for granted rather our goal is to tirelessly look for continuous improvements in our offerings to our customers to enhance, medicine access and adherence. We appreciate your time this morning and hope that you found this information useful.
Thanks very much.
Barbara Brungess
Thank you, Steve. And before we go I’d like to highlight that we will be attending the Robert W.
Baird Healthcare Conference in New York on September 10th and also the Morgan Stanley Healthcare Conference in New York on September 16th. So thank you for joining us today and with that I will turn it back to the operator.
Operator
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