Drug distribution market leaders AmerisourceBergen (NYSE:ABC) and McKesson (NYSE:MCK) both reported financial results on Tuesday. We'll look at both releases and evaluate the pairs' current investment appeal.

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AmerisourceBergen Highlights
AmerisourceBergen kicked off the first quarter of its fiscal year by reporting an 11.5% improvement in revenue, bumping it to $19.3 billion. The company reports results in three primary drug distribution segments. AmerisourceBergen Drug Corporation, which distributes to hospitals and health systems such as Health Management Associates (NYSE:HMA) and retail pharmacies including CVS (NYSE:CVS) and Rite Aid (NYSE:RAD), experienced a 12.9% increase in the top line. AmerisourceBergen Specialty Group, which distributes primarily to physicians, reported a 7.7% increase. And, according to management, the AmerisourceBergen Packaging Group, which helps clients in the core drug group package products, "bounced back a with double-digit revenue increase" from the previous quarter.

Gross profits saw a boost from a higher number of generic drug launches and improved 15% overall to account for 2.91% of revenue. This demonstrates that the drug distribution business model is very low margin. Operating expense growth was held below top-line growth and, as a result, operating income expanded 32.6% to $262.4 million, or 1.36% of sales. Diluted earnings ended up growing 44.4% to 52 cents per share, largely as a result of a one-time charge in last year's quarter. Earnings came in ahead of analyst projections.

McKesson Results
McKesson reported a 4% revenue improvement and $28.3 billion in revenue during its fiscal third quarter. The company reports that results in its core distribution solutions segment saw sales up 4%. McKesson has a smaller but very profitable technology solutions group that helps healthcare firms streamline supply chain and software management in order to operate more efficiently. Technology solutions witnessed 3% top-line growth and accounted for more than 10% of the firm's total operating profits of $639 million. This was up substantially after a hefty litigation charge last year. The charge pushed the bottom line into the red in last year's quarter. The current quarter witnessed $1.19 in diluted earnings, meeting analyst expectations.

The Bottom Line
Amerisource is seeing strong profit trends and has raised its full-year earnings guidance to between $1.89 and $1.98 per share. McKesson expects full-year earnings between $4.55 and $4.70 per diluted share. On a forward P/E basis, that places Amerisource at just over 14 times and McKesson at just under 13 times. These multiples are at the low end of the five-year ranges and both firms boast healthy free cash flow generation and double-digit returns on invested capital. In other words, profitability has not been an issue. Revenue growth has been an issue for Mckesson, as it has only averaged in the single digits over the past five years. McKesson likely won't see a considerable boost any time soon and that will make it difficult to meaningfully boost profits over the long term. (Learn more about the controversies of company guidances in Can Earnings Guidance Accurately Predict The Future?)

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