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Tickers in this Article: ABC, MCK, MRK, JNJ, GSK
Drug distribution firm AmerisourceBergen Corp (NYSE:ABC) is reaping the benefits of a couple of favorable tailwinds in its business these days. The firm released third-quarter earnings on Tuesday to illustrate these positive trends. Loyal investors should continue to benefit, as they have over the past few years.

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Third-Quarter Sales Review
Revenues expanded 6.6% to $19.6 billion. Growth was attributed to the distribution of generic pharmaceutical drugs; competitors' branded drugs, including blockbusters such as Merck's (NYSE:MRK) Fosamax, Glaxosmithkline's (NYSE:GSK) Advair, and Johnson & Johnson's (NYSE:JNJ) Topamax, have lost patent protection recently. Patent expirations are expected to continue and bolster activity at AmerisourceBergen. The smaller but highly profitable specialty group unit, which deals in generics, posted a 3% top-line improvement.

Profit Recap
Gross profit grew 13% to $588.4 million and improved 18 basis points to 3% of sales. Management held operating costs in line as well and was able to boost operating margins by 28 basis points to $281.9 million, or 1.44% of sales. Income tax expense increased but share buybacks contributed to help diluted earnings jump an impressive 42.5% to 57 cents per share and beat analyst projections.

Outlook
For the full year, AmerisourceBergen expects sales to increase between 8% and 9%. It also upped its earnings guidance to a range of $2.16 to $2.20 per diluted share. Free cash flow guidance ranges from $525 million to $600 million.

Bottom Line
Despite the earnings beat and rosy guidance, the stock traded down after the quarterly financial release. Speculation ranged from profit taking to a sequential profit decline from investors overly obsessed about short-term operational trends.

The share price dip should appeal to far-sighted investors. The stock is still trading close to its highs over the past year but now trades hands at a reasonable forward P/E of 13. This is right in line with arch rival McKesson (NYSE:MCK), which reports results on July 30.

Both firms are appealing at current levels. They will benefit as more generic drugs come into circulation and more patients enter the healthcare system as a result of recent government reform legislation. And despite the near-term share price turbulence, both stocks are proving less volatile than the stock market overall (as measured by the S&P 500) and have outperformed consistently over the past five years. (For more, see Measuring The Medicine Makers.)

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