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FOXMEYER SALES REACH $4.51 BIL. IN FY 1993 IN 46% GAIN: OPERATING COSTS REDUCED TO 4.37% OF SALES; CARDINAL SALES APPROACH $2 BIL. MARK IN FISCAL YEAR

Executive Summary

FoxMeyer sales jumped 46.4% in fiscal 1993 (ended March 31) to $4.51 bil., the Dallas-based wholesaler reported May 10. Fourth quarter sales also rose at a significant rate, up 48.8% to $1.25 bil. Forecasting a continued growth trend, FoxMeyer President and CEO Robert King noted that Harris Wholesale (acquisition completed May 1992) "will be fully factored into FoxMeyer sales beginning in the second quarter ending in September." Harris, which expanded FoxMeyer's coverage into the Northeast, has annual sales in excess of $720 mil. "We expect additional growth in the current year from our new contracts with regional retail and institutional groups, such as the five-year agreement we signed with Medicine Shoppe International in February," King said. Earnings at FoxMeyer were 99.4% lower in FY 1993 at $220,000. In the fourth quarter, earnings were $5.5 mil., down 63.1%. The wholesaler took a third quarter one-time charge of $42.8 mil. against operating earnings related to $40 mil. owed FoxMeyer by Phar-Mor, which is in Chapter 11 bankruptcy, for a reserve for anticipated legal and collection fees related to the Phar-Mor situation and for "certain customer-related software development costs." Operating expenses continue to decline as a percentage of sales. Operating costs were 4.37% of sales in the first quarter compared to 4.64% in the year-ago period. King said: "We're now beginning to see the benefit of synergies created by the integration of the warehouses we acquired from Harris Wholesale and Snyder's Drug Stores [in Minneapolis last September]. Operating costs should continue to improve as we increase the efficiency of these warehouses and leverage the cost structure with higher sales volume." King stressed the importance of an improved earnings picture in the current fiscal year 1994, calling better earnings the wholesaler's "major focus." Discounting any significant impact from drug price inflation due to the pharmaceutical industry's determination to hold inflation to near the level of the general economy, King said: "Our best opportunities to improve earnings, therefore, will be in the areas of warehouse productivity and the sale of higher-margin services that help our customers' businesses grow. We're concentrating on these priorities and all other opportunities to improve our profit margins." Cardinal Distribution sales rose 19.4% for the fiscal year ended March 31 to $1.97 bil. Earnings increased 33.3% to $33.6 mil. Fourth quarter sales were up 3.3% at $498.9 mil. and income was $10.6 mil. for the three-month period, an increase of 38.6% from the same quarter a year ago. Like FoxMeyer, Cardinal is stressing its improving efficiencies and focus on better earnings. Chairman and CEO Robert Walter remarked May 11 that Cardinal's "earnings performance has remained exceptionally consistent in the face of lower price inflation for pharmaceuticals, uncertainty concerning national health care policy and a generally slow economy." Cardinal, Walter said, is "continuing to leverage previous investments in capacity as net earnings improved to 2.12 as a percent of sales in the fourth quarter versus 1.77% last year. This gain," he explained, was achieved "primarily on the strength of a significant improvement in selling, general and administrative expenses. We are very focused on maintaining our profit margins and increasing our return on the capital invested." Cardinal held SG&A expenses below 4% in each quarter of the fiscal year with an overall level of 3.32%. The full-year figure translates into a 9% increase in productivity, the wholesaler said. Teva's U.S. sales in the first quarter totaled $50 mil., exceeding sales in Israel "for the first time," Teva reported May 10. The recent success of Teva's U.S. generics subsidiary Lemmon is fueling corporate growth and profitability, the firm noted. Consolidated sales increased 27.4% in the quarter to $118.4 mil. Earnings rose 75.4% to $13.47 mil. Teva is increasing its support of Lemmon, which it recently estimated is the seventh largest generic drug firm in the U.S., now that the company has decided that the off-patent drug business has its own merits and is more than an inroad for introducing ethical products ("The Pink Sheet" April 26, T&G-12).
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