The Australian Pharmaceutical Industries Ltd (ASX: API) share price has fallen over 6% to $1.41 after the release of its half-yearly for the period ended 28 February 2018 yesterday.
The stock has now lost 31% over the last 12 months as the company faces an increasingly difficult operating environment in its Priceline retail stores network and pharmacy distribution business.
Flat revenue and declining profitability
Revenue for the group was essentially flat, dropping 0.3% to $2.0 billion for the period. Retail register sales from Priceline fell by 0.3% to $593 million despite the number of network stores increasing to 466 from 450 in the prior corresponding period.
This resulted in comparable store sales shrinking by 1.7% as the company's retail arm struggles with a subdued Australian consumer battling low wages growth and high utility bills.
Pharmacy distribution revenue was 0.3% lower to $1.45 billion and was negatively impacted by reduced demand for high cost Hepatitis C medicines as also seen in rival Sigma Healthcare Limited (ASX: SIG).
Eliminating the impact from the Hepatitis C reduction and Pharmaceutical Benefits Scheme (PBS) reforms resulted in underlying sales growth being 9.8% higher than the prior period, underpinned by gains from independent pharmacies.
After backing out a $2.6 million adjustment related to business restructuring and strategic business growth, underlying net profit after tax for the group fell 8.1% to $26.8 million with underlying earnings per share decreasing 10% to 5.4 cents. Management expects the company's FY18 underlying result to be marginally above its FY17 result under the assumption that current trading conditions do not worsen.
Foolish takeaway
This was a result roughly in line with the expectations management outlined at the company's AGM in January. Given the current issues in the Australian retail and pharmacy distribution segments it is difficult to build a compelling bullish thesis for the company in the near term. The company's largest shareholder, Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), notably decreased its ownership interest in the business last year.
However, one thing to watch out for is the possibility of Australian Pharmaceutical Industries taking over Sigma Healthcare's wholesale supply contract for the My Chemist/Chemist Warehouse Group which ends in June 2019 and is up for tender.
