Ladies and gentlemen, thank you for standing by, and welcome to the AmerisourceBergen Third Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded.
I would like to now turn the conference over to our host, Mr. Bennett Murphy. Please go ahead.
Thank you. Good morning and thank you all for joining us for this conference call to discuss AmerisourceBergen's fiscal 2019 Q3 financial results. I am Bennett Murphy, Vice President, Investor Relations. Joining me today are Steve Collis, Chairman, President and CEO and Jim Cleary, Executive Vice President and CFO. On today's call, we will be discussing non GAAP financial measures.
Reconciliations of these measures to GAAP are provided in today's press release and are also available on our website at investor. AmerisourceBergen.com. We have also posted a slide presentation to today's press release on our investor website. During this conference call, we will make forward looking statements about our business and financial expectations on an adjusted non GAAP basis, including but not limited to, EPS, operating income and income taxes. Forward looking statements are based on management's current expectations and are subject to uncertainty and change.
For a discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10 ks. AmerisourceBergen assumes no obligation to update any forward looking statements and this call cannot be rebroadcast without the expressed permission of the company. You will have an opportunity to ask questions after today's remarks by management. We ask that you limit your questions to 1 per participant in order for us to get through as many participants as possible within the hour. With that, I'll turn the call over to Steve.
Steve?
Thank you, Bennett, and good morning to everyone on today's call. Today, I am pleased to discuss AmerisourceBergen's continued strong performance in the Q3 of fiscal 2019, the critical role we play in the U. S. Healthcare system and how we continue advancing our people, culture and strategy to position AmerisourceBergen for long term growth. First, our fiscal 2019 Q3 financial performance.
Revenues increased a solid 5 percent to $45,200,000,000 for the quarter, and our adjusted diluted EPS was $1.76 an increase of 14% compared to the previous fiscal year period. We are extremely pleased with the continued overall strong performance by both the Pharmaceutical Distribution and Global Commercialization Services and Animal Health Groups. This quarter's results reflect solid execution, continued strong specialty product sales, growth of some of our largest customers and the overall strength across our businesses. The Pharmaceutical Distribution Services segment grew operating income quite well as our distribution business continues to work diligently to serve our manufacturer and provide our customers more efficiently and effectively. First, our innovative services and solutions continue to provide our partners with access to a state of the art distribution network and best in class customer experience offerings, enabling them to provide a more integrated, seamless and personalized experience for their patients, while enhancing their ability to maximize business performance.
Next, we are leveraging our expertise, capabilities and actionable insights to identify and execute new opportunities that create shared value for all stakeholders. Finally, our specialty distribution and practice management services are supporting market access to complex pharmaceuticals and enabling community based providers to run their practices more efficiently, while ensuring patients have access to vital pharmaceuticals when and where they need them. For PharMEDium, progress continues as expected. As we communicated this past May, the consent decree was finalized and PharMEDium is currently in the midst of a third party audit inspections at 2 open facilities, while they continue their commercial operations. The results from these audits will be an important input into an assessment of a future work plan to reopen the Memphis facility.
Entering into the consent decree and completing these initial third party audit inspections are meaningful milestones for PharMEDium as we continue our ongoing comprehensive strategic and financial review of the business. Moving on to our Global Commercialization Services and Animal Health Business Group reported as other. We are extremely pleased with their performance this quarter as the group achieved double digit year over year operating income growth, led by a strong performance from MWI Animal Health. During the Q3, MWI benefited from solid demand from its strong customer base, particularly within the Companion Animal Health segment. The business also continued to efficiently service its customers and their patients by driving additional cost efficiency through technology improvements.
MWI along with World Courier and the entire comprehensive portfolio of the MarisourceBergen Consulting Services businesses are executing on their plans and continuing to find new ways to expand upon our robust and pharmaceutical centered value proposition, creating additional value for our customers and partners. Our leading data and technology platforms, new digital tools and partnerships are creating additional efficiencies, enhancing the customer experience and advancing patient outcomes for manufacturers. As manufacturers' needs evolve, AmerisourceBergen will continue to respond with differentiated solutions that further support enhanced access for pharmaceutical commercialization and companion and production animal health products, making AmerisourceBergen the essential partner for the global pharmaceutical industry. AmerisourceBergen devote the same relentless focus and unwavering support towards creating value for our downstream customers. Community providers are the cornerstone of access and care in their local communities.
AmerisourceBergen's ongoing commitment to community providers, including independent pharmacists, reflects our continued recognition and support of the value that they bring to patients and their local communities. Last week, we actively engaged a record number of our independent pharmacy partners at ThoughtSpot 2019, our annual conference and trade show hosted by Good Neighbor Pharmacy. This conference provides independent community pharmacists with practical and clinical education resources, helping them optimize their businesses, especially as community pharmacy becomes a support local movement. As resilient and customer service oriented entrepreneurs, independent community pharmacists differentiate themselves by being hyper local and customizing their store experience with hometown pride in mind. AmerisourceBergen is committed to empowering our 4,600 independent pharmacist customers to tell their stories and serve their patients with additional help from tools and resources that we provide.
For example, our Good Neighbor Pharmacy's network's business and market service, marketing services are enabling pharmacists to focus on the in store experience for patients, connect effectively with providers and create a unique experience tailored to their community. We have also introduced more digital tools to help pharmacists personalize the care they provide and measure the impact of their performance. Moreover, our ELEVATE provider network provides pharmacies with intuitive analytics and benchmarking system solutions to help pharmacies maximize profitability, improve operational effectiveness and enhance patient care. On a much broader industry scale, AmerisourceBergen as a driver of solutions continues to advocate and support independent pharmacists and all of our community based provider customers by telling their stories to patients, providers and lawmakers. Our passion and commitment to being a solution provider in the U.
S. Healthcare system has not wavered. AmerisourceBergen responds when customer needs or problems arise. We are a forward thinking and creative organization that will always look to be a part of the solution and relentless in our pursuit of opportunities that can add value for our customers and partners as well as drive efficiency, support transparency and enhance access within a safe and secure healthcare supply chain. We also respond as a global solutions leader when industry challenges like the opioid epidemic confront the entire healthcare industry and local communities.
AmerisourceBergen understands and appreciates the enormity of the opioid challenge and we take our role in the suspicious orders and to halt diversion. Notably, as a logistics provider and distributor, we do not have access to patient information and we are not qualified to interfere with a very personal clinical decisions made between patients and their physicians. That said, we recognize the important role we play in the supply chain and work hard every day to be a responsible company providing daily reports to the DEA of all controlled substances shipped to our customers, including opioid based medications. Building on the company's commitment to transparency, AmerisourceBergen will be releasing a comprehensive report next month describing how we as a company have responded to the opioid epidemic, including the Board's oversight of risks associated with the company's role as a distributor of prescription opioid medications. Our actions are a reflection of the innovative problem solving culture driven by AmerisourceBergen's 21,000 associates, who work tirelessly every day across over 50 countries to deliver on our purpose of being united in our responsibility to create healthier futures.
Our people are a competitive advantage for AmerisourceBergen. Anchoring on our strongly defined purpose and under the leadership of our Chief Human Resource Officer, Silvana Battaglia, we continue to make advancing our people and culture a top priority. First, we are making investments to further engage, develop and attract talent. We are expanding opportunities for career growth, development and collaboration across the company to support our corporate strategy and accelerate our growth as one ABC. On the topic of attracting talent, we're excited to welcome our new Chief Strategy Officer, Leslie Donato, who joined us a few weeks ago and brings nearly 30 years of long range strategy and healthcare industry expertise to AmerisourceBergen.
Reporting directly to me, Leslie, along with her team, would help us identify and implement growth initiatives that drive value for our manufacturer partners and provider customers and continue to create long term value for all of our stakeholders. Leslie's experience in global business development, strategy in the pharmaceutical industry make her an impeccable candidate to lead and grow our strategy function. Next, we are deepening our commitment to diversity and inclusion within our workforce and supplier base. As a company, we are proud of our perfect score on the 2019 Corporate Equality Index, the nation's premier benchmarking tool on corporate policies and practices related to LGBTQ Work Based Equality and remain steadfast in expanding our diversity and inclusion efforts to further strengthen the innovative, creative and diverse exchange of ideas and solutions that can enrich the value that we can provide to all of our stakeholders. AmerisourceBergen's culture is inspired by our purpose, shaped through collaboration and rooted in mutual respect for one another.
We are leading through our guiding principles, promoting recognition and appreciation for strong performance and ensuring a safe and secure work environment in order to fortify our competitive edge. Advancing our people and culture further supports and enables Amerisource Bergen to be well positioned to continue creating shareholder value and delivering long term sustainable growth. We appreciate the unique value each associate brings to AmerisourceBergen, while also recognizing the collective and vital role that AmerisourceBergen and our industry play in enabling access to pharmaceuticals for the patients that need them. Overall, the pharmaceutical distribution industry delivers unparalleled efficiency, access and security to the U. S.
Healthcare system. In research published this week, Deloitte analyzed the critical role that distributors play in connecting 2 highly fragmented markets of 1300 manufacturers and 180,000 points of dispensing. The report noted that distributors do much more and ship products from manufacturers to pharmacies and providers, highlighting that our industry's core services, which include distribution, inventory management, financial risk management and information sharing, generate tens of 1,000,000,000 of dollars in value annually to the healthcare ecosystem. Alongside the industry's value proposition, AmerisourceBergen possesses a differentiated and well established strategy and unique value proposition that takes advantage of key macro trends in healthcare. AmerisourceBergen is a pharmaceutical centric leader in distribution and commercialization services continues to benefit from growth in the U.
S. Pharmaceutical market, which is driven by innovation, patient demographics and prescription utilization trends. Our focus on strong customer partnerships in each market segments and innovative services and solutions both upstream and downstream further enables us to grow and evolve to address the needs of manufacturers, providers and the patients they serve. We are a trusted partner to manufacturers and providers, a responsible steward of shareholders' capital and more than ever a global solutions leader. Denied in our responsibility to create healthier futures.
As we head into our fiscal 2020 planning process, we feel confident that our business strategy, relationships and execution position AmerisourceBergen to continue to
year June quarter. For a detailed discussion of our GAAP results, please refer to our earnings release. As we close in on the end of our fiscal year, we are extremely proud of the performance of our associates to deliver strong operating results. The execution and efficiency across our businesses is clearly benefiting our results as we continue to work diligently to be the partner of choice both upstream and down. Turning now to discuss our 3rd quarter results.
I will provide commentary in 2 main areas this morning. First, I will detail our adjusted quarterly consolidated results and our segment performance. 2nd, I will cover the upward revision to our fiscal 2019 adjusted EPS guidance. Moving now to our Q3 results. We had strong performance for revenue growth, expense management, operating income growth, operating margin, EPS and cash flow.
We finished the quarter with adjusted diluted EPS of $1.76 an increase of 14%, primarily due to higher operating income, a lower share count and lower net interest expense. Our consolidated revenue was $45,200,000,000 up 5%, primarily driven by solid revenue growth in both the Pharmaceutical Distribution Services segment and our Global Commercialization Services and Animal Health Group. Gross profit increased 5 percent or $58,000,000 to 1 point expenses increased 3.7 percent to $723,000,000 We had solid overall expense management this quarter as we continue to focus on effectively managing operating expenses throughout the business and have been able to move faster than originally anticipated to capture synergies related to our fiscal 2018 acquisition of H. D. Smith.
Additionally, we had a favorable impact on the SG and A line from better than expected healthcare benefit related costs. Consolidated operating income was $507,000,000 up 6.8 percent with our operating margin up 2 basis points. As a reminder, we have lapped the headwind caused by PharMEDium over the previous 4 quarters. Lapping the headwind from that business helped slightly with our year over year comparison. Net interest expense decreased $11,000,000 to $36,000,000 primarily due to an increase in interest income as a result of an increase in our average invested cash balance and an expect our net interest expense to be lower for the fiscal year.
Moving now to income taxes. Our income tax rate was 21%, up from 20.3% the prior year quarter. Our diluted share count decreased 4% to 211,000,000 shares. We repurchased $175,000,000 of our shares this quarter As a result of our opportunistic share repurchases this year, we have bought back over $520,000,000 of shares in the 1st 9 months of our fiscal year. Regarding free cash flow and cash balance, year to date, we had adjusted free cash flow of $1,300,000,000 which excludes the benefit of $143,000,000 of antitrust litigation settlements.
We ended the quarter with $3,000,000,000 in cash of which $660,000,000 was held offshore and the majority was U. S. Denominated cash. This completes the review of our consolidated results. Now I'll turn to our segment results.
Beginning with Pharmaceutical Distribution Services, segment revenue was 43 point $5,000,000,000 up 4.7%. The segment continues to benefit from strong specialty product sales, growth of some of its largest customers and overall market growth. Segment operating income increased about 4.9 percent to $412,000,000 with our operating income margin up 1 basis point. Our unique and balanced portfolio of customers and industry leading specialty distribution businesses are key drivers of our performance and positively differentiate AmerisourceBergen. Additionally, I will highlight that we have had notable success this year relating to increased penetration within our existing health systems customer base.
The execution by our pharmaceutical distribution businesses continues to be impressive as our teams work tirelessly to create significant value for our partners both upstream and down, all while maintaining focus on managing our operating expenses. I will now turn to the other segment, which includes businesses that focus on global commercialization services and animal health, including World Courier, AmerisourceBergen Consulting and MWI. In the quarter, total revenue was $1,700,000,000 up 9%, primarily due to growth at MWI and Consulting's Canadian operations. MWI had an exceptionally strong quarter recording its first ever $1,000,000,000 revenue quarter driven by particularly strong growth in Companion Animal, including strength in new customer wins and increased sales to existing customers. From an operating income standpoint, the other segment had operating income of $95,000,000 up 16%.
This group is lapping some challenging quarters and also experiencing some nice growth at multiple businesses. In particular, this quarter, MWI continues to benefit from maintaining, expanding and adding strong customer relationships with an intense focus on delivering exceptional customer service while optimizing its operations. Also in the other segment and taking a step back from this quarter's results, we continue to be encouraged by the success Lash has had in both renewing and winning long term customer relationships
in fiscal
2019, particularly compared to fiscal 2017 2018. The Fusion platform continues to be a differentiator for Lash's service offering. And while fiscal 2019 continues to be a transition year for Lash, we're excited about the long term outlook of the business. This completes the review of our segment results. So now I will turn to our fiscal 2019 guidance.
As we said in this morning's press release, we are raising our fiscal 2019 adjusted EPS guidance from $6.70 to $6.90 to our new guidance range of $7 to $7.10 as businesses across AmerisourceBergen continue to execute at a high level. Turning now to operating income. We now expect to grow operating income in the 3% to 4% range as we have narrowed our Pharmaceutical Distribution operating income guidance to a range of 2% to 3% growth. Our operating income guidance for the other segment is unchanged at high single digit growth for the fiscal year. Regarding tax rate, entering the last quarter of the year, we are narrowing our tax rate guidance from a range of 21% to 22% to guidance of approximately 21%.
Turning now to free cash flow. Given our significant free cash flow year to date, we now expect our adjusted free cash flow for fiscal 2019 to be between 1,500,000,000 dollars and $1,700,000,000 up from our previous guidance range of $1,400,000,000 to $1,600,000,000 Regarding share count, given the amount of opportunistic share repurchases year to date, we are lowering for weighted shares outstanding to approximately 212,000,000 shares, down from our previous expectation of
of
assumptions around pharmaceutical pricing for the full fiscal year. Broadly speaking, both brand and generic 4th quarter. We continue to expect strong performance across AmerisourceBergen's businesses. However, as a reminder, the 4th quarter tends to be a lower contribution period for us. Notably, our operating expenses tend to be higher in that quarter as we exit the fiscal year and we are not expecting the SG and A favorability experienced in the Q3 to repeat in the 4th.
As it pertains to fiscal 2020, our corporate process remains unchanged. We will provide comprehensive financial guidance at the end of the current fiscal year. This approach allows for our guidance to be fully informed by the output of our year end business planning process. In closing, the execution and efficiency delivered across AmerisourceBergen continues to impressive. AmerisourceBergen's strategy, leadership in growing markets, strong customer relationships and our transition toward 1 ABC to increase collaboration and develop talent across the enterprise have us well positioned to continue to create long term shareholder value.
Thank you for your interest in AmerisourceBergen. Now I will turn the call over to the operator to start our Q and A. Operator?
Our first question comes from the line of Glenn Santangelo from the company of Guggenheim. Your line is open. Please go ahead, sir.
Yes. Thanks and good morning. Thanks for taking the question. Steve, I just wanted to talk about the margin experience this quarter. Clearly, you had strong margins in both segments.
And Jim, I appreciate the detail, but I was wondering if you could unpack those margins a little bit, maybe give us a better sense for what really drove the strength in each of the segments to help us better assess maybe the sustainability of some of those trends as we look to the balance of the year and into fiscal 2020? And then I have a follow-up. Thanks.
Glenn, I'd like to answer the question, but Jim Cleary is literally jumping off his seat to answer. So I'm going to give him I'm going to give our CFO the opportunity.
All right. Thanks, Steve. Yes, Glenn, we feel very good about the quarter. And one of the things we feel good about is, as you brought up in your question, margin performance in the quarter. And I'll kind of start kind of general, then I'll get into the details of it.
First of all, one thing driving our margins is our strong value proposition. And we feel like we offer very high quality services and logistics, financing, safety, security, and we offer them very efficiently. So we feel we're very fairly compensated for those services and have a strong value proposition. If we kind of look at the overall business, revenues up 5%, gross profit up 5%, operating expenses up 3.7% and OpInc up 6.8%. So we actually had a 2 basis point improvement in operating margin.
And looking at Pharma Distribution, and I'll get a little bit more into the details here. Revenue up 4.7%, operating income up 4.9%, so 1% excuse me, a 1 basis point improvement in operating margin in pharma distribution. And that was really kind of driven by very strong performance in specialty, in particular our specialty physicians services business and of course all the wraparound practice management services that we offer benefit our margins, was driven by really strong performance, with health systems and we had good generic penetration with customers and our health systems business unit. And so that was a benefit also. And then I'll also call out expense management benefited us also.
And we got to kind of our run rate of H. D. Smith Synergies sooner than anticipated. So all those things really contributed strong across the board performance in Pharma Distribution caused us to have that one basis point improvement in operating margin in farm and distribution. And there's also actually a 1 basis point improvement in gross margin also in farm and distribution.
And in Global Commercialization Services and Animal Health, we had very good performance on revenue and operating income and very strong improvement in operating margin. And really operating margin is the relevant metric to look at in that business because really kind of business mix between the different business units can really impact gross margin and our other segments. So very strong revenue, op bank and op margin and global commercialization services, animal health. We talked about very good performance in animal health in the quarter. We also had very solid performance in World Courier, which has been operating at a very high level for quite some time and good performance in our consulting business and we called out the Canadian business during our prepared remarks.
So I'd say those businesses are very well positioned in their respective markets and taking advantage of opportunities, which really kind of drove the operating margin improvement in the other segment. With regard to Q4, you had asked about Q4 and kind of the good operating performance, this very solid operating performance is built into our guidance increase that you'll see. And so we are expecting very solid operating performance in Q4. We probably won't have some of the G and A benefits, particularly kind of we don't expect the our internal health benefit costs. We don't expect that to repeat in Q4.
We probably won't have the same benefit in interest expense in Q4, but of course that doesn't impact the margins of our business. And you asked also about the 2020. We are in the midst of our planning process for 2020 and that process is going quite well. And it will provide 2020 guidance when we announce our year end results.
Thank you so much for that detail. Steve, maybe I'll just ask you one quick follow-up on the specialty business. It clearly seems to be a big driver for you and others. And given all the regulatory proposals that are out there that seem to be targeting the higher prices of these specialty drugs, one question that sort of keeps coming up to us is, can any of these proposals impact the supply chain? Are there any in particular that you're paying attention to?
How do you sort of reconcile that as it relates to your business? Thanks and I'll stop
there. Yes. Thank you. And I'm really very proud of our continued strong performance in our specialty businesses. We really have a unique portfolio of market leading companies there.
Of course, we don't own any practices, but have really created a lot of practice management services. Our oncology business is of course our Bellwether business there, but our basic medical business also had a really strong results with much more therapies being administered in part these out settings outside of oncology, including urology, ophthalmology and even orthopedics, we're starting to do some work there. So it's just there's so much innovation occurring in these settings. In fact, many of the new therapies, the immuno oncology drugs are already additive to existing product utilization trends. And we have just a great portfolio of customers.
Our customers are often the aggregators there. So we're retaining our strong relationships with them and we've even announced some key resignings, but they're also some of the consolidators as it's a difficult environment in oncology for smaller practices to be self sustaining. So there is a trend there for the larger practices and we tend to have strong enduring long term relationships with a lot of those customers. But our team has been in place for a long time. We've had some really good generation type changes there have brought in some leaders that have been around a long time, but have fresh visions for the company.
Our relationships with pharma in these areas is very strong. Just couldn't be prouder and more confident in the way we positioned in these physician, especially distribution business. So they have been just a terrific performer in fiscal year 2019, but even the preceding years as well.
Okay. Thank
you. Thank you. And our next question comes from the line of Eric Percher of Nephron Research. Your line is open.
Thank you. And given that you raised the opioid topic, maybe a question there. I won't ask you to comment on the ongoing litigation, but as we scratch the surface of the Arcos data, it appears that diversion activity looks very different, maybe along the Blue Highway and in other areas of the country. And I'd love to get your perspective on whether that is the case and anything you can share relative to how you view your position? And then relative to the report that's coming, maybe part 2 of the question, how do you balance the need to improve your own operations without handing ammunition to the plaintiffs?
Well, first of all, that data was through 2012. I've just finished my 8th year as CEO and that was my 1st year as CEO. And also in 2013, the market shifted a lot with us, taking over the Walgreens distribution and we took over all the distribution and we pointed to that as a key change in the market for us as we took over both brand generics and even controlled substances. So I just last night, I'll tell you a personal story quickly. We had an event for our foundation and one of the foundation charities we support is a company called eLuna that helps with the victims of the crisis' children and provides some accounts for them and we met a few of the kids.
And this crisis is one that affects our society. It's one that as an employer we take very seriously. It's one that is a supply chain leader we take very seriously. I think you understand our role and I read your report, Eric, with a lot of interest. So we've worked collaboratively to stop suspicious orders.
I feel proud of the work we've done. We revamped our program in 2,000 and 7. We've reported all our suspicious orders. We reported control substances on a daily basis as well as the ARPUs reporting, which is not quite on a daily basis, but is in regular intervals. We've tried to work collaboratively with the DEA and all government sponsored agencies.
We feel like we've discharged our responsibilities very faithfully and very ardently in the absence of care information. So the data was interesting. I don't think it's appropriate for me to get into one state versus another. It's we've really looked at this on a distribution center basis. And again, we feel that ABC has acted really extremely responsibly with really one hand tied behind our back.
So I think that's what I'd say. Jim, would you like to add anything? I think
that covers it really well, Steve. Thanks.
Is the goal of the upcoming report to help you identify other areas or to make clear both actions of the past?
Yes. So we are pleased. It's been the first positive benefit. And we like transparency. We have no problems with transparency.
Our Board has had tremendous oversight. We'll be coming out in the next few weeks of the report from the Board on our role in the supply chain. The risk that we have as a leading distributor in the pharmacy for the supply chain, really talking about strong compliance program, our corporate integrity programs. We have, of course, really upped our game on this even more. I'd say that continuing quality improvement really applies here.
One great example is we know so much more about the customers that we bring on to service. And I don't want to sound arrogant in any way, but I would say that it's a privilege to be an Amerisource serving customer. You'll be treated with respect. You'll be treated with fairness and we will do our best to service and give you the fairest pricing we can. So what we expect from you is very good ethics and very good monitoring of the prescriptions that you're in a much better position to manage than we are.
So that's just one example. I can tell you, we have been very, very scrupulous about what customers we bring on to service, particularly in areas of risk, pharmacies that service pain clinics, etcetera. So I think we really covered this topic. So thanks, Harry.
Thank you.
Thank you. And our next question comes from the line of Robert Jones of Goldman Sachs. Your line is open.
Great. Thanks for the questions. I guess just to go back to some of the growth drivers that you highlighted in the quarter, both you and your competitor who reported last night referenced growth from the largest customers as helping out in the current quarter. It doesn't really seem like we've seen an inflection in the same store prescription growth at the large retail customers. So just trying to get a better sense of where that growth is really coming from.
Is it really more the health systems and from specialty? And if it is those channels, Steve, I'm just curious, what is driving the growth there? And is it in fact sustainable?
We saw solid growth in our U. S. Businesses. And one differentiator from AmerisourceBergen is we are very indexed to the U. S.
Pharmaceutical business. Our customers are doing interesting things. They're doing acquisitions. They're in the forefront of a lot of the change in retail. Obviously, independents are having a tougher time with reimbursement headwinds.
But again, there's nothing new to that. This is a challenge that has been evident for a long time. And I think with the guidance of Elevate, some of our pharmacies have made a decision not to participate in narrow networks and have looked at what they can afford with a strong analytics programs that we have. They've looked at what can they afford to participate in. And I think they're in a better position to reimbursement access with Elevate.
We think that we've set our independent pharmacies to know very well what's going on. The larger customers, of course, like our largest customer WBA, they understand the market well. They have their own resources in those sort of areas. And we're happy with the growth from that customer segment. One thing I would just point to is the portfolio of customers that we have at ABC.
Clearly, and now this is a trend for several years, we have over performed relative to our sales growth in specialty. And that specialty in the Part D setting, but it's also specialty drugs in the core drug distribution business where there is so much innovation going on and where so much of the manufacturers R and D is going. And when I listened to these debates last night, I just I wonder when anyone's going to make the point that this is one of the great American manufacturing industries and we are so proud to be a part of this. And when we see these wonderful new drugs coming out and there's just so many, I mean, 50 biotech companies went public last year. So we just we think we're very well positioned and we've seen the benefit of this innovation.
Jim, anything on any specific segments? Health systems here strong as you pointed out.
Yes. I think what Steve, as you were saying, what really benefits us is that the broad portfolio of customers, the key anchor customers, independent pharmacies, health systems, physician offices, mail order, veteran practices, it's that broad portfolio. And I think in particular this quarter, while we benefited really in many, many areas, a couple of things to really call out is we have its specialty and physician practices and health systems. Although that can while those businesses should be strong over a longer period of time, different parts of our businesses will benefit us from time to time. So having that broad portfolio is a real strength.
Yes. And I'll address that,
of course, with the 16% earnings growth year over year quarter is outstanding as well. So we were really proud of our performance in some of our smaller higher growth, higher margin businesses as well.
And then if I could just sneak in one follow-up for Jim. You referenced this better than expected healthcare benefit a few times in the SG and A Just curious what exactly was that? And if you could give us any sense on the size of it, that would be helpful.
Yes. And we actually talked about that and had a similar benefit last quarter in the fiscal second quarter. And so our internal health benefit expenses were better than anticipated. And it's really kind of due to a couple of things. 1 is lower claims experience and the second is a change in benefit design that we did at the beginning of the year.
And so that's Thank you.
Thank you. And our next question comes from the line of Charles Rhyee with Cowen. Your line is open.
Yes. Hey, thanks for taking the question guys. I wanted to go back a little bit about Part B a little bit more. I know you touched on it briefly earlier. Obviously, the Senate Finance Committee Bill, I think Steve last quarter you talked about your thoughts that obviously your oncology clients kind of look at the Medicare plan as being sort of a difficult space here.
Looking at the Senate Finance Bill proposed, do you think that helps solve it with sort of moving to sort of this inflation cap and making a sort of a fixed fee for physicians? Obviously, a move away from the IPI, which seems sort of unworkable. Just wanted to get your thoughts on what you're seeing with sort of the proposed bills as they stand now? And do you think that's a more workable solution for you and your clients?
Yes. So again, a lot
of the work we do in D. C. Other than around supply chain integrity and try quality and safety act, those sort of things. It's really advocacy for our customers and the leader of our quality business was just in DC this week. And we're going to be very active in areas that affect our customers.
Of course, biosimilars is an interest and what a sustainable overall brand processing environment is of course good for us. We also are big on patient access. Our lash business is probably one of the best known patient access businesses as we work to get patients access to many of these life changing products as we can. So we think we're very informed on this issue. I'd say we bought the Lash Group in 1998.
Ever since then, we had the really the humbling experience of the MMA where our fees were included in ASP. And I think not only ABC, but our industry and our trade associations are really on this. This. We get that we have to be involved in the political process. The political process is pretty dynamic at the moment.
I think that might be an understatement. We saw last month the rebate rules change very drastically and very suddenly. So I think Charles, our best course of action is to stay the course, be very involved with our customers, work with organizations like we work with KOA, for example, Community Oncology Association in oncology. And we really try advocate for fair reimbursement and strong access for the patients that we feel we ultimately represent so that they can get settings in the they can get care in the settings that are most accessible and most comfortable for them. And even we believe most affordable.
So that's really where we're working very strongly. Jim, it's an important Anything you want to add?
No, I think that covers it, Craig.
Okay. I think Jim said a lot in the first question.
Yes, certainly. Can I and if I missed it earlier, can you just let me know, did you say when the auditing process is expected to be completed for PharMEDium?
I'll take that. Jim is going to take it.
Yes. And so the audits of our 2 open facilities are in progress and progressing well. And so it's kind of we have previously stated we are continuing operations at 2 of our facilities. And we're also continuing our comprehensive strategic and financial review of PharMEDium. It's too early to speculate on future decisions, but of course, we'll take into account the needs of PharMEDium customers and what's best for AmerisourceBergen shareholders.
And we'll provide updates during our we'll provide updates during our next call. And I'll also say that PharMEDium was not a headwind during the 3rd quarter as we stated. In fact, it was a very slight tailwind in the 3rd quarter, a smaller operating loss. And again, we don't expect it to be a headwind in the Q4.
But there's no set end date yet for the audit itself? It's just sort of like an ongoing process at the moment?
Charles, we expect that we will have the process completed this month.
Okay.
Yes. And I do feel good that I'm on the 1st of the month because these things inevitably take longer than you expect, but we expect it to wrap it up this month.
Great. Thanks a lot guys.
Thank you. And our next question comes from the line of Steven Valiquette of Barclays. Your line is open.
Thanks. Good morning, everybody. So if we look at the new first time generic launches so far in calendar 2019, actually been a pretty decent wave of exclusive launches, particularly in products that may see more limited number of suppliers for quite some time. So I'm just curious if you're able to discuss how much contribution from new generics is tracking relative to your expectations so far in calendar 2019?
I can't say that we've seen a specific trend. I think we've talked over the last few years that this was when I started CEO, this was the number one metric we looked at. It was actually our first thing we looked at in the plan was what the pipeline is. And as we've talked and explained many times, and I think our competitors have had similar discussions, that the market has changed. The generic market, I think, is dynamic.
We saw big announcement at the beginning of the week. And there's a trend for authorized generics, which we think will be affected by our transparency and if there is anything on the rebate rules. So, but nothing really particular that we can talk about on new product launches. But the generic market is stable and really where we expected it to be and remains an important contributor to us for our profitability and our customers profitability.
Okay. Appreciate the color. Thanks.
Thank you. And our next question comes from the line of Lisa Gill with JPMorgan. Your line is open.
Thanks very much. Hi, good morning. Steve, just given the strong cash flow, not just in this quarter, but for the year, if I think back to a couple of years ago, you talked about potential strategic acquisitions in the areas of manufacturing services. Just can give us any update as to how you look at that component of the market would be my question. And then just on the follow-up side, as you think about pricing for both branded and generic, just curious how the quarter trended versus your expectations?
And you brought up the potential merger, what you think that could do around your buying group?
Okay. So I'll take the first one and let Jim do the second one. So thanks for the question, Lisa. We are very active. It's an important I think it's something we spend a lot of board time with, it's something we spend a lot of management's time with.
And we're active. If you look at my management team, so many of our team comes from acquisitions, including Bob, who really essentially has both the pharma distribution and other sector reporting to him now, Bob was really the founder of Xtended. So we've really the benefit of acquisitions is not only the portfolio effect and the acceleration of different services that we have and the deepening of those services or the gaining of new technologies, say that if we'd acquired a company that was really good in the areas that we're investing in the fusion, we could have accelerated that process, for example. So I think we just we are really well experienced in these areas and we want to be behind companies that have new services and new offerings that we don't have. So and with businesses like World Korea and Lash and Extended, we have very high standards.
So and we know the market's really 1, and I think we've been trying to grow those businesses organically. So that's a good example of do we need to do acquisitions or are we better with internal investments. We're having a lot of you've seen us invest $300,000,000 to $400,000,000 approximately every year. A lot of that is in technology. It's in making us easier to do business with.
It's in helping our customers understand the environments better. We had the trade show last week and our digital offerings for our independent pharmacies, for example, were very well received. So these are areas where we've seen more fruitful results for our shareholders than investing in small companies that sometimes are trading at up to 15 to low 20 times EBITDA. So we are financially driven as well. We our Board really holds us to a standard and management holds us ourselves to standard, seeing these acquisitions be accretive within a reasonable timeframe.
So we brought in Leslie Donato and we think Leslie is going to do a great job. And she knows the market. She's been a customer in her previous roles. She understands our commercialization businesses. Certainly, Jim, our CFO has done a lot of M and A, but also some very interesting JVs and partnerships where it made more sense to partner with the right company.
So I think we are focused on this area, but it has to be at the right price and it has to be a company that is going to give us really an accelerant in our portfolio or new market share. We did H. D. Smith not all that long ago and I think that's a great example of executing on our core business also as we almost complete all the synergy capture by the end of this fiscal year. Jim, please answer the second question.
Yes, sure. And the second questions, I believe, were around brand inflation and generic deflation and I'll get into those. But you're right, our cash flow is very strong and of course we've over $500,000,000 of share repurchases this fiscal year and also have been investing a lot in our manufacturer services business like Fusion, at Lash and Nova, at World Courier. But with regard to the inflation and deflation question that you would ask and branded inflation, yes, directionally as expected. Year to date, we have said mid single digits in our fiscal year 2019 guidance.
So directionally as expected. And as you know, 95% of our branded buy side margin is fee for service. So it's really kind of the other 5 percent that relies on price increases from manufacturers for our economics. And also in generic deflation, generally in the range of original expectations that we had put out at the beginning of the year and kind of generally in range of those original expectations.
And operator, we have time for one more question.
Perfect. And our last question comes from the line of Ricky Goldwasser of Morgan Stanley. Your line is open.
Great. Thank you. Good morning. So my question is about a strategic partnership with 1 Oncology. How is it structured?
Do you share the profits? And do you and as part of this, do you have an opportunity to influence formularies? And do you see any other opportunities to form similar relationships with other providers?
Yes. We have certainly we announced 1 oncology. It's really a partnership with Ion and which is our practice management and contracting division. And certainly, again, as some of these oncology groups become mega, our relationship with them is always interesting. I think that they sort of cut that's going to challenge us to keep on adding new contracting services and new level of value to them as they really expand into various states.
We have Ricky, 1 oncology is new. We have 2 or 3 other customers that are that are in the practice aggregation business and that we are contracting with and other customers that are very strong in their region. So this is part 2 of the 3 founding practices were not to get too granular, but 2 of the 3 founding practices one oncology were existing customers. And I think then you go to a new business and this is the sort of situation that we've seen in many of other sectors. So we actively participated and I think we're very proud that AmerisourceBergen was chosen to be the prime vendor and the services provided for that customer.
So thank you for the question. So with that, we're going to wrap up our Q3 call. And I just want to say that I think that this year has been a year of tremendous execution for our business, both on the pharma distribution and on the other sector. Our corporate stack is working very well. We're responding to situations that arise, be it reimbursement or the challenges of the opioid crisis as one ADC.
I think you're seeing an intention to get the PharMEDium issues resolved and behind us. So I just think this has been really 9 months of solid execution.
And as
we look
at the long term, I just would point
you to the key drivers that have made AmerisourceBergen successful, which is our focus on supply channel, our really strong deployment of capital and cash flow, whether it be in internal programs, acquisitions or business expansion, internal investments, and really just a management team that knows how to keep those well placed customers and work with them to ensure that they are successful in the marketplace and in turn AmerisourceBergen is successful. So thank you for your time today and this has been a pleasure having this hour with you with such good results to share. Thank you.
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT and T Executive Teleconference Service. You may now disconnect.