Ladies and gentlemen, thank you for standing by, and welcome to the ABC Earnings Conference Call. At this time, all phone lines are in a listen only mode. Later, we will conduct a question and answer session with instructions given to you at that time. As a reminder, today's conference call is being recorded. I'll now turn the conference over to your opening speaker for today, Bennett Murphy.
Please go ahead.
Thank you. Good morning, and thank you all for joining us for this conference call to discuss the AmerisourceBergen fiscal 2018 Q4 financial results. I am Bennett Murphy, Vice President, Investor Relations for AmerisourceBergen. And joining me today are Steve Collis, Chairman, President and CEO Tim Gutman, Executive Vice President and CFO and Jim Cleary, Executive Vice President and Incoming CFO. On today's call, we will be discussing non GAAP financial measures, which we use to assess the underlying performance of our business.
The GAAP to non GAAP reconciliations provided in today's press release are also available on our website. During this conference call, we will also make forward looking statements about our business and financial expectations on an adjusted non GAAP basis, including, but not limited to, earnings per share, operating income and income taxes. Forward looking statements are based on management's current expectations and are subject to uncertainty and change. AmerisourceBergen assumes no obligation to update any forward looking statements or information, and this call cannot be rebroadcast without the express permission of the company. We remind you that there are uncertainties and risks that could cause our future actual results to differ materially from our current expectations.
For a discussion of key risk factors and other cautionary statements and assumptions, we refer you to our SEC filings, including our most recent Form 10 ks and through today's press release. I would like to remind you that we have posted a slide presentation to accompany this morning's press release. You can find it at our website, investor. Amensourcebergen.com. You'll have an opportunity to ask questions after today's remarks by management.
We do ask that you limit your questions to 1 per participant in order to get us to as many participants and inquiries as we can within the hour. With that, I will turn the call over to Steve. Steve?
Thank you, Bennett, and good morning to everyone on today's call. We will be updating you on our performance for the year and briefly discussing our 4th quarter and full fiscal year Additionally, I will spend some time addressing the current market environment, AmerisourceBergen's positioning and our expectations for fiscal 2019. Throughout fiscal 2018, our associates executed to deliver solid performance even as 2 of our business units continue to work through some challenges. I am proud of what we accomplished in this dynamic market and want to take a moment to thank our team of 21,000 associates for their dedication and performance. These are talented teams across the globe who help shape our culture, power our ability to execute and drive our growth.
Over the past year, we've had several notable achievements. First, we successfully executed a number of key strategic initiatives that further strengthened and expanded our relationships with key customers. Our team helped to enable the seamless integration of more than 1900 Rite Aid Stores acquired by our largest partner Walgreens. We also continue to grow share of wallet within our existing customer base and successfully renewed key customer contracts, including with a key partner, Humana and several others, all without creating any margin headwinds. Next, our continued leadership and performance in specialty distribution remained a key area of strength for AmerisourceBergen.
This quarter marked the 19th consecutive period with 10% or greater revenue growth for our specialty distribution businesses and the first time surpassing $10,000,000,000 in quarterly revenue. We are proud of both this achievement and the ability of our teams to put our customers first, ensuring that patients have access to vital pharmaceuticals whenever and wherever they need them. For sale, our global commercialization services and animal health business group, including businesses like World Courier and Exenda, delivered results above expectations and surprised manufacturing innovation across the globe with best in class global specialty logistics and market access services. These efforts across AmerisourceBergen helped to deliver strong results. Revenues were up 11% to $43,000,000,000 for the quarter and 10% to $168,000,000,000 for the full year.
We delivered adjusted diluted EPS of $1.45 for the 4th quarter and $6.49 for the full year, an increase of 9% 10%, respectively, compared to the previous fiscal year period. Next, I will provide updates on 2 business units that have dealt with challenges in fiscal 2018. We are pleased with the substantial progress we have made at Lash Group As the business continues to migrate customers to Fusion, our game changing technology platform and manufacturer feedback continues to be very positive. In a growing market of new innovative specialty therapies that require additional patient access and adherence services, we believe Lash's focused services enabled by Fusion are a significant differentiator that is positioning Lash for future success. Now for an update on PharMEDium.
As always, patient safety comes first and we continue to communicate with the FDA to ensure they are satisfied that our Memphis facility meets 503 standards prior to commencing commercial distribution. We have made significant progress in Memphis. However, work remains to be done. The progress has certainly taken longer than we expected. However, that is the right approach to take and we have factored an appropriate outlook for PharMEDium in the fiscal 2019 guidance.
Despite the challenges, we believe the long term outlook for PharMEDium's business and industry demand remains unchanged. In fact, PharMEDium has secured the primary award status for a large health system GPO, reflecting the market's appreciation for the work we do and the product that we create. We have taken significant measures to ensure that the long term outcome from this process will be enhanced quality assurance and quality control programs that deliver the safest and highest quality products for our customers. As we close our review of fiscal 2018, I want to discuss our financial leadership transition. As you all know, back in September, we announced that CFO, Tim Gutman, had decided to retire from the company and that Jim Cleary, our current Group President, Global Commercialization Services and Animal Health will succeed him as Executive Vice President and Chief Financial Officer.
Throughout his 16 years in the company and the early 7 year tenure as CFO, Tim has been a key partner to me and the rest of the executive leadership team. He has supported the company delivering a strong track record of financial results, growth and total shareholder return. All the while, he has exemplified financial stewardship and humble leadership. Please join the AmerisourceBergen team and me as we wish the best to our colleague and friend, Tim Gutman. Now I'll turn the call over to Tim for a more in-depth review of our Q4 financial results.
Thanks, Steve, and
I really appreciate your kind words. This morning, consistent with past quarters, my remarks will focus only on our non GAAP adjusted financial results. For a discussion of our GAAP results, I would ask that you please refer to our earnings release. I also want to remind everyone that we are consolidating the adjusted financial results of our Brazil investment, ProPharma and the Specialty joint venture. We have yet to anniversary these consolidations and as a result, they add some complexity when reviewing our numbers and comparisons.
We continue to include a schedule in our earnings release, which illustrates the financial impact of the consolidation. As Steve mentioned, we are pleased with our 4th quarter performance. And importantly, we exited fiscal 2018 on strong footing. Excluding the financial headwind from PharMEDium, our business portfolio executed well. We grew our volumes across the enterprise and we had solid financial results.
In the second half of our fiscal twenty eighteen, we reported just under $3 in adjusted EPS, delivering on the guidance we provided on our March quarterly earnings call. With that, we can begin our detailed financial review. I will provide commentary in 2 main areas. First, I will discuss our September Q4 consolidated and segment performance. And second, I will provide a few brief comments on full year fiscal 2018 performance.
We finished the quarter with adjusted diluted EPS at $1.45 an increase of 9%. Let me highlight that Brazil was neutral to our adjusted earnings this quarter. We did lose a few pennies of EPS from 2 items that I will cover shortly that were onetime expenses specific to the Pharmaceutical Distribution Services segment. Our consolidated revenues were $43,300,000,000 up 11%. The growth rate was a solid 10% ex the impact from Brazil.
Gross profit increased 6% or $68,000,000 to about $1,200,000,000 However, when excluding the impact from Brazil, our gross profit would have increased 1%. Our Pharmaceutical Distribution Services segment contributed most of this increase despite the headwind from PharMEDium. Let me highlight our gross profit growth ex Brazil would have been closer to 2% if not for a onetime inventory expense due to damaged nonreturnable pharmaceutical products at 1 of our distribution centers. Operating expenses increased 17 percent or $106,000,000 to $732,000,000 We had several moving parts within OpEx that caused the large increase. Let me spend a minute working through these items to normalize the growth rate.
Brazil contributed just under half of the OpEx dollar increase and drove 8% in our OpEx growth. Additionally, Pharmaceutical Distribution's acquisition of H. D. Smith earlier this fiscal year drove roughly 5% of the OpEx growth. Consequently, our comparable year over year OpEx growth rate ex Brazil and also ex H.
D. Smith would have been a very good 4%. Let me also point out this 4% growth rate included a compensation item related to a year end 401 discretionary match we elected to make. Operating income. Our adjusted operating income was $432,000,000 down about 8% from last year.
And on a comparative basis, so ex Brazil, we would have been down roughly 9%. As a reminder, on our call last quarter, we specifically discussed the expected PharMEDium headwind in our Pharmaceuticals Distribution segment for the September quarter since the business had a very good Q4 last year. We will cover PharMEDium in more detail in the segment section. Overall, Steve and I both mentioned that we were pleased with our execution this quarter because ex Brazil and PharMEDium and the 2 expense items specific to the current September quarter, our operating income growth rate for ABC Consolidated as well as our Pharmaceutical Distribution segment would have been in the mid single digit range. Moving below the operating income line.
Interest expense net increased by about $8,000,000 Ex Brazil, the net increase was $5,000,000 due primarily to debt issued earlier in the year to fund the H. D. Smith acquisition. Income taxes. Our adjusted income tax rate was just about 20% and reflects the positive impact from tax reform and the new lower U.
S. Corporate income tax rate. Additionally, we completed the year with a higher international income mix than we forecasted due to the strong performance by World Courier and a lower contribution from PharMEDium. This change in income mix had a positive effect on our tax rate. Our adjusted net income after backing out the Brazil non controlling interest was $315,000,000 an increase of 7%, driven mostly by our lower tax rate and corresponding tax expense.
This concludes the review of our consolidated results. Next, I will cover our segment results. We can begin with Pharmaceutical Distribution Services. Total segment revenues were nearly $42,000,000,000 up 11%. The growth rate would have been 10% ex Propharma Brazil.
This 10% growth rate is mostly due to onboarding new business from our strategic partner Walgreens, growth in our specialty distribution business in the high teens as a percentage and integrating H. D. Smith. Moving to segment operating income. We had a decrease of about 11% to $357,000,000 The growth rate ex propharma Brazil was 1% lower at negative 12%.
The segment was impacted by lower performance at our PharMEDium business. Ongoing remediation efforts at PharMEDium's Memphis facility caused a significant decline in year over year units shipped. We also had lower units shipped from our open PharMEDium facility as they implemented enhanced quality procedures and testing. On the surface, the segment operating income results don't properly reflect the solid underlying business performance. We had better than expected growth from our key customer groups, led by higher volumes, especially in generics and oncology drugs.
Margins were in line with what we expected, and overall, we managed our expenses well. It's worth saying one more time the segment would have had a mid single digit operating income growth rate after factoring in the items I highlighted earlier when discussing ABC's consolidated results. Before I leave the Pharmaceutical Distribution segment, I want to point out that this is the Q1 that we recorded an estimated expense related to the New York State Opioid Stewardship Act. This expense has been excluded from our adjusted results because the expense is not expected to be recurring. Recently, we changed our operating business model in terms of how we receive opioid prescription drug inventory in our New York distribution centers.
This change essentially eliminates our New York opioid tax liability going forward. We can now move to the other segment, businesses that focus on global commercialization services and animal health, which includes Rural Courier, AmerisourceBergen Consulting and MWI. As a reminder, we consolidate our Brazil specialty joint venture in this segment. In the quarter, total segment revenues were $1,600,000,000 up 8%. When excluding the Brazil Specialty JV, revenues grew 3% led by our Canadian operations and to a lesser extent, World Courier and MWI.
From an operating income standpoint, with Brazil, the segment increased 5% or $4,000,000 to $75,000,000 The segment ex Brazil increased 3%. We are especially pleased with this result as this was the Q1 in fiscal 2018 that the segment had year over year growth. MWI led the way, while World Courier and our Ascended businesses also contributed. These three businesses offset the headwind from our Lash Consulting business. Let me spend a minute on Lash Consulting.
We continue to be encouraged by their progress. During the quarter, Lash added another key manufacturer partner to Fusion. This transition to Fusion was the most efficient to date, and we received high satisfaction marks from our partner. We are also pleased with the momentum at Lash with new business wins due in part to manufacturers being keenly interested in fusion and the systems capabilities and benefits. Looking forward, Lash is positioned well, entering a period with positive outsourcing and market trends.
Wrapping up the other segment, we are executing well and very optimistic about this group of market leading businesses and their prospects. This completes our segment review. I would now like to cover a few full year fiscal 2018 consolidated financial items. To make this review more efficient, my comments and comparisons will exclude Brazil. Revenue, our full year growth was a solid 9%.
Our specialty distribution business had an outstanding year, finishing with a revenue growth percentage in the mid teens. When excluding the impact from H. D. Smith and new business from our Walgreens relationship, specifically their acquired Rite Aid Pharmacy and Parmerica, our normalized revenue growth would have been just over 5%. Overall, we're pleased with this normalized growth rate as we continue to track above market as a result of our leading customer portfolio and best in class specialty business.
Our adjusted operating income for the year was down about 2%. We would have been closer to flat for the year, ex the items that negatively impacted us in our September quarter. And importantly, our operating income growth rate ex PharMEDium would have been in the mid single digits. EPS. Our full year adjusted diluted EPS was $6.49 up 10%, primarily due to tax reform, other tax initiatives and solid execution in the Pharmaceutical Distribution segment, helping to offset the headwind from PharMEDium.
Adjusted free cash flow. As a reminder, our adjusted free cash flow excludes the litigation payment we made in late September, which we reserved in fiscal 2017. We had an exceptionally strong cash flow finish in fiscal 2018, resulting in adjusted free cash flow of $1,700,000,000 just above the guidance range we provided earlier in the year and more importantly, about 120 percent of our adjusted net income. We ended the fiscal year with $2,500,000,000 in total cash, of which $800,000,000 was held offshore. During the quarter, we did elect to repatriate approximately $640,000,000 from our international operations, and we used this cash for general corporate purposes.
Going forward, we expect to repatriate international cash on an annual basis, primarily from our Switzerland business, subject to applicable tax laws. Our full year fiscal 2018 total share repurchases were $639,000,000 This translated to repurchasing about 3.5% of our share count. We continue to repurchase shares in October, roughly $125,000,000 to complete our share authorization. As I wrap up this section, our commitment to returning capital to our shareholders is clear. During the last 5 years, we returned about $4,000,000,000 between regular share repurchases and dividends.
The last topic I want to cover for fiscal 2018 is manufacturer drug pricing. 1st, brand drug pricing. If you remember, at the halfway point in our fiscal year, we had an average brand price increase of about 8%. With the slowdown in price increases during the second half of our fiscal year, we ended right in the middle of our 6% to 7% guidance range. Now moving to generics and specifically the deflation rate.
As a reminder, our range was a negative 7% to negative 9%, calculated using our buy side acquisition costs for generics. We ended the fiscal year just slightly higher than the negative 7%. Let me point out the deflation rate has remained relatively stable the last several months and has improved versus what we experienced last year. Stabilization is hopefully the last phase before easing generic deflation. As we have said in the past, the lower the deflation rate, the easier the annual hurdle is to overcome.
Each percentage improvement on how much generics are inflating is meaningful. This stabilization is a clear positive and something that makes us optimistic looking into the future for generic pricing. This completes our fiscal 2018 review. Before I turn the call back to Steve, let me make a few personal remarks. As I quickly approach my retirement date from ABC, I want to take a moment to acknowledge several groups of people.
First, to my ABC Finance and Accounting team, certainly best in class, thank you for your dedication, expertise and support you have provided to me throughout my time as CFO. To Steve, our executive leadership team, the terrific ADC Associates and of course our Board, thank you for your partnership and commitment toward enhancing patient access to pharmaceuticals and growing ABC together. And last but certainly not least, thank you to the sell side and buy side. I have enjoyed getting to know everyone and having conversations many times passionate about ABC's differentiated positioning and the incredible value our industry delivers every day. I'm honored and pleased to be handing the CFO range to Jim, a seasoned and accomplished executive who will help lead the company to new higher levels.
With that, I will turn the call back to Steve to discuss fiscal 2019.
Thank you, Tim. Looking to fiscal 2019 and beyond, AmerisourceBergen will continue to invest, innovate, execute and grow. Even with challenges from PharMEDium, we expect our fiscal 2019 adjusted EPS to be in the range of $6.65 to 6.95 dollars representing mid single digit percentage growth. Our pharmaceutical centric focus, unique portfolio of customers and businesses, differentiated customer experience and leadership in specialty, position AmerisourceBergen for long term growth and shareholder value creation. While there may be periods of uncertainty within the broad marketplace, we are confident in our ability to execute even as the company navigates through what continues to be an ever evolving healthcare landscape.
Healthcare remains a critical integral part of the economy and pharmaceuticals represent the most efficient form of patient care. They not only improve patient lives, but also key to mitigating overall health care spend. Right now, many debates regarding the U. S. Health care system are taking place at a headline level with the cost of care and the price of prescription drugs drawing focus.
We realize that the healthcare system will continue to evolve. It also recognized that significant changes will likely take time. In this dynamic environment, the scale and scope of AmerisourceBergen's value to its partners and our industry's value to the healthcare system overall continue to be undeniable. Our unique ability to provide logistical services and drive cost efficiency within the supply chain are vital to patient access and care. As changes to various part of the current healthcare model are considered, we'll have an important seat at the table during discussions with policy leaders, manufacturers, customers and other stakeholders to help ensure that changes do not negatively affect patient access to the best care possible and that our important role in the supply chain continues to be recognized.
We believe every change offers opportunity and our overall focus on innovation and efficiency is key to ensuring that any model evolutions reflect the value we provide. This morning's announcement of the Board approval of our new $1,000,000,000 share repurchase authorization reinforces our confidence in our value proposition and ability to successfully navigate the industry evolution and reflects our ongoing commitment to return capital to our shareholders. We will continue to focus on elements we can control. Being an advocate for community based providers, servicing our customer relationships, executing our differentiated strategy and investing in our businesses. AmerisourceBergen is positioned to continue delivering long term sustainable growth and entirely differentiated in 4 key areas.
1st, AmerisourceBergen has key long term anchor partnerships in each segment. Our alignment with these long term relationships expands our ability to create more value for all of our partners and position us for shared growth and success. We are extremely proud of the position we are in with our customers with no major contract renewals on the horizon. Manufacturers are a key customer segment who understand the value they capture in driving patient access to products through strategic partnerships with AmerisourceBergen. As a vital connection between pharmaceutical manufacturers and health care providers, AmerisourceBergen continues to enhance our value proposition to manufacturers through services, data and analytics that deliver additional value by helping manufacturers maximize patient access to therapy.
On the other end of the supply chain, AmerisourceBergen continues to support the viability and growth of community based providers, including independent pharmacies, specialty practices such as community oncology and veterinary practices. Consumers seek care in their local community, whether it's a hospital, a clinic or a pharmacy and accessibility of these healthcare professionals is vital. We want to make sure that we're enabling the local healthcare destinations to then serve the people and animals in their communities, providing access to expertise in medicine when and where patients need it. AmerisourceBergen will continue its unwavering commitment to supporting community based providers, enabling to use their time to focus on patient care and enhancing their ability to maximize business performance. 2nd, our leadership position in specialty, the fastest growing part of the pharmaceutical market, places AmerisourceBergen at the forefront of successful commercialization and distribution of specialty products.
Over the last several decades, we have made many strategic organic and inorganic investments, building out a comprehensive portfolio of global commercialization and distribution services that supports enhanced access for the increasing number of new innovative therapies coming to market. We continue to have the most extensive footprint in specialty, leveraging our strength and scale to serve as the key connections between manufacturers and physicians and ultimately patients. The growth of complex specialty medications is also driving an increased demand for commercialization services. AmerisourceBergen continues to be well positioned to meet this growing need by having made ourselves the essential partner for manufacturers throughout the pharmaceutical commercialization process. As a differentiated partner with market leading data and technology platforms and solutions, we are improving efficiency, driving data connectivity, generating insights and enabling manufacturers to enhance outcomes for patients and businesses.
3rd, innovation is fundamental in AmerisourceBergen. Our differentiated portfolio of services and solutions unlocks new value for manufacturers and provider customers. Our highly automated distribution network and key IT systems enable the successful navigation of a complex supply chain, while maintaining product safety and security. We remain committed to delivering a best in class customer experience through the design of new solutions that transform the customer's experience to become more integrated, seamless, personalized and informative, empowering providers to spend more time on patient care. For example, our ABC order technology designed by pharmacists or pharmacists continues to help providers operate more effectively and efficiently.
Giving us differentiated value and high customer satisfaction scores, we recently expanded and launched ABC order to support our health systems customers, helping them improve inventory control efficiency, optimize ordering decisions and access data trends and insights. Finally, AmerisourceBergen has a proven track record of successful financial stewardship. Our company continues to have a strong balance sheet and a thoughtful and disciplined approach to capital deployment that includes investments to drive organic growth. The valuation consideration of value creating strategic M and A opportunities, share repurchases and a reasonable dividend for our shareholders. This October, we completed our previous share repurchase authorization following the execution of opportunistic repurchases.
This morning share repurchase authorization announcement and increase in our dividend reflects our balanced approach to capital deployment and ongoing commitment to returning shareholder capital. In closing, I feel fortunate that in this financial leadership transition, we are able to have such an experienced executive as Jim take on the role of CFO of AmerisourceBergen. Jim brings more than 20 years of strong leadership and operational experience and an in-depth knowledge of our business to this new role. His proven track record of management and execution makes him an excellent leader to help AmerisourceBergen continue to grow as a leading healthcare solutions provider and drive shareholder return. Over the last several years working with Jim, I've come to know him well personally and professionally and respect and value his leadership experience, dedication to our associates and as many of you in the investment community already know, his commitment in delivering value to shareholders.
Now, I will turn the call over to Jim, who will discuss our financial guidelines for fiscal 2019.
Jim? Thanks, Steve, and good morning, everyone. Before I start my commentary on our fiscal 2019 guidance, I want to take a moment to thank Tim, not only for his support during this transition process, but also for having developed such a deep talented financial team to support me in my new role as CFO. I certainly have big shoes to fill and appreciate Tim's guidance throughout this process. During my time as CEO of MWI Veterinary Supply, I valued my engagement with the investment community and I look forward to working with all of you now as CFO of AmerisourceBergen.
Throughout my time here at AmerisourceBergen, most recently leading our Global Commercialization Services and Animal Health Group, I've gotten to work with so many great associates, understand in detail the complex services and solutions we provide our partners and fully appreciate our incredible value proposition for our manufacturer and provider partners. Now turning to some of our working assumptions that are factored into our fiscal 2019 expectations. 1st, brand pricing. We assume that brand inflation will be in the mid single digits. We believe this range is within reason based on historical pricing practices.
For AmerisourceBergen, the broad level of brand inflation is not as important as it once was due to our successful transition of our brand compensation to fee for service arrangements. 95% of our brand buy side compensation is now covered by fee for service. However, there are select number of manufacturers that have not transitioned to fee for service and for that group, our compensation for distribution services rendered throughout the year are realized as part of their pricing activity. If the economics we receive on the products from that subset of manufacturers were impacted, we would go back and renegotiate to ensure that we receive fair compensation for the services we provide. Now on the generic pricing front, we have been encouraged by recent manufacturer commentary regarding portfolio rationalization and the observed trend of manufacturers not launching their ANDA approved generics in markets that have sufficient supply.
As we look ahead into fiscal 2019, we are anticipating a generic pricing environment similar to the one that we experienced at the tail end of fiscal 2018. Given the positive stability and improvement we've seen in generic deflation, we will no longer break it out as a separate line item that we guide to and regularly update. This trend of stabilization is certainly a positive for margins and cash flow and we are hopeful that this is the beginning stages of the normalization of deflation. Turning now to the specific guidance metrics for our fiscal 2019. As a reminder, we do not provide forward looking guidance on a GAAP basis.
So, while the following metrics are provided on an adjusted non GAAP basis. Moving forward, the consolidation of ProPharma and the specialty joint venture in Brazil will be included in our guidance. We will continue to have year over year comparison distortions until we lap the impact of this consolidation as a result of our incremental investment that was made in January 2018. Regarding revenue, we expect consolidated revenue growth in the mid single digit percent range, largely driven by growth within our broad portfolio of customers and multiple strategic partnerships. Regarding consolidated gross profit, while we do not provide specific guidance on gross profit, there are some considerations to point out.
First, we have made great progress on rebalancing customer contracts. The process has been successful as our teams have been able to make the process a win win for customers as the broader market continues to shift to include more specialty products. 2nd, our sourcing team is ensuring that we are staying competitive in procuring generics. 3rd, our leadership in the high growth specialty distribution business continues to differentiate AmerisourceBergen. And 4th, our leadership and growth in higher margin commercialization services and animal health businesses are positives for our overall margin profile.
These gross profit benefits will be partly offset in fiscal 2019 by lower volumes at PharMEDium, certainly in the first half of the year and potentially for the year overall, which I will cover later in the Pharmaceutical Distribution Services segment section. Regarding consolidated operating expenses, we expect consolidated operating expenses to grow in the mid single digit percent range due to the consolidation of Brazil and the impact of an additional quarter of A. C. Smith. However, we will almost certainly finish at the very high end of this range.
We have been thoughtful in the integration of H. D. Smith to ensure that there is no impact to customer experience or service levels. We have had excellent customer retention and the integration of this business has done phenomenally well and there is a clear cultural fit. As we move further into fiscal 2019, we will begin to capture more H.
D. Smith synergies and fully expect to hit our run rate accretion target on time in fiscal 2020. If you were to normalize for the impact of the consolidation of Brazil and the elevated expenses related to H. D. Smith, our operating expense growth would be towards the lower end of mid single digits.
As always, our commitment is to remain diligent in investing and spending, focused on achieving the right benefits and returns while never sacrificing customer experience. Now I will turn to consolidated operating income. We expect to grow operating income in the lowtomidsingledigit percent range, helped this year by a return to growth by both of our operating segments. From a segment standpoint, we expect the following. In Pharmaceutical Distribution Services, while PharMEDium's Memphis facility remains closed, we're working through the timing of this facility's reopening.
We are incorporating a wide range for the segment's operating income growth and currently expect the segment's operating income to grow in the low single to mid single digit percent range. Without the potential headwinds from PharMEDium, the Pharmaceutical Distribution segment would be growing solidly in the mid single digits. It's worth noting that we've been working through remediation at the Memphis facility. We've also been implementing similar enhanced processes at our other 3 PharMEDium facilities while continuing to operate them. There are some production limitations at those facilities during this implementation period.
On a more positive note, the Pharmaceutical Distribution segment continues to benefit from our leadership in specialty distribution as we provide key services for our customers in the fast growing part of the market. Our strategic positioning in the specialty market is a clear differentiator for AmerisourceBergen. Additionally, the segment continues to benefit from having anchor customers under longer term contracts with no large renewals in fiscal 2019. Moving on to the other segment, businesses that focused on global commercialization services and animal health. We are excited to see this group return to growth in fiscal 2019.
We project that this group that helps differentiate AmerisourceBergen will grow operating income in the high single digit percent range in fiscal 2019. World Courier is carrying its strong growth from 2018 into 2019 and MWI picked up strong momentum in the Q4 through the execution of margin initiatives and continued strengthening of its customer relationships and commercial partnerships. This group's strong growth reflects the team's ability to unlock value and meet the growing demand for services to support specialty products and animal health even as Lash is migrating customers to the Fusion platform. We are extremely excited by the work being done at World Courier, MWI and our other consulting businesses to drive this great growth expectation and we look forward to last returning to its normal level of growth in fiscal 2020 beyond. Regarding interest expense, while we do not provide specific guidance on interest expense, I will highlight that the consolidation of Brazil and a full year with a debt issue to fund the H.
D. Smith acquisition will cause our interest expense to be up about 7% year over year. Moving to our consolidated tax rate expectation. Our guidance assumes a full year adjusted tax rate of about 21% to 22%. While we do get the benefit of 1 additional quarter at the new U.
S. Corporate tax rate this year, fiscal 20 eighteen tax rate benefited from a certain level of employee stock option exercises and some discrete one time items, all of which we do not expect to repeat. Regarding share repurchases, as Tim details, we repurchased over $750,000,000 of AmerisourceBergen shares if you look at the entirety of fiscal 2018 in combination with the buying activity that we had in the month of October. This opportunistic share buyback represents a significant return of capital to our shareholders. Our fiscal 2019 guidance
assumes that
our share count will tick up a bit throughout the year due to employee stock option exercises and we expect to finish the year at around 216,000,000 weighted average shares outstanding. Moving to earnings per share. We expect our fiscal 2019 adjusted EPS to be in the range of $6.65 to $6.95 reflecting growth of 2% to 7%. Rather than providing a point in time deadline for the reopening and ramp of production at PharMEDium's Memphis facility as we did last year, we believe it is appropriate to incorporate into guidance a range of 3 scenarios at PharMEDium. 1st, the business being a tailwind second, its contribution being flat compared to fiscal 2018 and 3rd, a scenario that includes a lengthy delay in the opening of the Memphis facility causing a sizable headwind from PharMEDium in fiscal 2019.
While we do not provide quarterly guidance, I will provide some incremental color to help explain the cadence of our EPS progression. Our fiscal Q1 of 2019 will likely be down slightly year over year as we lap a strong Q1 for PharMEDium in fiscal 2018. EPS growth will improve in the Q2, but overall we expect our second half EPS growth will be much better than our first half EPS growth. Moving to cash flow expectations. 1st, CapEx is expected to be about $300,000,000 Over half of this CapEx spend relates to key projects that are being carried over from fiscal 2018, including strategic technology investments like the expanded rollout of ACC order, our customer order entry system, Lasch's Fusion and World Courier's new logistics system Nova.
Additionally, as a result of our transformation efforts to further improve efficiency, we have decided to make the investment in bringing our specialty distribution group onto the SAP platform, which is a multiyear project with significant benefits, including enhanced customer experience. Now for free cash flow. We expect our free cash flow for fiscal 2019 to be between $1,400,000,000 $1,600,000,000 This cash generation level is impressive given that fiscal 2019 ends
on a
Monday, which is our worst cash day. As always, sales mix between specialty, brands and generic products, each of which have distinct cash conversion metrics, is a driver that can move us within this range. In closing, I look forward to taking on my new role as CFO of AmerisourceBergen. And as investors, you can continue to expect us to be focused on being strong stewards of capital. We are well positioned to deliver long term sustainable growth and drive value for our shareholders in fiscal 2019 and beyond.
And with that, I will turn the call back over to Steve for some closing remarks.
Thank you, Jim. Before we proceed with Q and A, I would like to share a few final remarks. AmerisourceBergen continues to execute and drive long term growth in a highly complex dynamic healthcare environment. Every day our teams collaborate and apply their expertise towards opportunities that serve our manufacturing provider customers in more efficient and integrated ways. As the discussion of different healthcare system models continues, AmerisourceBergen will continue to be a thought We remain steadfast in our commitment to be a part of the solution and supported with the most cost efficient form and size of patient care.
Our differentiated strategy and ability to execute strongly position AmerisourceBergen for long term growth. We think, plan and act strategically to improve efficiency, support partner growth, champion patient access and build long term sustainable value for our shareholders. More than ever, we are united in our responsibility to create healthier futures. As always, we appreciate your interest in AmerisourceBergen.
I will now turn it over to Bennett to start our Q and A. Thanks, Steve. Given the length of management's remarks this morning, we will be extending the call past 1 hour if needed for additional Q and A. Operator, we are ready to begin the Q and A.
Thank
First question is from the line of Steven Valiquette, Barclays. Please go ahead.
Okay. Thanks. Good morning, Steve and Jim. And also, Tim, just wanted to say I definitely enjoyed our interactions over the years and best of luck in future endeavors.
Thanks, Steve. Really appreciate it.
Just my quick question here really is curious as we think about the PharMEDium and your potential future revenue run rates, just curious has the industry growth stayed pretty robust for these products and services in 2018 2019 while you're partially out of the market? And then again, do you think you're still maintaining good relationships with customers today during this longer closure process? Or is it possible the longer it takes to resolve these issues, it could be a little bit of slippage on the prior volume? Thanks.
Yes, Steve. Thanks for the question. It's Steve Pollock here, of course. And we're very disappointed with where we find ourselves with PharMEDium, as we know you all are. Memphis does remain closed.
And I think it's important for us for you all to recall that we already focused on the long term here. And in the long term, we committed to a healthy relationship, bilateral relationship with regulators. Industry, PharMEDium was really such a large participant in the 503 industry, and it was one of the key drivers for our with the new legislation, one of the key drivers for our decision to invest in the company. We focus right now demonstrating the commitment to the FDA to the highest standards of regulatory compliance and patient safety, and that's going to be our priority. We think that the customers have been very supportive.
We announced a major award as customers do look towards the future. However, we recognize that customers are frustrated also. So it's hard to gauge exactly how the market will respond when we are ready, particularly as we don't have a firm start date. And so that's the frustration right now. And it has our full attention.
But I'll just end by saying that it's important to keep it in the context of the overall progress at AmerisourceBergen and great results that we feel we report in a very difficult market in fiscal 2018 and a relatively strong outlook for both segments, excluding PharMEDium, which we know investors can't actually look at like that. But it is probably helpful to you to see the strong trends that we have in the rest of our business. We'll take the next question or Jim sorry, Jim wanted to say something as well.
Yes. Just, Steve, following up on your comments, we're committed to not restart commercial operations pending further FDA feedback. And of course, our priority is to demonstrate to the FDA our commitment to patient safety and compliance practices. But addressing your question, we really do feel that there is compelling patient need and significant market demand for safe and effective compounded sterile preparation products. And we remain committed to being the market leader.
PharMEDium remains committed to being the market leader in quality and the trusted partner to customers. So of course, right now though our priority remains patient safety and we're dedicated to achieving full regulatory compliance.
And next question is from the line of Robert Jones, Goldman Sachs. Please go ahead.
Great. And yes, Tim, let me just echo that sentiment. It's been a pleasure working with you. Best of luck.
Thanks, Rob.
And I'm sure you'll get a few more on this, but I did want to stick with PharMEDium. I guess last quarter, you guys obviously seemed very confident that you'd be able to resume production by the time we got to fiscal 2019. Obviously, today, it sounds like we're not quite there yet. I was just wondering maybe what changed with the ongoing discussions with the FDA that has you rethinking the timeline? And then how should we think about that relative to guidance?
And then if I could just sneak in a follow-up related to that, the 8 ks today obviously mentions the DOJ, which is a new element. I'm just wondering if you could also share how they now factor into this process? Thanks.
Yes. And so we're committed to working with the FDA and working closely with them and not restarting operations, pending their further feedback. And so we'll be actively working with them. And then with regard to how it really plays into guidance, and I want to echo something Steve said that as we look at fiscal year 2019, our portfolio of businesses is performing well. But of course, as we've talked about today, we do have this PharMEDium issue.
And so we've looked at it in 3 different scenarios in the guidance, as we said. 1st is the potential of it being a tailwind. 2nd is the contribution being flat to fiscal 2018. And then there's a third scenario that includes a lengthy delay of the opening of the Memphis facility, causing a sizable headwind from PharMEDium. And let me kind of talk about it with regards to operating income at the pharmaceutical distribution group.
We said that the pharmaceutical distribution group of operating income in the low to mid single digits and it's the lower end of this range. Without the PharMEDium impact, we would be solidly in the mid single digits for pharmaceutical distribution. And so the potential PharMEDium impact at the lower end of the range is kind of this 2% to 3% impact on operating income growth in the Pharmaceutical Distribution segment.
Next question is from the line of Charles Rhyee, Cowen and Company.
So sorry, I just want to stay on PharMEDium one more time just to follow-up on Jim's comments there. So you're kind of suggesting that if we look at 2% to 3% of growth being from PharMEDium, that kind of sounds like that's like $0.15, dollars 0.20 which sounds like can you kind of describe maybe then what else in the range certainly relative to where I think the Street expectations were coming into today for fiscal 2019. Maybe kind of go over some of the other headwinds, I guess, that could be affecting the growth as we think about this year? And I know it's early, we just talked about 'nineteen now, but what would you kind of think about sort of the more sustainable long term growth rate once, let's say, PharMEDium is sort of back on a normalized run rate growth? Thanks.
Yes. So let me talk a little bit about what moves us within the guidance range. And as we said, really the biggest thing that moves us within the guidance range is PharMEDium and the Memphis reopening and the production ramp. But the other things that really move us within the guidance range are business unit performance. And as we've said before, the portfolio of businesses is performing well and we expect it to perform well in fiscal year 2019.
H. D. Smith synergies move us within the guidance range, management of our operating expenses, our expectations on generic deflation and branded inflation and then the mix between brand, generic and specialty. Those are kind of the numerous things that move us within the guidance range. But then really kind of the biggest thing that's moved us within the guidance range is PharMEDium and any kind of timing with regards to Memphis reopening and production ramp.
Yes. And on the long term model, maybe just add. We feel confident on long term, we really mean the long term. And ABC's approach us with a long term perspective as we do all of our businesses. And we would say growth with the market, which is again prescription demand continues to surge, new product innovation, and we're very well placed with our anchor customers.
Our specialty business is a differentiator. Our commercialization services and animal health, we have robust growth next year in 2019, and we think that those will carry on being differentiated for us. We have we've been excellent stewards of Coq Capital. We have active shareholder return policy. So we feel really good about our business in the long term.
And we also feel that if you isolate the PharMEDium issue, we are comparing competing very well in the competitive landscape that we're in. And we do have differentiation. We have so many businesses this year, Charles, that have performed really well. We try to point out our specialty distribution to physician businesses and the incredible results they posted, but also businesses like Xcendra and World Courier and our NMR business in Canada have really, really performed very well. So I think ABC has got a complex and overall very well performing portfolio.
MWI had a really strong 4th quarter. We were thrilled at their 4th quarter. They came in ahead of expectations. So So there's a lot to be optimistic about at AmerisourceBergen. Move.
Next question is from the line of Erin Wright, Credit Suisse. Please go ahead.
Great, thanks. A 2 part question here. You mentioned you were encouraged by the portfolio rationalization across some generic manufacturers. Do you think we're in a time period where you have greater visibility on the generic pricing environment? And then separately from a regulatory perspective, I guess, how should we think about the potential implications of Part B drugs moving to Part D as well as other concepts such as specialty step therapy, for instance, across your specialty business.
How should we think about the impact of some of those proposals and what you're paying most attention to from a regulatory perspective? Thanks.
We're just we're pointing out that generic deflation is sort of in the range of what we've come to expect and more what's normal. We expect fiscal year 2019 to be similar to the tail end of fiscal year 2018. And we're optimistic that in the long run, we'll return to single digits. The stabilization is obviously, we pointed out, is good for not only our generic business, which is very important to us, but also for the cash flow. Those are some of our highest return cash flow businesses.
On the Trump proposal to change this to Part B, we remain incredibly committed to the community setting. It's an active setting. It's shown great growth this year. It's an active marketplace. And we think that the access to those life saving therapies and to community practitioners is very important to patients.
There's no data we've been able to show that says that, that setting is more expensive or that physicians prescribe based on economics. We don't we think that they prescribe based on a higher standards of therapy and protocol management. And we really are committed to seeing that those patients have access to care in their communities. And particularly when you look at rural communities and the job that rural community oncologists perform, it's really quite moving. And to think that those communities could be threatened, those community physicians could be threatened is obviously not something that we think regulators or CMS wants to encourage in any way.
So we think that there'll be a rational debate. And we also feel that there are people in DC and at CMS and HHS that understand these issues and that we can be we can engage with and dialogue with and we are doing that.
And next question is from the line of George Heel, RBC.
I want to say, Tim, on a personal and professional level, sad to see you go and Jim, welcome to the call. I guess my question is on the brand or pricing environment where we're seeing the launch of generic introductions of high priced specialty drugs and price cuts for expensive brand drugs. I know that you guys have taken an aggressive approach to biosimilars and specialty drugs in the past. In your discussions with manufacturers, do you guys think you're going to be able to keep unit economics the same in the face of some of these price cuts for brand drugs and these authorized generic launches?
Yes. It's a good question, George. Look, the market is dynamic. I would just reiterate that ABC is confident in our value proposition. We're confident that the economics that we receive are fair.
It's also always important to remember that we have both buy and sell side economics, and we have flexibility in how we price contracts. I think that some of these trends are very interesting. And we discussed this at length in our business reviews, what should our strategy be with the manufacturers. And there's all sorts of strategies being deployed. There's not necessarily one in terms of what the reimbursement codes are, in terms of is the brand product being taken out of the market and we have this quasi biosimilar type product.
Everyone's adopting different strategies. What we are sure about is AmerisourceBergen is a valued partner by all those manufacturers. We've been engaged at the highest level in those launches and participated actively and supported our partner strategies in the marketplace. And there's no doubt that there's a drive towards greater transparency in the marketplace. And we think some of those trends as they benefit the overall system and as they benefit patients will benefit AmerisourceBergen as well.
And we're very confident that we will participate actively in those therapies and in those price changes as the market adapts. Next question, please.
Next question, Lisa Gill, JPMorgan. Please go ahead.
Thanks and good morning. It's actually Mike Minchak in for Lisa. You guys have talked in the past about your efforts to implement differential pricing strategies across different product types. Just wondering if you could sort of update us on your efforts there and sort of what inning you'd say we're at with respect to that?
So can you actually repeat that question?
Sorry, I didn't quite hit that.
Yes, sure. Just with respect to you guys have previously talked about efforts to implement differential pricing strategies across different pharma product types. I guess, where do you stand with that process and sort of what inning are you at?
Yes. So we've been very successful with our rebalancing. I mean, if you look, obviously, we went to the biggest customers first. And we've been so those have been taken care of. And as large customers came up, we've had the discussion.
I think on the sell side, Michael, we've been happy with the way we've been able to renew contracts and have that rebalancing discussion. Look, the larger customers definitely understand this. I mean, some of the trends are very discernible in terms of the growth of specialty, generic deflation, etcetera, the new therapies, the innovative therapies, like cell therapies. So we've been able to have these discussions. And look, like everything we do, it's much more complex, right?
And the categories of brand are not just brand and generic. It's biosimilars, it's cell therapies, it's specialty drugs, it's mature oral solid products. So we have been able to having discussions. And frankly, there is much more complexity in our contracting. We're well over halfway through that because we have our average contracts are anywhere from 3 to 6 years or so.
Some are longer, but that's the general range. So they are making some that haven't come up. But the most strategic and essential customers, we are in discussions with them constantly about down to even some key product launches. So this is not work that's once and done. It's iterative continues literally on almost, in some cases, on a weekly basis, you could say, with key customers.
And we have some very large customers. Of course, we talk a lot about Walgreens, but there's also big customers like Kaiser and Express Scripts and CPA and in the vet business, Banfield and Florida Cancer and our community oncology business. We literally are having constant discussions. AmerisourceBergen is very customer and market facing. So we are accessible to customers, and we have these discussions constantly.
Jim or Tim, anything you'd like to add? Yes. Yes, Steve.
I'll add. And I'll say, as I start in this role, there's really kind of 2 things that kind of gave me the confidence to take on this role. 1 is the phenomenal team that Tim has built up. And the second really gets to your question and that's the confidence that I have in our value proposition, both on the buy side and on the sell side. And as we look at traditional products or new products, one thing I come back to is the cost to replace our services would be significantly higher than the fees that we capture given the efficiency of our business.
So as we look at new products, whether it be biosimilars or other sorts of things, pricing does become more complex, but we come back to the fact that we've got confidence in our value propositions.
Yes, if I can Steve, if you don't mind, I'm going to hit you to answer your question. So, no, just look at our track record. I mean, we've had several announcements of large contracts that we've renewed over the last couple of years, and we called out no margin headwinds. So again, I think that's proof that we're making progress in the market, and we continue to move the initiative forward in terms of repricing. That's what we're committed to.
Next is Eric Percher, Nephron Research.
You mentioned that your assumption for brand price inflation is mid single digits and that is consistent with historic practice. How does that sit relative to the conversations you're having with manufacturers, particularly that 5% that are not fee for service, but also the entire book, as you think about what occurs beginning January 1?
Yes. Eric, thanks for the question. Look, there's no doubt we're going to be and of course, we have a certain conference that we'll be attending very early in January. So there's no doubt that we're going to be very intrigued by what happens in the marketplace. But it is, as we said, it's really those select group of manufacturers that we are still that price inflation is a part of the overall economics we receive.
Look, if they were to not have price increases, we would absolutely have a discussion. We think that, that's a fair and balanced discussion to have. We don't think that inflation should be a part of the overall compensation we receive or an important part of it. And there are other elements, of course, to the compensation we receive from those manufacturers. But we are going to be very interested, as I'm sure you will be, to see what happens in January and what the environment is.
There's no doubt that anything beyond mid- to maybe 7%, 8% price inflation increase would be surprising in this environment. Operator, we
have time for one more question.
And that question is from Ricky Golwasser, Morgan Stanley.
And Tim, best of luck and George very much working with you. So my question relates to opioids. Just trying to better understand why you think that we shouldn't think about the opioid expense as a recurring one? And that's one. And second of all, should we think about New York as a proxy when we think about relative potential impacts from opioids in other states?
Yes. Thanks for the question. So we expect that the expenses for 2017 2018 that we've experienced in New York related to the opioid stewardship app are not expected to be normal. And so that's why they're excluded from our adjusted results. And what we've done is we've adjusted our pharmaceutical distribution logistics for New York, which will substantially eliminate these expenses going forward.
And with regard to other states, it's really too early for us to comment on what might happen in other states, Ricky. Yes.
So I think, Ricky, we're going to end there and maybe just make some closing remarks. So we obviously have we wish that we'd had better news to share with you on PharMEDium. But I just want to end by reemphasizing that ABC is strongly positioned going forward. We have a differentiated policy, differentiated strategies around specialty and around our commercialization business. We feel that we are very aligned and very in sync with key customers when it comes to key trends.
We have been strong stewards of capital, and we are growing in fiscal year 2019. If you just depends how PharMEDium performs. And please recognize that we are not entirely in control of when Memphis will be restarted and when the other operations will be able to resume. But clearly, that there's been a delay in what we had originally communicated to you on the last conference. So again, thank you for your time.
And let me just say one more time that we are very pleased with ABC's positioning in our marketplace and our differentiated policies around specialty and commercialization. Thank you.
Thank you. Ladies and gentlemen, that does conclude your conference. We do thank you for joining. You may now disconnect.