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McKesson (MCK) Beats on Q3 Earnings & Revenues, Ups '18 View

Zacks Equity Research
Updated

McKesson MCK reported third-quarter fiscal 2018 earnings of $3.41 per share, beating the Zacks Consensus Estimate of $2.92. Earnings surpassed the year-ago quarter’s figure of $3.04.

Notably, third-quarter GAAP earnings per share included a net tax benefit of $1.78, driven by the Tax Cuts and Jobs Act of 2017.

McKesson posted sales of $53.6 billion, beating the Zacks Consensus Estimate of $52 billion and up from $50.0 billion in the prior-year quarter.

McKesson Corporation Price, Consensus and EPS Surprise

 

McKesson Corporation Price, Consensus and EPS Surprise | McKesson Corporation Quote

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Quarter in Detail

McKesson operates through two segments — Distribution Solutions and Technology Solutions. All growth rates given below are on a year-over-year basis.

Distribution Solutions

Distribution Solutions revenues were $53.6 billion for the quarter, up 8% on a reported basis and 7% on a constant-currency (cc) basis.

Revenues from North America pharmaceutical distribution and services were $44.9 billion for the quarter, up 8% on a reported basis and 7% at cc.

International pharmaceutical distribution and services revenues were $7 billion, up 13% on a reported basis and 4% at cc. The upside was driven by acquisitions and market growth.

Medical-Surgical distribution and services revenues were $1.7 billion for the third quarter, up 9%.

Technology Solutions

Technology Solutions adjusted operating profit was $53 million for the third quarter.

Per management, the segment witnessed lower profit, thanks to the divestment of Enterprise Information Solutions business and the negative impact of reduced reimbursement in the company’s U.K. retail pharmacy business.

Margins

As a percentage of revenues, gross margin contracted 50 basis points to 5.1% in the quarter.

In the third quarter, adjusted operating profit was $991 million, up 22% at cc on a year-over-year basis. Adjusted operating margin for the Distribution Solutions segment was 1.85% of net revenues at cc.

Financial Condition

As of Dec 31, 2017, McKesson had $2.62 billion in cash and cash equivalents. Through the first nine months of the year, McKesson repaid $545 million in long-term debt and paid $2.0 billion for acquisitions.

Notably, McKesson repurchased $900 million of its common stock, invested $392 million internally and paid $192 million in dividends.

Fiscal 2018 Outlook

McKesson expects GAAP earnings per share in the range of $7.65-$9.00 for the fiscal 2018.

As a result of the lower tax rate, adjusted earnings for the same are expected in the range of $12.50-$12.80, up from the previous range of $11.80-$12.50.

Company Announces Dividend

McKesson declared a regular dividend of 34 cents per share of common stock. The dividend will be payable on April 2, to stockholders of record on March 1, 2018.

Zacks Rank & Price Movements

McKesson carries a Zacks Rank #3 (Hold).

Over the last three months, McKesson has been trading below the broader industry. The company’s shares have gained 6.3% compared with the broader industry’s rally of 6.7%. The current level is lower than the S&P 500 index’s return of just 15.4%.

Pricing pressure in the independent retail pharmacy channel is a headwind. Further, intense competition, currency headwind and reimbursement issues are challenges. Adding to the woes, revenues from Technology Solutions are expected to deteriorate year over year.

Companies Reporting Impressive Results

A few better-ranked stocks which reported favorable results this earnings season are PetMed Express PETS, PerkinElmer PKI and Accuray ARAY. While PetMed sports a Zacks Rank #1 (Strong Buy), PerkinElmer and Accuray carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed recently reported third-quarter fiscal 2018 results. Adjusted earnings per share was 44 cents, up 88.3% from the prior-year quarter. Revenues rose 13.7% on a year-over-year basis to $60.1 million.

PerkinElmer reported fourth-quarter 2017 adjusted earnings per share of 97 cents. Adjusted revenues were approximately $641.6 million, up from $567 million in the year-ago quarter.

Accuray reported a loss of 6 cents per share in second-quarter fiscal 2018, 5 cents narrower than the year-ago figure. Total revenues improved 15% year over year to $100.3 million.

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