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McKesson (MCK) Misses on Q2 Earnings & Sales, Cuts View
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McKesson Corporation (MCK - Free Report) reported second-quarter fiscal 2017 (ended Sep 30, 2016) earnings of $2.94 per share, missing the Zacks Consensus Estimate of $3.05 and declining from the year-ago figure of $3.17.
Revenues, on the other hand, improved 2.5% to $50 billion. However, the figure failed to meet the Zacks Consensus Estimate of $51.4 billion.
All growth rates given below are on a year-over-year basis.
Quarter in Detail
McKesson operates through two segments – Distribution Solutions and Technology Solutions.
At Distribution Solutions, revenues grew 2.6% to $49.3 billion. North America pharmaceutical distribution and services reported sales of $41.4 billion, up 1.9%, reflecting market growth and acquisitions. Revenues were, however, hit by customer losses.
Revenues from International pharmaceutical distribution and services were up 6.9% to $6.3 billion driven by acquisitions and market growth. Medical-Surgical distribution and services generated sales of $1.6 billion, up 3.8%, primarily on the back of market growth.
However, revenues from the Technology Solutions business dropped 5.7% to $680 million in anticipation of a decline in the hospital software business.
Note that in Jun 2016, McKesson inked an agreement with Change Healthcare Holdings to create a new healthcare information technology company. As per the terms of the agreement, McKesson will offer the majority of its Technology Solutions businesses to the new company. McKesson shareholders are expected to own approximately 70% shares of the joint venture. The transaction is expected to be complete in the first half of calendar year 2017.
Revises Fiscal 2017 Outlook
McKesson has narrowed its earnings guidance. The company now expects earnings per share in the range of $12.35 to $12.85 (previous expectations: $13.43–$13.93). The guidance excludes approximately 12–15 cents of expected charges related to the cost alignment plan.
The company revised its guidance in anticipation of lower profits due to recent customer pricing activities and moderating branded pharmaceutical pricing trends.
McKesson expects revenues from Distribution Solutions to grow in the mid single digits (previously: high single-digit growth). Revenues in Technology Solutions are expected to be down slightly on a year-over-year basis.
The company anticipates foreign exchange impact of approximately 6 cents per share during fiscal 2017.
McKesson reported disappointing results for the second quarter of fiscal 2017, missing on both the top line and the bottom line. Moreover, at international pharmaceutical distribution and services, operating performance of Celesio was impacted by reimbursement cuts imposed by the UK government on retail pharmacy rates as well as the UK's decision to exit the EU. Operating performance of Celesio is expected to be disappointing throughout fiscal 2017.
Nevertheless, we are positive on McKesson’s acquisitions of Biologics, Vantage Oncology and UDG Healthcare that have strengthened the company’s portfolio to a large extent. The impending Rexall buyout (scheduled to close in 2016) will further strengthen the company’s portfolio.
Also, the separation of its Technology business into a new healthcare information technology company will enable the company to concentrate on the primary pharmaceuticals distribution business.
Zacks Rank & Key Picks
McKesson currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the healthcare sector include Infinity Pharmaceuticals, Inc. , BioMarin Pharmaceutical Inc. (BMRN - Free Report) and Exelixis, Inc. (EXEL - Free Report) . Both, Infinity and BioMarin sport a Zacks Rank #1 (Strong Buy) while Exelixis carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Infinity’s loss estimates narrowed from $3.84 to $3.79 for 2016 and remained stable for 2017 over the last 60 days. The company has posted a positive surprise in all the four trailing quarters with an average beat of 67.62%.
BioMarin’s loss estimates narrowed from 28 cents to 25 cents for 2016 and from $1.16 to $1.11 for 2017 over the last 60 days.
Exelixis’ loss estimates narrowed from 71 cents to 63 cents for 2016 and from 19 cents to earnings of 2 cents for 2017 over the last 60 days. The company has posted a positive surprise twice in the four trailing quarters with an average beat of 9.1%.
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McKesson (MCK) Misses on Q2 Earnings & Sales, Cuts View
McKesson Corporation (MCK - Free Report) reported second-quarter fiscal 2017 (ended Sep 30, 2016) earnings of $2.94 per share, missing the Zacks Consensus Estimate of $3.05 and declining from the year-ago figure of $3.17.
Revenues, on the other hand, improved 2.5% to $50 billion. However, the figure failed to meet the Zacks Consensus Estimate of $51.4 billion.
All growth rates given below are on a year-over-year basis.
Quarter in Detail
McKesson operates through two segments – Distribution Solutions and Technology Solutions.
At Distribution Solutions, revenues grew 2.6% to $49.3 billion. North America pharmaceutical distribution and services reported sales of $41.4 billion, up 1.9%, reflecting market growth and acquisitions. Revenues were, however, hit by customer losses.
Revenues from International pharmaceutical distribution and services were up 6.9% to $6.3 billion driven by acquisitions and market growth. Medical-Surgical distribution and services generated sales of $1.6 billion, up 3.8%, primarily on the back of market growth.
However, revenues from the Technology Solutions business dropped 5.7% to $680 million in anticipation of a decline in the hospital software business.
Note that in Jun 2016, McKesson inked an agreement with Change Healthcare Holdings to create a new healthcare information technology company. As per the terms of the agreement, McKesson will offer the majority of its Technology Solutions businesses to the new company. McKesson shareholders are expected to own approximately 70% shares of the joint venture. The transaction is expected to be complete in the first half of calendar year 2017.
Revises Fiscal 2017 Outlook
McKesson has narrowed its earnings guidance. The company now expects earnings per share in the range of $12.35 to $12.85 (previous expectations: $13.43–$13.93). The guidance excludes approximately 12–15 cents of expected charges related to the cost alignment plan.
The company revised its guidance in anticipation of lower profits due to recent customer pricing activities and moderating branded pharmaceutical pricing trends.
McKesson expects revenues from Distribution Solutions to grow in the mid single digits (previously: high single-digit growth). Revenues in Technology Solutions are expected to be down slightly on a year-over-year basis.
The company anticipates foreign exchange impact of approximately 6 cents per share during fiscal 2017.
MCKESSON CORP Price, Consensus and EPS Surprise
MCKESSON CORP Price, Consensus and EPS Surprise | MCKESSON CORP Quote
Our Take
McKesson reported disappointing results for the second quarter of fiscal 2017, missing on both the top line and the bottom line. Moreover, at international pharmaceutical distribution and services, operating performance of Celesio was impacted by reimbursement cuts imposed by the UK government on retail pharmacy rates as well as the UK's decision to exit the EU. Operating performance of Celesio is expected to be disappointing throughout fiscal 2017.
Nevertheless, we are positive on McKesson’s acquisitions of Biologics, Vantage Oncology and UDG Healthcare that have strengthened the company’s portfolio to a large extent. The impending Rexall buyout (scheduled to close in 2016) will further strengthen the company’s portfolio.
Also, the separation of its Technology business into a new healthcare information technology company will enable the company to concentrate on the primary pharmaceuticals distribution business.
Zacks Rank & Key Picks
McKesson currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the healthcare sector include Infinity Pharmaceuticals, Inc. , BioMarin Pharmaceutical Inc. (BMRN - Free Report) and Exelixis, Inc. (EXEL - Free Report) . Both, Infinity and BioMarin sport a Zacks Rank #1 (Strong Buy) while Exelixis carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Infinity’s loss estimates narrowed from $3.84 to $3.79 for 2016 and remained stable for 2017 over the last 60 days. The company has posted a positive surprise in all the four trailing quarters with an average beat of 67.62%.
BioMarin’s loss estimates narrowed from 28 cents to 25 cents for 2016 and from $1.16 to $1.11 for 2017 over the last 60 days.
Exelixis’ loss estimates narrowed from 71 cents to 63 cents for 2016 and from 19 cents to earnings of 2 cents for 2017 over the last 60 days. The company has posted a positive surprise twice in the four trailing quarters with an average beat of 9.1%.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>