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Earnings Beat at McKesson

MCK

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McKesson Corporation’s (MCK - Analyst Report) first-quarter fiscal 2013 (ended June 30, 2012) earnings (excluding special items) of $1.55 per share surpassed the Zacks Consensus Estimate of $1.49 per share. Also, the reported quarter’s adjusted earnings spiked 22% from the year-ago period due to higher revenues and lower share count.

Revenues climbed 3% to $30.8 billion. Growth was witnessed across both segments at McKesson. Revenues were short of the Zacks Consensus Estimate of $31.05 billion.

Quarter in Detail

McKesson operates through two segments: Distribution Solutions and Technology Solutions.

Revenues at the Distribution Solutions segment increased 3% to $30 billion in the reported quarter. Strong growth in the US pharmaceutical distribution revenues led to the upside.

Revenues from the US pharmaceutical distribution business came in at $26.6 billion, up 4% driven by new business with existing customers and market expansion.

Canadian revenue decreased 8% to $2.5 billion. The decrease was attributable to unfavorable foreign exchange movements and fewer sales days in the quarter. Medical-Surgical distribution and services revenue climbed 9% to $795 million, reflecting steady market growth and customer addition.

Revenues at the Technology Solutions segment climbed 4% to $838 million primarily due to higher services revenue. Operating expenses climbed 5.4% in the reported quarter to $1 billion. The acquisition of Drug Trading Company Limited, an independent banner of Katz Group Canada Inc. and Medicine Shoppe Canada in March 2012, was primarily responsible for the increase.

McKesson exited the quarter with gross debt-to-capitalization ratio of 33.2%. The cash balance at the end of the reported quarter was approximately $2 billion at McKesson.

Fiscal 2013 Outlook Backed

The company reaffirmed its outlook for fiscal 2013. McKesson continues to expect earnings (excluding special items) in the range of $7.05 - $7.35 share. The Zacks Consensus Estimate of $7.23 per share is well within the company’s guidance range.

The company expects to generate cash flow from operating activities in the range of $2.0 - $2.5 billion for fiscal 2013.

Our Recommendation

We have a Neutral recommendation on McKesson. Our long-term recommendation is in line with the Zacks #3 Rank (Hold rating) carried by the company in the short run.
 

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