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McKesson Corporation’s (MCK - Analyst Report) second quarter fiscal 2013 (ended September 30, 2012) adjusted earnings of $1.92 per share surpassed the Zacks Consensus Estimate of $1.76 per share. Also, the reported quarter’s adjusted earnings spiked 18% from the year-ago period. Earnings benefited from a lower share count.

Revenues declined 1% to $29.9 billion. Revenues were short of the Zacks Consensus Estimate of $30.9 billion.

Quarter in Detail

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

Revenues at the Distribution Solutions segment decreased 1% to $29 billion in the reported quarter. The decline was attributable to lower sales in the US pharmaceutical distribution unit.

Revenues from the US pharmaceutical distribution business came in at $25.7 billion, down 1%. The decline was due to brand-to-generic conversions and one less sales day.    

Canadian revenue decreased 5% to $2.4 billion. The decrease was attributable to unfavorable foreign exchange movements. Revenues from Medical-Surgical distribution and services came in flat at $873 million. Sales of the sub-group were impacted by fewer sales days in the quarter.

Revenues at the Technology Solutions segment came in flat at $824 million. Operating expenses climbed 1.9% in the reported quarter to $1.1 billion.

Fiscal 2013 Outlook

The company tweaked its adjusted earnings outlook for fiscal 2013. McKesson expects earnings (excluding special items) in the range of $7.15-$7.35 per share (previous projection: $7.05 - $7.35 share). The Zacks Consensus Estimate for fiscal 2013 currently stands at $7.26 per share.

McKesson to Buy PSS World

In a bid to expand its product portfolio, McKesson inked a deal to buy PSS World Medical, Inc. for $29.00 per share in cash. The total value of the deal, in which McKesson will assume PSS World Medical’s debt, is estimated at approximately $2.1 billion. McKesson expects to generate more than $100 million in annual savings (pre-tax) by the fourth year after the closure of the deal.

Neutral on McKesson

We currently have a Neutral recommendation on McKesson. The stock carries a Zacks #3 Rank (Hold rating) in the short run.

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