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McKesson Corporation’s (MCK - Analyst Report) third quarter fiscal 2013 (ended Dec 31, 2012) adjusted earnings of $1.41 per share missed the Zacks Consensus Estimate of $1.63 per share. 

However, reported earnings came in at $1.24 per share, up from $1.20 per share in the year-ago quarter, benefiting from lower share count. 
 
Revenues climbed 1% to $31.2 billion as brand-to-generics continue to slow revenue growth.  Revenues were marginally short of the Zacks Consensus Estimate of $31.6 billion. 
 
Quarter in Detail
 
McKesson operates through two segments: Distribution Solutions and Technology Solutions. 
 
Revenues at the Distribution Solutions segment increased 1% to $30.4 billion in the reported quarter, driven by growth in the US pharmaceutical direct distribution and services business. Strong sales in the company’s Medical-Surgical distribution business also benefited segmental revenues in the third quarter of fiscal 2013. Revenues from the US pharmaceutical distribution business came in at $26.8 billion, flat year over year.  Revenues from Canada grew 6% to $2.6 billion. However, the results in the Distribution Solutions segment were impacted by a $40 million pretax charge pertaining to a legal dispute in the Canadian segment. Revenues from Medical-Surgical distribution and services grew 15% to $874 million. The increase was attributable to market growth, new customers, acquisitions and one additional sales day. 
 
Revenues at the Technology Solutions segment were flat year over year at $826 million. Segmental results were affected by $16 million due to the revenue deferral in the segment’s international business. 
 
Margins  
 
Operating expenses climbed 10% in the reported quarter to $1.1 billion. Meanwhile, the company’s board of directors cleared an additional $500 million share buyback program. We believe that the buyback program highlights the company’s commitment to create value for shareholders. McKesson also expects to close its acquisition of PSS World Medical () late in the fiscal fourth quarter. We note that McKesson inked a deal to buy PSS World Medical, Inc. for $29.00 per share in cash in 2012.  
 
Fiscal 2013 Outlook 
 
The company lowered its adjusted earnings outlook for fiscal 2013 due to the legal dispute charge in the Canadian business and revenue deferral in the international technology business. McKesson expects earnings (excluding special items) in the range of $7.10-$7.30 per share (previous projection: $7.15 - $7.35 share). The Zacks Consensus Estimate for fiscal 2013 stands at $7.29.  
 
McKesson currently carries a Zacks Rank #3 (Hold). Nevertheless, stocks like AmerisourceBergen ((ABC - Analyst Report)) and CVS Caremark Corporation ((CVS - Analyst Report)) operate in the same sector as McKesson and currently look attractive with a Zacks Rank #2 (Buy). 

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