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McKesson (MCK) Down 4.3% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for McKesson (MCK - Free Report) . Shares have lost about 4.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is McKesson due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

McKesson Q1 Earnings and Revenues Surpass Estimates

McKesson Corporation reported first-quarter fiscal 2021 adjusted earnings per share of $2.77, which beat the Zacks Consensus Estimate of $2.35 per share by 17.9%. However, the bottom line declined 16.3% on a year-over-year basis.

Revenues of $55.68 billion outpaced the Zacks Consensus Estimate by 3%. However, the figure fell 0.1% year over year.

Q1 Segmental Analysis

Revenues at the U.S. Pharmaceutical and Specialty Solutions segment were $45.06 billion, up 2% year over year. Per management, the upside was primarily driven by market growth and increase in volumes from retail national account customers. However, branded to generic conversions partially offset the upside.

At the European Pharmaceutical Solutions segment, revenues amounted to $6.25 billion, down 6.9% year over year. Further, the metric decreased 4% at constant currency (cc) owing to lower volumes in the pharmaceutical distribution business.

Revenues at the Medical-Surgical Solutions segment totaled $1.80 billion, down 5.4% year over year. Decline in the Primary Care business, owing to lower primary care patient visits, was the primary factor behind the downside. However, higher volumes of personal protective equipment (PPE) partially mitigated the downside.

Revenues at the Other segment were $2.57 billion in the fiscal first quarter, declining 12.9% year over year and 10% at cc. Lower pharmaceutical volumes in the Canadian business led to the decline.

Margins

Gross profit in the reported quarter was $2.70 billion, down 3.1% on a year-over-year basis. Meanwhile, gross margin was 4.8% of net revenues, down 20 bps.

Operating income in the quarter was $678 million, up 6.9% from the year-ago quarter.

The U.S. Pharmaceutical and Specialty Solutions segment reported adjusted operating profit of $589 million, down 2% from the prior-year quarter. Adjusted operating margin was 1.3% at the segment.

Adjusted operating profit at the European Pharmaceutical Solutions segment was $36 million, up 3% from the year-ago quarter. Meanwhile, the adjusted operating margin at the segment was 0.6%.

The Medical-Surgical segment had adjusted operating profit of $124 million, which declined 22% from the year-ago quarter. Adjusted operating margin was 6.9% at the segment.

Adjusted operating profit was $137 million at the Other segment, down 50% from the prior-year quarter.

Financial Update

In the quarter under review, cash and cash equivalents were $2.61 billion, down 34.9% sequentially.

Cumulative cash used in operating activities for the fiscal first quarter amounted to $1.06 billion, significantly up from $51 million of cash used in operating activities in the year-ago period.

Fiscal 2021 Guidance Raised

For fiscal 2021, McKesson projects adjusted earnings per share in the range of $14.70-$15.50 (up from the previously guided range of $13.95-$14.75). The Zacks Consensus Estimate for the same is pegged at $15.10.

The company anticipates adjusted earnings per share growth in the second half of fiscal 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 22.66% due to these changes.

VGM Scores

At this time, McKesson has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, McKesson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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