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McKesson's (MCK) Q1 Earnings and Revenues Beat Estimates

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McKesson Corporation (MCK - Free Report) reported first-quarter fiscal 2023 adjusted earnings per share (EPS) of $5.83, which beat the Zacks Consensus Estimate of $5.31 per share by 9.8%. The bottom line improved 5% on a year-over-year basis.

GAAP earnings per share in the quarter were $5.25, up 69.9% from the year-ago quarter.

Revenue Details

Revenues of $67.2 billion surpassed the Zacks Consensus Estimate by 5.2%. The top line increased 7% year over year.

Q1 Segmental Analysis

Following McKesson’s segment realignment effective in the quarter under review, the reporting segments are as follows:

Revenues at the U.S. Pharmaceutical and Specialty Solutions segment were $56.9 billion, up 14% year over year. Per management, the upside was primarily driven by market growth and a higher volume of specialty products, including an increase in volumes from retail national account customers. However, branded to generic conversions partially offset the upside.

The U.S. Pharmaceutical and Specialty Solutions segment reported an adjusted operating profit of $711 million, up 4% from the prior-year quarter. This was due to growth in the distribution of specialty products to providers and health systems, partially mitigated by lower demand for COVID-19 vaccine distribution. The adjusted metric for the segment was up 9%, excluding the impact of COVID-19 vaccine distribution

At the International segment, revenues amounted to $6.5 billion, down 23% year over year, courtesy divestitures of McKesson’s UK and Austrian businesses.

Adjusted operating profit at the segment was $152 million, down 11% from the year-ago quarter.

Revenues at the Medical-Surgical Solutions segment totaled $2.6 billion, up 3% year over year. Growth and improvement in the primary care business led to the upside, which was partially offset by lower sales of COVID-19 tests and lower contribution from kitting, storage, and distribution of ancillary supplies for the U.S. government’s COVID-19 vaccine program.

The Medical-Surgical segment delivered an adjusted operating profit of $268 million, which gained 4% from the year-ago quarter, owing to growth and improvements in the primary care business.

Revenues at the Prescription Technology Solutions segment totaled $1.1 billion, up 21% year over year. The improvement can be attributed to an increase in prescription and higher third-party logistics and technology services revenues.

Adjusted operating profit was $165 million at the Prescription Technology Solutions segment, up 19% from the prior-year quarter.

McKesson Corporation Price, Consensus and EPS Surprise

McKesson Corporation Price, Consensus and EPS Surprise

McKesson Corporation price-consensus-eps-surprise-chart | McKesson Corporation Quote

Margins

Gross profit in the reported quarter was $3 billion, down 4% on a year-over-year basis. Meanwhile, gross margin accounted for 4.5% of net revenues.

The company reported an operating income of $1.1 billion, up 4% from the year-ago quarter. Operating margin accounted for 1.6% of net revenues.

Financial Update

In the quarter under review, cash and cash equivalents were $3.53 billion, compared with $2.75 billion in the previous quarter.

Cumulative net cash provided in operating activities in the fiscal first quarter amounted to $4.43 billion, down from $4.54 billion in the year-ago period.

Fiscal 2023 Guidance Raised

For fiscal 2023, the company now projects adjusted EPS to be $23.95-$24.65, up from the previous guided range of $22.90-$23.60. The company raised the guidance following solid fiscal first-quarter results and the continuation of COVID-19 response efforts.

The earnings outlook includes 35 cents to 45 cents associated with the U.S. government’s COVID-19 vaccine distribution and another 75 cents to 95 cents associated with the U.S. government’s kitting, storage, and distribution of ancillary supplies program and COVID-19 tests. It also includes a negative impact of 11 cents related to year-to-date net gains and losses associated with McKesson Ventures' equity investments. The Zacks Consensus Estimate for the same is pegged at $23.26.

Summing Up

McKesson exited the fiscal first quarter on a strong note, beating estimates on both counts. The strong fiscal first quarter show across all its four segments is encouraging. A strong earnings outlook for fiscal 2023 instills optimism.

However, price fluctuation of generic pharmaceuticals and stiff competition in the MedTech space are other headwinds.

Zacks Rank and Other Key Picks

Currently, McKesson carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks from the pharma/biotech sector include Lantheus (LNTH - Free Report) , ShockWave Medical (SWAV - Free Report) and Alkermes (ALKS - Free Report) . While Lantheus and ShockWave Medical sport a Zacks Rank #1 (Strong Buy), Alkermes carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Estimates for Lantheus have improved from earnings of $3.04 to $3.08 for 2022 and $3.33 to $3.62 for 2023 in the past 60 days. LNTH stock has surged 162.7% so far this year.

Lantheus delivered an earnings surprise of 77.82%, on average, in the last four quarters.

ShockWave Medical’s earnings per share estimates have improved from $1.84 to $2.02 for 2022 and from $2.82 to $2.95 for 2023 in the past 60 days. SWAV has gained 23.2% so far this year.

ShockWave Medical delivered an earnings surprise of 189.99%, on average, in the last four quarters.

Alkermes’ earnings per share estimates have improved from loss of 17 cents to earnings of 20 cents for 2022 and from 31 cents to 33 cents for 2023 in the past 60 days. ALKS has gained 8.9% so far this year.

Alkermes delivered an earnings surprise of 350.48%, on average, in the last four quarters.