McKesson Corporation (MCK Quick QuoteMCK - Free Report) reported third-quarter fiscal 2023 adjusted earnings per share (EPS) of $6.90, which beat the Zacks Consensus Estimate of $6.34 per share by 8.8%. The bottom line improved 12.2% on a year-over-year basis.

GAAP earnings per share in the quarter were $7.65 against a loss of 4 cents in the year-ago quarter. The company had recorded an after-tax charge of $829 million related to its agreement to sell its UK business in third-quarter fiscal 2022.

Revenue Details

Revenues of $70.49 billion slightly beat the Zacks Consensus Estimate of $70.48 billion. The top line increased 5.4% year over year, reflecting strong growth in the United States, partially offset by lower international sales due to divestitures of its European businesses.

Q3 Segmental Analysis

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

Revenues at the U.S. Pharmaceutical and Specialty Solutions segment were $61.9 billion, up 13% 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 $778 million, up 6% 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 7%, excluding the impact of COVID-19 vaccine distribution.

At the International segment, revenues amounted to $4.4 billion, down 53% year over year, due to divestitures of McKesson’s European businesses.

McKesson Corporation Price, Consensus and EPS Surprise

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

Adjusted operating profit at the segment was $143 million, down 36% from the year-ago quarter.

Revenues at the Medical-Surgical Solutions segment totaled $3 billion, down 3% year over year due to lower COVID-1-related sales, partially offset by growth in the primary care business.

The Medical-Surgical segment delivered an adjusted operating profit of $336 million, up 2% from the year-ago quarter. Excluding the impact of COVID-related items, the adjusted metric was up 25%.

Revenues at the Prescription Technology Solutions segment totaled $1.1 billion, up 9% year over year. The improvement can be attributed to an increase in prescription from third-party logistics as well as higher technology services revenues.

Adjusted operating profit was $155 million at the Prescription Technology Solutions segment, up 7% from the prior-year quarter.

Margins

Gross profit in the reported quarter was $3.17 billion, down 7.4% on a year-over-year basis. Meanwhile, gross profit accounted for 4.5% of net revenues.

The company reported an operating income of $1.24 billion, up 316% from the year-ago quarter. Operating margin accounted for 1.8% of net revenues.

Financial Update

In the quarter under review, cash and cash equivalents were $2.77 billion, compared with $2.92 billion in the previous quarter.

Cumulative net cash provided in operating activities in the fiscal third-quarter amounted to $1.83 billion, up from $1.54 billion in the year-ago period.

Fiscal 2023 Guidance Raised

For fiscal 2023, the company now projects adjusted EPS to be $25.75-$26.15, up from the previously guided range of $24.45-$24.95. The company raised the guidance following solid fiscal third-quarter results. The Zacks Consensus Estimate for the same is pegged at $24.78.

The earnings outlook includes 70 cents to 80 cents associated with the U.S. government’s COVID-19 vaccine distribution and another $1.10 to $1.20 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 15 cents related to year-to-date net gains and losses associated with McKesson Ventures' equity investments.

Summing Up

McKesson exited the fiscal third-quarter on a strong note, beating estimates for revenues and earnings. The strong fiscal third-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 Key Picks

McKesson currently carries a Zacks Rank #2 (Buy).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Neogen Corporation (NEOG Quick QuoteNEOG - Free Report) , Cardinal Health (CAH Quick QuoteCAH - Free Report) and Hologic, Inc. (HOLX Quick QuoteHOLX - Free Report) .

Neogen, carrying a Zacks Rank #2 (Buy), reported second-quarter fiscal 2023 adjusted EPS of 15 cents, beating the Zacks Consensus Estimate of a loss of 8 cents per share. Revenues of $230 million outpaced the consensus mark by 0.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Neogen has an earnings yield of 2.5% compared with the industry’s 0.2%. NEOG’s earnings surpassed estimates in two of the trailing four quarters and missed the same in two, the average being 70.11%.

Cardinal Health, having a Zacks Rank #2, reported second-quarter 2023 adjusted EPS of $1.32, which beat the Zacks Consensus Estimate by 16.8%. Revenues of $51.5 billion outpaced the consensus mark by 2.1%.

Cardinal Health has a long-term estimated growth rate of 11.7%. CAH has an earnings yield of 7%.

Hologic reported first-quarter 2023 adjusted earnings of $1.07 per share, beating the Zacks Consensus Estimate by 18.9%. Revenues of $1.07 billion surpassed the Zacks Consensus Estimate by 9.5%. It currently sports a Zacks Rank #1.

Hologic has a long-term estimated growth rate of 15.2%. HOLX’s earnings surpassed estimates in the trailing four quarters, the average surprise being 46.08%.