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Will Core Distribution Unit Aid McKesson (MCK) Q4 Earnings?

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McKesson Corporation’s (MCK - Free Report) fourth-quarter fiscal 2018 earnings are scheduled to release on May 24, before the market opens. While results are likely to show growth in the core Distribution Solutions segment, other initiatives may also drive earnings.

McKesson’s fiscal third-quarter performance was promising, with adjusted earnings of $3.41 per share beating the Zacks Consensus Estimate by 16.8%. Earnings also rose 12.2% from the year-ago quarter.

Revenues in the last reported quarter came in at of $53.6 billion, surpassing the Zacks Consensus Estimate of $52 billion and increasing 7.2% on a year-over-year basis.

The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $51.58 billion, reflecting year-over-year growth of 5.9%. The same for earnings is pinned at $3.54, showing year-over-year growth of 4.42%.

Notably, McKesson has a positive average earnings surprise of 8.5% for the trailing four quarters.

Let’s delve deeper.

Distribution Solutions to Drive Q4 Revenues

This segment is one of McKesson’s key segments, engaged in the distribution of branded and generic pharmaceutical drugs along with other healthcare-related products. In the last reported quarter, the segment was the sole contributor to the company’s worldwide revenues. Overall sales in the segment improved 7% on a constant currency (cc) basis.

McKesson Corporation Price and EPS Surprise

 

McKesson Corporation Price and EPS Surprise | McKesson Corporation Quote

For the quarter to be reported, the Zacks Consensus Estimate for the segment’s revenues is pegged at $52.11 billion, reflecting a 8.1% rise from the prior-year quarter.

In the fiscal third quarter, revenues from North America pharmaceutical distribution and services totaled $44.9 billion, up 7% at cc. The Zacks Consensus Estimate for the sub-segment is pegged at $43.56 billion, up 7.4% from the year-ago quarter.

The Zacks Consensus Estimate for International pharmaceutical distribution and services is pinned at $6.87 billion, up 13.6% year over year. In the last reported quarter, the sub-segment posted revenues of $7 billion, up 4% at cc. Per management, the upside was driven by acquisitions and market growth.

Other Factors to Consider

View Solid

McKesson’s strong earnings guidance for fiscal 2018 instills investors’ confidence on the stock. Per management, adjusted earnings per share are expected between $12.50 and $12.80, which indicates year-over-year growth of 7.7-10.2%. The outlook is expected to primarily benefit from a lower adjusted tax rate and improved operational performance.

Furthermore, the company provided a fiscal 2019 outlook, wherein it has set a preliminary target for adjusted earnings per share in the range of $13.00-$13.80. The Zacks Consensus Estimate for fiscal 2019 earnings is pinned at $13.39, which is within the given range.

New Growth Initiatives

The company recently prioritized investment in expanded supply chain and commercialization services for pharmaceutical and medical supply manufacturers. Other areas of focus include enhanced solutions for the rapidly-growing specialty pharmaceutical market and new offerings that will strengthen and expand the role of retail pharmacy in patient care delivery.

Strategic Acquisitions

McKesson recently acquired Kentucky-based RxCrossroads, which is likely to expand and improve the company’s services, reimbursement access and health and pharmacy solutions. It further compliments the company’s offerings to include plasma logistics and specialized field support.

The company also aims to strengthen e-commerce capabilities for retail pharmacy customers with the recent acquisition of Canada-based Well.ca.

What Does Our Model Predict?

Our quantitative model shows a beat for McKesson this earnings season. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates.

Zacks ESP: The Earnings ESP for McKesson is +0.20%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: McKesson carries a Zacks Rank #3.

Stocks Worth a Look

Here are a few stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Brady Corporation (BRC - Free Report) has an Earnings ESP of +1.03% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Quality Systems has an Earnings ESP of +5.00% and a Zacks Rank #3.

Medtronic (MDT - Free Report) has an Earnings ESP of +0.09% and a Zacks Rank #3.

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