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McKesson (MCK) Q4 Earnings Miss, International Sales Rise

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McKesson (MCK - Free Report) reported fourth-quarter fiscal 2018 earnings of $3.49 per share, missing the Zacks Consensus Estimate of $3.54. Earnings, however, improved from the year-ago quarter’s figure by 2.3%.

McKesson posted sales of $51.63 billion, marginally missing the Zacks Consensus Estimate of $51.64 billion and up 4% at constant currency (cc).

Quarter in Detail

McKesson operates through two segments — Distribution Solutions and Technology Solutions. However, in the reported quarter, the company did not report any detail of the Technology Solutions unit.

Distribution Solutions

The segment reported revenues of $51.63 billion in the quarter, up 5% at cc. In fact, this segment accounted for the whole of the company’s fourth-quarter revenues.

McKesson Corporation Price, Consensus and EPS Surprise

 

McKesson Corporation Price, Consensus and EPS Surprise | McKesson Corporation Quote

North America pharmaceutical distribution & services revenues came in at $42.73 billion, up 5.1% from the prior-year quarter. Full-year revenues at the segment totaled $174.19 billion, up 6% at cc. The rise can be attributed to market growth and acquisitions, which have been partially offset by branded to generic conversions.

International pharmaceutical distribution & services reported revenues of $7.28 billion, which increased 18.6% from the year-ago quarter. Full-year revenues at the segment were $27.32 billion, up 5% at cc.

Medical-Surgical distribution & services raked in revenues of $1.73 billion, which improved 8.7% on a year-over-year basis. In the full year, the segment posted revenues worth $6.61 billion, up 6% from a year ago.

Margins

Gross profit in the reported quarter was $2.98 billion, up 1.1% on a year-over-year basis.

Gross margin was 5.8%, down 30 basis points (bps).

Operating expenses rose 6.9% on a year-over-year basis to $2.06 billion.

FY18 at a Glance

Full-year adjusted earnings per share of $12.62 grew from $12.54 a year ago, including 31 cents per diluted share contribution to create a non-profit foundation. The reported figure missed the Zacks Consensus Estimate, which is pegged at $12.69.

Revenues in fiscal 2018 grossed $208.36 billion, compared with $198.5 billion a year ago. This figure marginally missed the Zacks Consensus Estimate which is pinned at $208.43 billion.

Fiscal 2018 cash flow from operations totaled $4.3 billion. McKesson ended the year with cash and cash equivalents of $2.7 billion.

In fiscal 2018, McKesson repaid approximately $765 million of net long-term debt.

Share Repurchase Update

The company’s board of directors authorized an additional $4.0 billion of share repurchase program.

Guidance

McKesson expects adjusted earnings per share of $13.00-$13.80 for fiscal 2019. Notably, the Zacks Consensus Estimate for fiscal 2019 earnings is pegged at $13.39, within the given range.

Free cash flow is expected at around $3.0 billion for fiscal 2019.

The guidance assumes full-year adjusted tax rate of approximately 21% to 23%, which may vary from quarter to quarter.

Per management, the fiscal 2019 outlook represents mid- to high-single digit percentage growth year over year, reflecting more stable market conditions.

Our Take

McKesson wrapped up fourth-quarter fiscal 2018 on a mixed note, wherein adjusted earnings and revenues missed estimates. Moreover, solid growth in the Distribution Solutions segment holds promise. The surge in international sales is a major positive. However, contracting gross margins raise concern. Escalating operating expenses is also a headwind. Price fluctuation of generic pharmaceuticals and stiff competition in niche space add to the woes.

Zacks Rank & Key Picks

McKesson currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks which reported solid results this earnings season are Intuitive Surgical (ISRG - Free Report) , Abiomed, Inc. (ABMD - Free Report) and Varian Medical Systems (VAR - Free Report) . While Intuitive Surgical and Abiomed sport a Zacks Rank #1 (Strong Buy), Varian Medical carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abiomed reported fourth-quarter fiscal 2018 earnings per share of 80 cents, which beat the Zacks Consensus Estimate by 25%. Revenues were $174.4 million, beating the Zacks Consensus Estimate by 6.3%.

Varian Medical reported second-quarter fiscal 2018 adjusted earnings per share of $1.15, which beat the Zacks Consensus Estimate of $1.06. Revenues totaled $729.9 million, which surpassed the Zacks Consensus Estimate of $659.6 million.

Intuitive Surgical reported first-quarter 2018 adjusted earnings per share of $2.44, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the Zacks Consensus Estimate by 10.6%.

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