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Why Is McKesson (MCK) Up 1.7% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for McKesson Corporation (MCK - Free Report) . Shares have added about 1.7% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is MCK due for a pullback? 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.

Recent Earnings

McKesson reported fourth-quarter fiscal 2018 earnings of $3.49 per share, missing the Zacks Consensus Estimate of $3.54. Earnings, however, improved 2.3% from the year-ago quarter.

McKesson posted sales of $51.63 billion, marginally missing the Zacks Consensus Estimate of $51.64 billion and growing 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 details for 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.

North America pharmaceutical distribution & services revenues came in at $42.73 billion, up 5.1% from a year ago. 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.

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.

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 stable market conditions.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter. Last month, the consensus estimate has shifted downward by 5.5% due to these changes.

McKesson Corporation Price and Consensus

 

VGM Scores

At this time, MCK has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. However, the stock was also 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and growth investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, MCK has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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