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Will Core Business Units Aid McKesson's (MCK) Q2 Earnings?

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McKesson Corporation’s (MCK - Free Report) second-quarter fiscal 2019 earnings are scheduled to release on Oct 25, before market open. The company’s core business units — U.S. Pharmaceutical and Specialty Solutions and European Pharmaceutical Solutions — are likely to drive quarterly results. A strong guidance for fiscal 2019 is also encouraging.
 
Notably, McKesson has delivered a positive average earnings surprise of 8.4% for the trailing four quarters.
 
Fiscal Q1 Results
 
In the last reported quarter, McKesson reported adjusted earnings of $2.90 per share, beating the Zacks Consensus Estimate of $2.89. Adjusted earnings improved 17.9% year over year.
 
McKesson posted sales of $52.61 billion, lagging the Zacks Consensus Estimate for revenues of $53.04 billion. The figure rose 3% on a year-over-year basis.
 
For investors’ notice, McKesson reported in four business segments in the last reported quarter — U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions, Medical-Surgical Solutions and Other. Earlier the company used to report through two segments — Distribution Solutions and Technology Solutions.
 
Which Way Are Estimates Trending?
 
For the quarter to be reported, the Zacks Consensus Estimate for revenues stands at $53.56 billion, reflecting year-over-year growth of 2.9%. The same for earnings is pegged at $3.28, flat on a year-over-year basis.
Core Business Units to Drive Q2
 
McKesson’s Pharmaceutical wing supplies branded, generic and over-the-counter pharmaceuticals, while the Specialty business focuses on Specialty drug distribution and cost savings.
 
The company’s U.S. Pharmaceutical and Specialty Solutions and European Pharmaceutical units contributed to 91% of the company’s net revenues in the last reported quarter.
 
For the quarter to be reported, the Zacks Consensus Estimate for the U.S. Pharmaceutical and Specialty Solutions is pegged at $41.82 billion, showing a sequential rise of 2.1%.
 
The same for European Pharmaceutical revenues is pinned at $7.26 billion, indicating a sequential increase of 4.7%.
 
Management is optimistic about the recently closed acquisition of Medical Specialties Distributors or MSD.
 
Other Factors at Play
 
Medical Surgical Solutions
 
This segment delivers laboratory supplies including reagents, lab equipment, lab glassware, eye wash solution, specimen collection and lab supplies.
 
In the last reported quarter, this unit contributed 3.2% of the company’s net revenues.
 
For the quarter to be reported, the Zacks Consensus Estimate for the segment’s sales stands at $1.86 billion, reflecting a sequential increase of 9.5%.
 
Guidance Strong
 
For fiscal 2019, McKesson expects earnings per share in the range of $13-$13.80. The Zacks Consensus Estimate is pegged at $13.31, within the guided range.
 
We believe such trends are likely to favor McKesson this earnings season.
 
What Does Our Model Say?
 
Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise in the quarter. This is exactly the case below.
 
Earnings ESP: McKesson has an Earnings ESP of +0.17%. 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.
 
Please note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revision.
 
Other Stocks Worth a Look
 
Here are a few other medical stocks worth considering as they also have the right combination of elements to post an earnings beat this quarter.
 
Bio-Rad Laboratories (BIO - Free Report) has an Earnings ESP of +9.60% and a Zacks Rank #3.
 
Baxter International Inc. (BAX - Free Report) has an Earnings ESP of +0.90% and a Zacks Rank #2.You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Masimo Corp. (MASI - Free Report) has an Earnings ESP of +0.98% and a Zacks Rank #2.
 
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