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McKesson (MCK) Q4 Earnings and Revenues Surpass Estimates

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McKesson Corporation’s (MCK - Free Report) reported fourth-quarter fiscal 2020 adjusted earnings per share (EPS) of $4.27, which beat the Zacks Consensus Estimate of $4.10 per share by 4.1%. Further, the bottom line improved 15.7% on a year-over-year basis.

For full-year fiscal 2020, the company reported adjusted EPS of $14.95, up 10.2% from the prior-year period. The figure beat the consensus mark by 1.3%.

Revenue Details

Revenues came in at $58.54 billion, which outpaced the Zacks Consensus Estimate by 5.6%. However, the figure improved 11.6% year over year.

For full-year fiscal 2020, the company delivered revenues of $231.05 billion, up 7.8% from that of fiscal 2019. The figure surpassed the Zacks Consensus Estimate by 1.3%.

McKesson Corporation Price, Consensus and EPS Surprise

 

McKesson Corporation Price, Consensus and EPS Surprise

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

Q4 Segmental Analysis

Revenues at the U.S. Pharmaceutical and Specialty Solutions segment totaled $46.27 billion, up 13.1% year over year. Per management, the upside was primarily driven by branded pharmaceutical price increases and higher volumes from retail national account customers. However, branded to generic conversions partially offset the upside.

At the European Pharmaceutical Solutions segment, revenues amounted to $7.15 billion, up 5.8% year over year. Further, the metric increased 9% at constant currency (cc) on the back of growth in the pharmaceutical distribution business.

Revenues at the Medical-Surgical Solutions segment totaled $2.21billion, up 12.8% year over year. Growth in the Primary Care business, courtesy of higher volume of pharmaceutical products and a stronger influenza season, drove the upside.

Revenues at the Other segment were $2.91 billion in the fiscal fourth quarter, improving 3% year over year and 4% at cc. Growth in the Canadian and MRxTS businesses contributed to the upside.

Margins

Gross profit in the reported quarter was $3.34 billion, up 4.2% on a year-over-year basis. Meanwhile, gross margin was 5.7% of net revenues, down 40 bps.

Operating income in the quarter was $869 million, against the year-ago quarter’s operating loss of$569 million.

The U.S. Pharmaceutical and Specialty Solutions segment reported adjusted operating profit of $772 million, up 3% from the prior-year quarter. Adjusted operating margin was 1.7% at the segment.

Adjusted operating profit at the European Pharmaceutical Solutions segment amounted to $75 million, soared 226% from the year-ago quarter. Meanwhile, the adjusted operating margin at the segment was 1.1%.

The Medical-Surgical segment had adjusted operating profit of $170 million, which declined 1% from the year-ago quarter. Adjusted operating margin was 7.7% at the segment.

Adjusted operating profit was $242 million at the Other segment, down 6% from the prior-year quarter.

Financial Update

In the quarter under review, cash and cash equivalents came in at $4.02 billion, up 34.7% from the prior-year quarter.

Cumulative cash flow from operating activities for the fiscal fourth quarter came in at $4.37 billion, up from $4.04 billion in the year-ago period.

Fiscal 2021 Guidance

Per management, the fiscal 2021 guidance reflects the impact of COVID-19 pandemic and investments.

For fiscal 2021, McKesson projects adjusted earnings per share in the range of $13.95-$14.75. The Zacks Consensus Estimate for the same is pegged at $15.10.

The company projects revenues to grow in the range of 2-4%.

Free cash flow is estimate to range between $2.3 billion and $2.7 billion.

The company anticipates adjusted earnings per share growth in the second half of fiscal 2021.

Per management, long-term fundamentals remain robust and the company continues to execute strategic growth initiatives.

Company Update

On Mar 10, 2020, McKesson completed the separation of its investment in Change Healthcare.

Summing Up

McKesson exited the fiscal fourth quarter on a strong note, wherein both the bottom line and the top line beat their respective consensus marks.
Strong fiscal fourth-quarter show by all the segments instills investor optimism in the stock. Further, management continues to remain optimistic about the McKesson and Walgreens Boots Alliance agreement to form a JV that is anticipated to combine their respective pharmaceutical wholesale businesses in Germany. Strong fiscal 2021 outlook also buoys optimism.

Meanwhile, contraction in gross margin adds woes. Price fluctuation of generic pharmaceuticals and stiff competition in the MedTech space remain concerns.

Zacks Rank

Currently, McKesson carries a Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks in the broader medical space are Aphria Inc. (APHA - Free Report) , Biogen Inc. (BIIB - Free Report) and Eli Lilly and Company (LLY - Free Report) .

Aphria reported third-quarter fiscal 2020 adjusted EPS of 2 cents, beating the Zacks Consensus Estimate of a loss of 4 cents. Net revenues of $64.4 million surpassed the consensus mark by 14.6%. The company carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Biogen currently carries a Zacks Rank #2. It reported first-quarter 2020 adjusted EPS of $9.14, surpassing the Zacks Consensus Estimate by 18.1%. Revenues of $3.53 billion outpaced the consensus mark by 3.2%.

Eli Lilly reported first-quarter 2020 EPS of $1.75, outpacing the Zacks Consensus Estimate by 12.9%. Revenues of $145.3 million surpassed the consensus estimate by 6.3%. The company currently sports a Zacks Rank #1.

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