McKesson Earnings Down in 4Q
McKesson Corporation's (
) fourth quarter of fiscal 2013 (ended Mar 31, 2013) adjusted
earnings (including non-cash impairment charges and severance and
facility exit charges of 76 cents and 11 cents respectively) of
$1.45 per share were down 31% from the year-ago quarter. The
Zacks Consensus Estimate was $2.31 per share.
On a reported basis earnings came in at $1.10 per share, down
from $2.09 per share in the year-ago quarter.
Revenues declined 3% to $30.6 billion in the fourth quarter of
fiscal 2013 as brand-to-generics continue to slow revenue growth.
Revenues were well short of the Zacks Consensus Estimate of $32.0
Revenues in fiscal 2013 came in at $122.5 billion, roughly
flat from a year ago and were short of the Zacks Consensus
Estimate of $123.6 billion. Adjusted earnings (including the
above mentioned charges) for fiscal 2013 were $6.33 per share,
down 1% year over year. The Zacks Consensus Estimate was
The Fourth Quarter in Detail
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McKesson operates through two segments: Distribution Solutions
and Technology Solutions.
Revenues at the Distribution Solutions segment decreased 3.6% to
$29.7 billion in the reported quarter. Revenues from the US
pharmaceutical distribution business came in at $22.2 billion, up
1% year over year. However, warehouse sales were down 26%.
Revenues from Canada were down 6% to $2.4 billion due to the
unfavorable impact of currency exchange rates, customer
transition impact and one less day of sales. Revenues from
Medical-Surgical distribution and services grew 37% to $1.1
billion due to the addition of PSS World Medical. McKesson closed
the acquisition of PSS World Medical Inc. in the reported
quarter. We note that McKesson inked a deal to buy erstwhile PSS
World Medical for $29.00 per share in cash in 2012.
Revenues at the Technology Solutions segment were up 6% year over
year at $913 million.
Operating expenses climbed 13% in the reported quarter to $1.4
billion. During the fiscal fourth quarter, McKesson repurchased
$800 million of its common stock thereby bringing the total share
repurchases in fiscal 2013 to $1.2 billion. We believe that
the buyback program highlights the company's commitment to create
value for shareholders.
During the fiscal fourth quarter, McKesson undertook a
comprehensive strategic review and decided to sell its 49% equity
stake in Nadro S.A. de C.V., a privately-held pharmaceutical
distributor in Mexico. McKesson has also decided to realign its
Technology Solutions segment. As a result, the company plans to
divest its International Technology and Hospital Automation
Upbeat 2014 Outlook
McKesson expects earnings (excluding special items) from
continuing operations in the range of $7.90-$8.20 per
share. The Zacks Consensus Estimate of $8.03 for fiscal
2014 is well within the guidance.
The company expects the contribution from the launch of new oral
generic pharmaceuticals to its fiscal 2014 profit to decline from
fiscal 2013 levels. McKesson anticipates revenue in Distribution
Solutions will rebound significantly in fiscal 2014 due to
slowing of brand-to-generic conversions, addition of PSS Medical,
and growth from existing customers. In addition, growth in the
Technology Solutions segment is expected to accelerate from
fiscal 2013 levels primarily due to impact of acquisitions.
We believe fiscal 2014 will be challenging for the company given
the slowdown in generic which should be partially mitigated by
the addition of PSS medical business.
McKesson currently carries a Zacks Rank #3 (Hold). Nevertheless,
CVS Caremark Corporation
Rite Aid Corporation
) which operate in the same sector as McKesson, currently look
more attractive with a Zacks Rank #2 (Buy) each.