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McKesson Earnings Down in 4Q - Analyst Blog

By: Zacks.com
Posted: 5/8/2013 11:06:00 AM
Referenced Stocks: CVS;MCK;PMC;RAD

McKesson Earnings Down in 4Q

McKesson Corporation's ( MCK ) 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 billion.

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 $7.21.

The Fourth Quarter in Detail

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.

Margins

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 businesses.

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, stocks like CVS Caremark Corporation ( CVS ), Rite Aid Corporation ( RAD ) and PharMerica Corporation ( PMC ) which operate in the same sector as McKesson, currently look more attractive with a Zacks Rank #2 (Buy) each.



CVS CAREMARK CP (CVS): Free Stock Analysis Report

MCKESSON CORP (MCK): Free Stock Analysis Report

PHARMERICA CORP (PMC): Free Stock Analysis Report

RITE AID CORP (RAD): Free Stock Analysis Report

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