McKesson (MCK) Beats on Q3 Earnings, Raises FY24 EPS View

McKesson Corporation MCK reported third-quarter fiscal 2024 adjusted earnings per share (EPS) of $7.74, which beat the Zacks Consensus Estimate of $7.05 by 9.8%. The bottom line also improved 12% on a year-over-year basis.

GAAP EPS was $4.42, down 42% from the year-ago quarter’s level. The significant decline was due to the provision of bad debts worth $515 million for uncollected trade accounts receivable related to the bankruptcy of Rite Aid Corporation. Moreover, the company recorded a pre-tax benefit of $126 million in the prior-year quarter related to Change Healthcare.

Revenue Details

Revenues of $80.9 billion beat the Zacks Consensus Estimate by 4.4%. The top line also increased 15% year over year, reflecting strong growth in the United States, driven by higher volumes from specialty products, retail national account customers and GLP-1 medications. This was partially offset by lower international sales due to divestitures of its European businesses.

Q3 Segmental Analysis

Revenues in the U.S. Pharmaceutical segment totaled $73 billion, up 18% year over year. Per management, the upside was primarily driven by increased prescription volumes in technology services and third-party logistics businesses.

The U.S. Pharmaceutical and Specialty Solutions segment reported an adjusted operating profit of $828 million, up 6% from the prior-year quarter’s level. This was due to a higher demand for access solutions.

In the International segment, revenues amounted to $3 billion, up 2% year over year. This was due to divestitures of McKesson’s European businesses, partially offset by higher pharmaceutical distribution volumes in the Canadian business.

Adjusted operating profit at the segment totaled $104 million, down 27% from the year-ago quarter’s figure.

Revenues in the Medical-Surgical Solutions segment totaled $3 billion, up 2% year over year. Sales were primarily driven by growth in the primary and extended care businesses but partially hurt by lower COVID-19-related sales.

The Medical-Surgical segment reported an adjusted operating profit of $282 million, down 16% year over year.

Revenues in the Prescription Technology Solutions segment totaled $1.2 billion, up 7% from that recorded a year ago. The improvement can be attributed to higher technology services revenues and an increase in prescriptions from third-party logistics.

Adjusted operating profit amounted to $193 million, up 25% from the prior-year quarter’s level.

McKesson Corporation Price, Consensus and EPS Surprise

McKesson Corporation Price, Consensus and EPS Surprise

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

Margins

Gross profit in the reported quarter was $3.15 billion, down 0.7% on a year-over-year basis. The figure accounted for 3.9% of net revenues.

The company reported an operating income of $642 million, down 48.3% from the year-ago quarter’s figure. Operating margin accounted for 0.8% of net revenues.

Financial Update

Cash and cash equivalents totaled $1.98 billion compared with $2.52 billion in the previous quarter.

Cumulative net cash provided by operating activities amounted to $167 million compared with $1.83 billion in the year-ago period.

Fiscal 2024 Guidance

McKesson raised its adjusted earnings guidance for fiscal 2024. It now projects adjusted EPS in the range of $27.25-$27.65, up from the previous guidance of $26.80-$27.40. The Zacks Consensus Estimate for the same is pegged at $27.27. Revenues are expected to grow 8-12% year over year.

Summing Up

McKesson exited the fiscal third quarter of 2024 on a strong note, wherein both earnings and revenues beat their respective estimates. The outperformance reflects strong demand for its pharmaceuticals and prescription technology solutions. A strong earnings outlook for the year raises optimism.

However, lower COVID-19-related sales and divesture of European businesses hurt top as well as bottom-line growth for the Medical-Surgical Solutions and International segments, respectively.

Meanwhile, price fluctuation of generic pharmaceuticals and stiff competition in the MedTech space remain as headwinds.

Zacks Rank and Other Key Picks

McKesson currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks to consider in the broader medical space are Universal Health Services UHS, Integer Holdings Corporation ITGR and Cardinal Health CAH.

Universal Health Services, carrying a Zacks Rank #2 at present, has an estimated growth rate of 4.4% for 2024. UHS’ earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 5.47%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

UHS’ shares have risen 11.9% in the past year compared with the industry’s 17.3% gain.

Integer Holdings, presently carrying a Zacks Rank of 2, has an estimated long-term growth rate of 15.8%. ITGR’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 11.9%.

Integer Holdings’ shares have rallied 44.3% in the past year compared with the industry’s 4.6% gain.

Cardinal Health, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 15.3%. CAH’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 15.64%.

Cardinal Health’s shares have risen 32.2% in the past year compared with the industry’s increase of 9.4%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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