McKesson Beats on Q1 Earnings & Revenues, Increases Guidance


McKesson Corporation’s (MCK) fiscal first quarter 2015 (ended Jun 30, 2014) earnings of $2.49 per share easily beat the Zacks Consensus Estimate of $2.34 per share and were up from $2.11 in the year-ago quarter.

On a reported basis (including one-time charges), earnings came in at $1.78 per share, down from $1.84 in the year-ago quarter.

Revenues grew 36.7% to $44.1 billion in the first quarter of fiscal 2015, surpassing the Zacks Consensus Estimate of $40.7 billion.

Quarter in Detail

McKesson operates through two segments: Distribution Solutions and Technology Solutions.

Revenues from the Distribution Solutions segment increased 37.8% year over year to $43.3 billion in the reported quarter driven by contribution from the Celesio acquisition and strong market growth.

After a failed bid, McKesson finally managed to secure the acquisition of Celesio earlier in 2014.

Revenues from the pharmaceutical distribution business in North America came in at $34.3 billion, up 14.2% year over year due to market growth.

Revenues from Medical-Surgical distribution and services increased 1.6% to $1.4 billion. We note that McKesson closed the acquisition of PSS World Medical Inc. in Feb 2013.

However, revenues from the Technology Solutions segment were down 8.1% year over year to $768 million due to an expected year-over-year decline in McKesson’s Horizon hospital software business and the planned elimination of a product line.

Operating expenses (on an adjusted basis) climbed 63.5% in the quarter to $1.9 billion.

Fiscal 2015 Outlook Upped

Based on strong growth from the Distribution segment, McKesson expects earnings (excluding special items) from continuing operations in the range of $10.50 – $10.90 per share in fiscal 2015, up from the earlier projected range of $10.40 – $10.80 per share. The Zacks Consensus Estimate of $10.64 per share is well within management's targeted range.

Revenue from Distribution Solutions is expected to increase significantly in fiscal 2015 driven by the acquisition of Celesio.

Our Take

McKesson currently carries a Zacks Rank #2 (Buy). We are impressed by the fiscal first quarter beat and subsequent increase in earnings guidance for 2015.

McKesson has been actively pursuing deals and acquisitions to drive growth. McKesson’s relentless efforts to acquire Celesio were commendable. We believe the Celesio acquisition is a step in the right direction and will allow McKesson to gain a strong foothold in Europe, thereby geographically expanding its core operations further.

Earlier in the week, McKesson announced that it extended its existing distribution agreement with its largest customer, CVS Caremark Corporation (CVS) by three years, through Jun, 2019.

Other stocks that look well-placed in the broader healthcare sector include Allergan Inc. (AGN) and AstraZeneca PLC (AZN). While Allergan is a Zacks Rank #1 (Strong Buy) stock, AstraZeneca carries a Zacks Rank #2.

Read the Full Research Report on MCK
Read the Full Research Report on AZN
Read the Full Research Report on AGN
Read the Full Research Report on CVS

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