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McKesson (MCK) Beats Earnings Estimate in Q4, Revenues Miss

Zacks Equity Research

McKesson Corporation MCK reported fourth-quarter fiscal 2017 (ended Mar 31, 2017) earnings of $3.39 per share, beating the Zacks Consensus Estimate of $3.04. Earnings also came above the year-ago figure of $2.44.

Revenues improved 4% year over year to $48.7 billion but failed to meet the Zacks Consensus Estimate of $49.7 billion.

Stock Performance

In the last three months, the company’s stock has gained 1.16%, comparing unfavorably with the Zacks classified Medical/Dental Supplies sub industry’s gain of 3.13%. However, a long-term expected earnings growth rate of 6.28% instills confidence in investors.

Quarter in Detail

McKesson operates through two segments – Distribution Solutions and Technology Solutions. All growth rates given below are on a year-over-year basis.

At Distribution Solutions, revenues increased 5% to $48.2 billion. North America pharmaceutical distribution and services reported sales of $40.6 billion, up 5%, reflecting market growth and acquisitions. Revenues were hit by branded to generic conversions. Revenues from International pharmaceutical distribution and services were up 12% to $6.1 billion. Medical-Surgical distribution and services generated sales of $1.6 billion, up 9%.

However, revenues from the Technology Solutions business fell from $734 million in the year-ago quarter to $512 million. Quarterly revenues were affected by the decline in hospital software business.

McKesson Corporation Price, Consensus and EPS Surprise


McKesson Corporation Price, Consensus and EPS Surprise | McKesson Corporation Quote

Financial Condition

As of Mar 31, 2017, McKesson had $2.8 million in cash and cash equivalents against $24.2 million as of Dec 31, 2016. During full-fiscal 2017 (ended Mar 31, 2017) the company generated cash amounting to $4.7 billion from operations. Also in fiscal 2017, McKesson paid $4.2 billion for acquisitions, repurchased $2.3 billion of its common stock, repaid approximately $1.6 billion in long-term debt, and paid $253 million in dividends.

Fiscal 2018 Outlook

McKesson expects earnings per share in the range of $11.75 to $12.45 for fiscal 2018. Distribution Solutions business revenue growth is expected to increase by mid-single digits year over year. The upside is expected to be driven by market growth and acquisitions. Revenues from Technology Solutions are expected to be down on a year-over-year basis.

Zacks Rank & Key Picks

McKesson currently carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the broader medical sector include Luminex Corporation LMNX, Hologic, Inc. HOLX and Inogen Inc INGN. Notably, Inogen and Luminex sport a Zacks Rank #1 (Strong Buy), while Hologic carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen promises a long-term adjusted earnings growth of almost 17.5%. The stock returned 84.1% in the last one year.

Luminex has an expected long-term adjusted earnings growth of almost 16.3% and the company’s stock added roughly 17.6% in the last three months.

Hologic has a long-term expected earnings growth rate of 11.33%. The stock has a solid one-year return of roughly 28.8%.


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