McKesson (MCK) Beats on Q2 Earnings, Raises '23 EPS View
McKesson Corporation (MCK) reported second-quarter fiscal 2024 adjusted earnings per share (EPS) of $6.23, which beat the Zacks Consensus Estimate of $6.11 by 2%. The bottom line also improved 3% on a year-over-year basis.
GAAP EPS was $4.92, down 23.8% from the year-ago quarter’s level. The significant decline was due to the provision of bad debts worth $210 million for uncollected trade accounts receivable related to the bankruptcy of Rite Aid Corporation.
Revenue Details
Revenues of $77.22 billion beat the Zacks Consensus Estimate by 1.8%. The top line also increased 10% year over year, reflecting strong growth in the United States. This was partially offset by lower international sales due to divestitures of its European businesses.
Q2 Segmental Analysis
Revenues at the U.S. Pharmaceutical segment totaled $69.8 billion, up 16% year over year. Per management, the upside was primarily driven by higher volume of specialty products, including an increase in volume from retail national account customers. However, branded-to-generic conversions partially offset the upside.
The U.S. Pharmaceutical and Specialty Solutions segment reported an adjusted operating profit of $815 million, up 8% from the prior-year quarter’s level. This was due to growth in the distribution of specialty products to providers and health systems, and increased contributions from our generics program, partially mitigated by lower demand for COVID-19 vaccine distribution. The adjusted metric for the segment was up 15% year over year, excluding the impact of the abovementioned vaccine’s distribution.
At the International segment, revenues amounted to $3.5 billion, down 43% year over year. This was due to divestitures of McKesson’s European businesses.
Adjusted operating profit at the segment totaled $93 million, down 32% from the year-ago quarter’s figure.
Revenues at the Medical-Surgical Solutions segment totaled $2.8 billion, flat year over year. Sales were primarily hurt by lower COVID-19-related sales.
The Medical-Surgical segment reported an adjusted operating profit of $254 million, down 17% year over year. Excluding the impact of COVID-related items, the adjusted metric was up 5%.
Revenues at the Prescription Technology Solutions segment totaled $1.1 billion, up 12% 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 $209 million at the segment, up 48% from the prior-year quarter’s level.
Margins
Gross profit in the reported quarter was $3.07 billion, down 1% on a year-over-year basis. The figure accounted for 4% of net revenues.
The company reported an operating income of $977 million, down 25% from the year-ago quarter’s figure. Operating margin accounted for 1.3% of net revenues.
Financial Update
Cash and cash equivalents totaled $2.52 billion compared with $2.64 billion in the previous quarter.
Cumulative net cash used in operating activities amounted to $87 million against net cash provided by operating activities of $166 million 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 $26.80-$27.40, up from the previous guidance of $26.55-$27.35. The Zacks Consensus Estimate for the same is pegged at $27.21. The company now expects revenues to grow 8-12% versus 7-12% as estimated previously.
McKesson Corporation Price, Consensus and EPS Surprise
McKesson Corporation price-consensus-eps-surprise-chart | McKesson Corporation Quote
Summing Up
McKesson exited the fiscal second 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 in the broader medical space that have announced quarterly results are Abbott Laboratories ABT, DexCom DXCM and Integer Holdings ITGR.
Abbott, carrying a Zacks Rank of 2 at present, reported third-quarter 2023 adjusted EPS of $1.14, which beat the Zacks Consensus Estimate by 3.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Revenues of $10.14 billion outpaced the consensus mark by 3.6%.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 6.76%.
DexCom reported third-quarter 2023 adjusted EPS of 50 cents, which beat the Zacks Consensus Estimate by 47.1%. Revenues of $975 million beat the Zacks Consensus Estimate by 4%. The company currently carries a Zacks Rank #2.
DXCM has a long-term estimated growth rate of 33.6%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 36.43%.
Integer Holdings reported third-quarter 2023 adjusted EPS of $1.27 and revenues of $405 million, which beat their respective Zacks Consensus Estimate by 21% and 8.7%. It currently carries a Zacks Rank #2.
ITGR has a long-term estimated growth rate of 15.8%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 11.98%.
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