McKesson (MCK) Q1 Earnings and Revenues Surpass Estimates
McKesson Corporation MCK reported first-quarter fiscal 2021 adjusted earnings per share (EPS) of $2.77, which beat the Zacks Consensus Estimate of $2.35 per share by 17.9%. However, the bottom line declined 16.3% on a year-over-year basis.
Revenues of $55.68 billion outpaced the Zacks Consensus Estimate by 3%. However, the figure fell 0.1% year over year.
Q1 Segmental Analysis
Revenues at the U.S. Pharmaceutical and Specialty Solutions segment were $45.06 billion, up 2% year over year. Per management, the upside was primarily driven by market growth and increase in volumes from retail national account customers. However, branded to generic conversions partially offset the upside.
At the European Pharmaceutical Solutions segment, revenues amounted to $6.25 billion, down 6.9% year over year. Further, the metric decreased 4% at constant currency (cc) owing to lower volumes in the pharmaceutical distribution business.
McKesson Corporation Price, Consensus and EPS Surprise
McKesson Corporation price-consensus-eps-surprise-chart | McKesson Corporation Quote
Revenues at the Medical-Surgical Solutions segment totaled $1.80 billion, down 5.4% year over year. Decline in the Primary Care business, owing to lower primary care patient visits, was the primary factor behind the downside. However, higher volumes of personal protective equipment (PPE) partially mitigated the downside.
Revenues at the Other segment were $2.57 billion in the fiscal first quarter, declining 12.9% year over year and 10% at cc. Lower pharmaceutical volumes in the Canadian business led to the decline.
Margins
Gross profit in the reported quarter was $2.70 billion, down 3.1% on a year-over-year basis. Meanwhile, gross margin was 4.8% of net revenues, down 20 bps.
Operating income in the quarter was $678 million, up 6.9% from the year-ago quarter.
The U.S. Pharmaceutical and Specialty Solutions segment reported adjusted operating profit of $589 million, down 2% from the prior-year quarter. Adjusted operating margin was 1.3% at the segment.
Adjusted operating profit at the European Pharmaceutical Solutions segment was $36 million, up 3% from the year-ago quarter. Meanwhile, the adjusted operating margin at the segment was 0.6%.
The Medical-Surgical segment had adjusted operating profit of $124 million, which declined 22% from the year-ago quarter. Adjusted operating margin was 6.9% at the segment.
Adjusted operating profit was $137 million at the Other segment, down 50% from the prior-year quarter.
Financial Update
In the quarter under review, cash and cash equivalents were $2.61 billion, down 34.9% sequentially.
Cumulative cash used in operating activities for the fiscal first quarter amounted to $1.06 billion, significantly up from $51 million of cash used in operating activities in the year-ago period.
Fiscal 2021 Guidance Raised
For fiscal 2021, McKesson projects adjusted earnings per share in the range of $14.70-$15.50 (up from the previously guided range of $13.95-$14.75). The Zacks Consensus Estimate for the same is pegged at $14.36.
The company anticipates adjusted earnings per share growth in the second half of fiscal 2021.
Summing Up
McKesson exited the fiscal first quarter on a strong note, wherein both earnings and revenues beat the Zacks Consensus Estimate. Strong fiscal first-quarter show by U.S. Pharmaceutical and Specialty Solutions is a positive. Further, management continues to remain optimistic about the McKesson and Walgreens Boots Alliance agreement to form a JV that is anticipated to combine their respective pharmaceutical wholesale businesses in Germany. Strong fiscal 2021 outlook also buoys optimism. Moreover, McKesson’s board of directors raised the quarterly dividend to 42 cents per share, reflecting the company’s commitment toward returning cash to shareholders and confidence in its outlook.
Meanwhile, the company witnessed weak performance across European Pharmaceutical Solutions, Medical-Surgical Solutions and Other segments in the quarter under review. Further, contraction in gross margin adds woes. Price fluctuation of generic pharmaceuticals and stiff competition in the MedTech space remain concerns.
Zacks Rank
Currently, McKesson carries a Zacks Rank #3 (Hold).
Key Picks
Some better-ranked stocks in the broader medical space are Thermo Fisher Scientific Inc. TMO, PerkinElmer, Inc. PKI and West Pharmaceutical Services, Inc. WST, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Thermo Fisher reported second-quarter 2020 adjusted EPS of $3.89, beating the Zacks Consensus Estimate by 45.7%. Revenues of $6.92 billion outpaced the consensus mark by 0.1%.
PerkinElmer reported second-quarter 2020 adjusted EPS of $1.57, surpassing the Zacks Consensus Estimate by 68.8%. Revenues of $811.7 million outpaced the consensus mark by 1.3%.
West Pharmaceuticals reported second-quarter 2020 adjusted EPS of $1.25, outpacing the Zacks Consensus Estimate of 91 cents. Revenues of $527.2 million surpassed the consensus estimate by 6.9%.
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