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McKesson (MCK) Q1 Earnings and Revenues Surpass Estimates

Zacks Equity Research

McKesson Corporation’s MCK first-quarter fiscal 2020 earnings of $3.31 per share beat the Zacks Consensus Estimate by 8.9%. Further, the bottom line improved 14.1% from the year-ago quarter.

Revenues came in at $55.73 billion, which surpassed the Zacks Consensus Estimate by 3.3% and improved 5.9% year over year.

Q1 Segmental Analysis

Revenues at the U.S. Pharmaceutical and Specialty Solutions segment totaled $44.17 billion, up 7.8% year over year. Per management, the upside was primarily driven by market growth. However, branded to generic conversions partially offset the downside.

At the European Pharmaceutical Solutions segment, revenues amounted to $6.71 billion, down 3.2% year over year. However, the metric rose 3% at constant currency (cc) on the back of market growth in the pharmaceutical distribution business.

Revenues at the Medical-Surgical Solutions segment amounted to $1.90 billion, up 11.7% year over year. Acquisition and growth in the Primary Care and Extended Care businesses drove the upside.

Revenues at the Other segment were $2.95 billion in the fiscal first quarter, down 1.4% year over year but up 2% at cc.

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 $2.79 billion, up 0.3% on a year-over-year basis. Meanwhile, gross margin was 5% of net revenues, down 30 bps.

Operating income in the quarter was $634 million, which improved significantly from the year-ago quarter’s figure of $83 million.

The U.S. Pharmaceutical and Specialty Solutions segment reported adjusted operating profit of $600 million. Adjusted operating margin was 1.4% at the segment.

Adjusted operating profit at the European Pharmaceutical Solutions segment amounted to $35 million, while adjusted operating margin was 0.5%.

The Medical-Surgical segment had adjusted operating profit of $159 million. Adjusted operating margin was 8.4% at the segment.

Adjusted operating profit was $279 million at the Other segment.

Fiscal 2020 Guidance Raised

For fiscal 2020, McKesson now expects adjusted earnings per share in the range of $14-$14.60 (up from the previously guided range of $13.85-$14.45).

Change Healthcare Update

After the completion of the Change Healthcare, Inc. IPO, McKesson is the owner of around 58.5% of Change Healthcare, down from 70%. McKesson will continue to report the equity income from its interest in Change Healthcare based on its revised equity ownership percentage and with one-month lag.

McKesson reiterated the outlook for adjusted equity earnings from Change Healthcare of around $250 million to $270 million in fiscal 2020.

Financial Update

In the quarter under review, cash and cash equivalents came in at $1.9 million, down 34.7% sequentially.

Cash flow from operating activities stood at ($51) million, narrower than that of the year-ago quarter’s reported figure of ($1.1) billion.

Summing Up

McKesson exited the fiscal first quarter on a strong note, wherein both the bottom line and the top line beat the consensus mark. Strong first-quarter show by core U.S. Pharmaceutical and Specialty, and Medical-Surgical Solutions segments buoy optimism. Further, management remains optimistic about the 10-year partnership signed with Rite Aid. These apart, the company raised fiscal 2020 adjusted earnings outlook, which is a positive.

Meanwhile, McKesson’s European Pharmaceutical Solutions witnessed soft first quarter owing to challenges in the U.K. Moreover, contraction in gross margin adds to woes. Price fluctuation of generic pharmaceuticals and stiff competition in the MedTech space are added concerns.

Zacks Rank

Currently, McKesson carries a Zacks Rank #2 (Buy).  

Earnings of Other MedTech Majors at a Glance

Other top-ranked stocks which posted solid results this earning season are Stryker Corporation SYK, Baxter International Inc. BAX and Intuitive Surgical, Inc. ISRG.

Stryker delivered second-quarter 2020 adjusted earnings per share of $1.98, beating the Zacks Consensus Estimate by 2.6%. Revenues of $3.65 billion surpassed the Zacks Consensus Estimate by 1.4%. The company carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Baxter delivered second-quarter 2020 adjusted earnings of 89 cents per share, which surpassed the Zacks Consensus Estimate of 81 cents by 9.9%. Revenues of $2.84 billion outpaced the Zacks Consensus Estimate of $2.79 billion by 1.9%. The company has a Zacks Rank #2.

Intuitive Surgical reported second-quarter 2020 adjusted earnings per share of $3.25, which beat the Zacks Consensus Estimate of $2.85. Revenues were $1.1 billion, surpassing the Zacks Consensus Estimate of $1.03 billion. The company sports a Zacks Rank #1.

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