U.S. Markets closed

McKesson (MCK) Q2 Earnings Meet Estimates, Revenues Beat

Zacks Equity Research

McKesson Corporation MCK reported second-quarter fiscal 2020 earnings of $3.60 per share, which came matched the Zacks Consensus Estimate. Further, the bottom line remained flat on a year-over-year basis.

Revenues came in at $57.62 billion, which surpassed the Zacks Consensus Estimate by 4.9% and improved 8.6% year over year.

Q2 Segmental Analysis

Revenues at the U.S. Pharmaceutical and Specialty Solutions segment totaled $45.98 billion, up 10.5% year over year. Per management, the upside was primarily driven by branded pharmaceutical price increases and higher specialty pharmaceutical volume from the company’s largest retail national account customer. However, branded to generic conversions partially offset the upside.

At the European Pharmaceutical Solutions segment, revenues amounted to $6.59 billion, down 0.6% year over year. However, the metric rose 4% at constant currency (cc) on the back of market growth in the pharmaceutical distribution business.

Revenues at the Medical-Surgical Solutions segment totaled $2.06 billion, up 5.5% year over year. Growth in the Primary Care business, on the back of higher volume of pharmaceutical products, drove the upside.

Revenues at the Other segment were $2.98 billion in the fiscal second quarter, improving 3.6% year over year and 5% at cc. Growth in the Canadian and McKesson Prescription Technology Solutions (MRxTS) businesses contributed to the upside.

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 $2.86 billion, up 2.2% on a year-over-year basis. Meanwhile, gross margin was 4.9% of net revenues, down 40 bps.

Operating income in the quarter was $626 million, which fell 9.1% from the year-ago quarter’s figure of $689 million.

The U.S. Pharmaceutical and Specialty Solutions segment reported adjusted operating profit of $641 million up 0.9% from the prior-year quarter. Adjusted operating margin was 1.4% at the segment.

Adjusted operating profit at the European Pharmaceutical Solutions segment amounted to $41 million, down 22.6% 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 $166 million, which improved 20.3% from the year-ago quarter. Adjusted operating margin was 8.1% at the segment.

Adjusted operating profit was $221 million at the Other segment, down 26.3% from the prior-year quarter reported figure.

Fiscal 2020 Guidance Reiterated

For fiscal 2020, McKesson projects adjusted earnings per share in the range of $14-$14.60.

Company Updates

On Oct 21, 2019, McKesson announced an agreement in principle to settle all claims against the company in the first track of the multi-district opioid litigation, related to two Ohio counties. Resultantly, McKesson recorded a pre-tax charge of $82 million within operating expenses for the quarter under review.

The company opened a new distribution center in the Seattle area – an eco-friendly facility boasting of the latest in supply chain technology and state-of-the-art automation.

Financial Update

In the quarter under review, cash and cash equivalents came in at $1.36 billion, down 30.4% sequentially.

Cash flow from operating activities as of Sep 30, 2019, came in at ($159) million, against the year-ago quarter’s reported figure of 318 million.

Summing Up

McKesson exited the fiscal second quarter on a mixed note, wherein the bottom line met the consensus mark while the top line surpassed the same. Strong second-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.

Meanwhile, McKesson’s European Pharmaceutical Solutions witnessed soft second quarter thanks to challenging retail pharmacy environment in the U.K. Moreover, contraction in gross margin adds to woes. Price fluctuation of generic pharmaceuticals and stiff competition in the MedTech space remain concerns.

Zacks Rank

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

Earnings of Other MedTech Majors at a Glance

Some other top-ranked stocks which reported solid results this earning season are Edwards Lifesciences EW, Thermo Fisher Scientific Inc. TMO and ResMed Inc. RMD, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Edwards Lifesciences delivered third-quarter 2019 adjusted EPS of $1.41, outpacing the Zacks Consensus Estimate by 15.6%. Third-quarter net sales of $1.09 billion surpassed the Zacks Consensus Estimate by 5.5%.

Thermo Fisher delivered third-quarter 2019 adjusted EPS of $2.94, which surpassed the Zacks Consensus Estimate by 2.1%. Revenues of $6.27 billion outpaced the Zacks Consensus Estimate by 1.3%.

ResMed reported third-quarter 2019 adjusted EPS of 93 cents, which beat the Zacks Consensus Estimate of 87 cents by 6.9%. Revenues were $681.1 million, surpassing the Zacks Consensus Estimate by 3.6%.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Thermo Fisher Scientific Inc. (TMO) : Free Stock Analysis Report
 
ResMed Inc. (RMD) : Free Stock Analysis Report
 
Edwards Lifesciences Corporation (EW) : Free Stock Analysis Report
 
McKesson Corporation (MCK) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research