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McKesson (MCK) Q2 Earnings and Revenues Surpass Estimates

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Zacks Equity Research
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McKesson Corporation MCK reported second-quarter fiscal 2021 adjusted earnings per share (EPS) of $4.80, which beat the Zacks Consensus Estimate of $3.87 per share by 24%. The bottom line also improved 33.3% on a year-over-year basis.

Revenues of $60.81 billion outpaced the Zacks Consensus Estimate by 2.5%. Further, the top line rose 5.5% year over year.

Q2 Segmental Analysis

Per McKesson’s segment realignment effective in the quarter under review, the reporting is as follows:

Revenues at the U.S. Pharmaceutical and Specialty Solutions segment were $48.07 billion, up 5.4% 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 International segment, revenues amounted to $9.54 billion, up 2.3% year over year. However, the metric decreased 1% at constant currency (cc) due to lower volumes in the Canadian pharmaceutical distribution business resulting from the exit of an unprofitable customer at the start of fiscal 2021. However, rise in volumes in the European business partially mitigated this downside.

McKesson Corporation Price, Consensus and EPS Surprise

McKesson Corporation Price, Consensus and EPS Surprise
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 $2.53 billion, up 23.2% year over year. Higher demand for COVID-19 tests and personal protective equipment (PPE) in the Primary Care and Extended businesses contributed to the upside.

Revenues at the Prescription Technology Solutions segment totaled $668 million, up 6.7% year over year. New brand support programs led to the improvement, partially offset by the effect of decline in prescription volume trends.

Margins

Gross profit in the reported quarter was $3 billion, up 4.6% on a year-over-year basis. Meanwhile, gross margin accounted for 4.9% of net revenues, remaining flat from the prior-year quarter.

Operating income in the quarter was $634 million, up 1.3% from the year-ago quarter. Operating margin was 1% of net revenues, down 10 basis points (bps) from the year-ago quarter.

The U.S. Pharmaceutical and Specialty Solutions segment reported adjusted operating profit of $658 million, up 3% from the prior-year quarter. Adjusted operating margin was 1.4% at the segment.

Adjusted operating profit at the International segment was $116 million, up 20% from the year-ago quarter. Meanwhile, the adjusted operating margin at the segment was 1.2%.

The Medical-Surgical segment had adjusted operating profit of $210 million, which increased 27% from the year-ago quarter. Adjusted operating margin was 8.3% at the segment.

Adjusted operating profit was $104 million at the Prescription Technology Solutions segment, down 10% from the prior-year quarter. Adjusted operating margin was 15.6% at the segment.

Financial Update

In the quarter under review, cash and cash equivalents were $3.09 billion, down 18.4% sequentially.

Cumulative cash used in operating activities for the fiscal second quarter amounted to $41 million, narrower than from $159 million in the year-ago period.

Fiscal 2021 Guidance Raised

For fiscal 2021, McKesson projects adjusted earnings per share to be $16.00-$16.50 (up from the previously guided range of $14.70-$15.50). The Zacks Consensus Estimate for the same is pegged at $15.13.

The abovementioned guidance assumes around 15-20 cents of adjusted EPS associated with the kitting and storage of ancillary supplies for future COVID-19 vaccines.

Summing Up

McKesson exited the fiscal second quarter on a strong note, wherein both earnings and revenues beat the Zacks Consensus Estimate. Strong fiscal second-quarter show by all the segments remains a positive.

On Nov 1, 2020, McKesson announced that it has completed the contribution of its German wholesale business to a joint venture with Walgreens Boots Alliance.

Meanwhile, contraction in operating margin is a woe. Price fluctuation of generic pharmaceuticals and stiff competition in the MedTech space remain concerns.

Zacks Rank

Currently, McKesson carries a Zacks Rank #3 (Hold).

Earnings of Other MedTech Majors at a Glance

Some better-ranked stocks in the broader medical space that have already announced their quarterly results are Thermo Fisher Scientific Inc. TMO, Align Technology, Inc. ALGN and AngioDynamics, Inc. ANGO. While Thermo Fisher sports a Zacks Rank of 1 (Strong Buy), both Align Technology and AngoDynamics carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher reported third-quarter 2020 adjusted EPS of $5.63, beating the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion surpassed the consensus mark by 10%.

AngioDynamics reported first-quarter fiscal 2021 adjusted earnings per share (EPS) of 2 cents against the Zacks Consensus Estimate of a loss per share of 6 cents. Revenues of $70.2 million beat the consensus mark by 6.9%.

Align Technology reported third-quarter 2020 adjusted EPS of $2.25, which surpassed the Zacks Consensus Estimate by 281.4%. Revenues of $734.1 million outpaced the consensus mark by 38%.

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