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McKesson (MCK) Q3 Earnings Beat Estimates, Revenues Miss

Zacks Equity Research

McKesson Corporation’s MCK reported third-quarter fiscal 2020 earnings of $3.81 per share, which beat the Zacks Consensus Estimate of $3.54 per share by 7.6%. Further, the bottom line improved 12.1% on a year-over-year basis.

Revenues came in at $59.17 billion, which missed the Zacks Consensus Estimate by 0.4%. However, the figure improved 5.3% year over year.

Q3 Segmental Analysis

Revenues at the U.S. Pharmaceutical and Specialty Solutions segment totaled $46.92 billion, up 6% year over year. Per management, the upside was primarily driven by branded pharmaceutical price increases and higher volumes from retail national account customers. However, branded to generic conversions partially offset the upside.

At the European Pharmaceutical Solutions segment, revenues amounted to $6.93 billion, up 0.3% year over year. Further, the metric rose 3% at constant currency (cc) on the back of growth in the pharmaceutical distribution business.

Revenues at the Medical-Surgical Solutions segment totaled $2.14 billion, up 6.4% year over year. Growth in the Primary Care business, driven by higher volume of pharmaceutical products and an early start to influenza season, drove the upside.

Revenues at the Other segment were $3.18 billion in the fiscal third quarter, improving 5.7% year over year and 5% at cc. Growth in the Canadian business primarily contributed to the upside.

McKesson Corporation Price, Consensus and EPS Surprise

Margins

Gross profit in the reported quarter was $3.03 billion, up 2.1% on a year-over-year basis. Meanwhile, gross margin was 5.1% of net revenues, down 20 bps.

Operating income in the quarter was $360 million, which plunged 47.3% from the year-ago quarter figure of $683 million.

The U.S. Pharmaceutical and Specialty Solutions segment reported adjusted operating profit of $658 million, up 11% 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 $80 million, up 16% 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 $184 million, which improved 8% from the year-ago quarter. Adjusted operating margin was 8.6% at the segment.

Adjusted operating profit was $214 million at the Other segment, down 4% from the prior-year quarter.

Financial Update

In the quarter under review, cash and cash equivalents came in at $2.07 billion, up 52.3% sequentially.

Cash flow from operating activities for the nine months ended as of Dec 31, 2019, came in at ($280) million, against the year-ago quarter figure of 141 million.

Fiscal 2020 Guidance Reiterated

McKesson has reiterated fiscal 2020 guidance (announced Jan 13, 2020). For fiscal 2020, the company projects adjusted earnings per share in the range of $14.60-$14.80.

Company Updates

On Dec 12, 2019, McKesson and Walgreens Boots Alliance announced an agreement to form a joint venture (JV) that is anticipated to combine their respective pharmaceutical wholesale businesses in Germany.

On February 4, 2020, McKesson’s wholly-owned subsidiary, PF2 SpinCo, Inc., filed a registration statement with the Securities and Exchange Commission (SEC) with regards to a potential exit of the company from its investment in the Change Healthcare JV.

Summing Up

McKesson exited the fiscal third quarter on a mixed note, wherein the bottom line beat the consensus mark while the top line missed the same. Strong fiscal third-quarter show by the segments – U.S. Pharmaceutical and Specialty Solutions, Medical-Surgical Solutions and Other – instills investor optimism in the stock. Further, management remains 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.

Meanwhile, 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 Stryker Corporation SYK, Accuray Incorporated ARAY and AmerisourceBergen Corporation ABC. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered fourth-quarter 2019 adjusted EPS of $2.49, outpacing the Zacks Consensus Estimate by 1.2%. Fourth-quarter reported revenues of $4.13 billion surpassed the Zacks Consensus Estimate by 0.7%. The company carries a Zacks Rank #2.

Accuray reported second-quarter fiscal 2020 adjusted earnings per share (EPS) of a penny, improving from the Zacks Consensus Estimate of a loss of 7 cents. Net revenues of $98.8 million outpaced the Zacks Consensus Estimate by 0.3%. The company sports a Zacks Rank #1.

AmerisourceBergen reported first-quarter fiscal 2020 adjusted EPS of $1.76, which beat the Zacks Consensus Estimate of $1.67 by 5.4%. The company has an expected long-term earnings growth rate of 7.4%. AmerisourceBergen carries a Zacks Rank of 2.

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Click to get this free report Accuray Incorporated (ARAY) : Free Stock Analysis Report Stryker Corporation (SYK) : Free Stock Analysis Report McKesson Corporation (MCK) : Free Stock Analysis Report AmerisourceBergen Corporation (ABC) : Free Stock Analysis Report To read this article on Zacks.com click here.