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McKesson (MCK) Q4 Earnings Miss, Revenues Beat Estimates

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McKesson Corporation MCK reported fourth-quarter fiscal 2022 adjusted earnings per share (EPS) of $5.83, which missed the Zacks Consensus Estimate of $6.06 per share by 3.8%. The bottom line, however, improved 15% on a year-over-year basis.

For full-year 2022, the company reported adjusted EPS of $23.69, up 38% on a year-over-year basis. Nevertheless, the metric lagged the consensus mark by 0.9%.

GAAP earnings per share in the quarter was $2.48, down 40% from the year-ago quarter.

Revenue Details

Revenues of $66.10 billion surpassed the Zacks Consensus Estimate by 3.7%. The top line increased 12% year over year.

For full-year 2022, the company reported revenues of $263.97 billion, up 11% from the prior-year period. The metric outpaced the consensus mark by 0.9%.

Q4 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 $53.68 billion, up 14% year over year. The metric improved 14% at constant currency (cc). Per management, the upside was primarily driven by market growth and a higher volume of specialty products, including an increase in volumes from retail national account customers. However, branded to generic conversions partially offset the upside.

The U.S. Pharmaceutical and Specialty Solutions segment reported an adjusted operating profit of $780 million, down 4% from the prior-year quarter. This was due to the lower demand for COVID-19 vaccine distribution, partially mitigated by growth in the distribution of specialty products to providers and health systems.

At the International segment, revenues amounted to $8.53 billion, down 1% year over year but up 3% at cc, courtesy of sales to new customers in the Canadian business and volume recovery from COVID-19 on a year-over-year basis. However, divestiture of McKesson’s Austrian business (completed during the fourth quarter of fiscal 2022) partially offset this improvement.

Adjusted operating profit at the segment was $152 million, up 10% from the year-ago quarter.

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 $2.87 billion, up 6% year over year as well at cc. Growth and improvement in the primary care business led to the upside.

The Medical-Surgical segment delivered an adjusted operating profit of $298 million, which surged 55% from the year-ago quarter, owing to previous inventory charges on personal protective equipment (PPE) and related products and growth and improvements in the primary care business.

Revenues at the Prescription Technology Solutions segment totaled $1.02 billion, up 29% year over year and at cc. The improvement can be attributed to an increase in volumes associated with biopharma services, which include third-party logistic services and higher technology and service revenues, partially stemming from prescription volume growth.

Adjusted operating profit was $162 million at the Prescription Technology Solutions segment, up 11% from the prior-year quarter.

Margins

Gross profit in the reported quarter was $3.32 billion, up 1% on a year-over-year basis. Meanwhile, gross margin accounted for 5% of net revenues, down 60 basis points (bps) on a year-over-year basis.

The company reported an operating income of $633 million, down 37% from the year-ago quarter. Operating margin accounted for 0.9% of net revenues, down 80 bps on a year-over-year basis.

Financial Update

In the quarter under review, cash and cash equivalents were $3.53 billion, compared with $2.75 billion in the previous quarter.

Cumulative net cash provided in operating activities in the fiscal fourth quarter amounted to $4.43 billion, down from $4.54 billion in the year-ago period.

Fiscal 2023 Guidance

For fiscal 2023, the company projects adjusted EPS to be $22.90-$23.60. The outlook includes 5 cents to 25 cents associated with the U.S. government’s COVID-19 vaccine distribution, kitting and storage programs and 15 cents to 35 cents related to COVID-19 tests. The Zacks Consensus Estimate for the same is pegged at $22.67.

Summing Up

McKesson exited the fiscal fourth quarter on a mixed note, wherein earnings missed the Zacks Consensus Estimate, but revenues beat the same. Strong fiscal fourth-quarter show by three of the four segments is encouraging. A strong earnings outlook for fiscal 2023 instills optimism.

Contraction in both gross and operating margins is disappointing. Price fluctuation of generic pharmaceuticals and stiff competition in the MedTech space are other headwinds.

Zacks Rank

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

Key Picks

Some better-ranked stocks in the broader medical space that have announced quarterly results are Omnicell, Inc. OMCL, UnitedHealth Group Incorporated UNH and Alkermes plc ALKS.

Omnicell, carrying a Zacks Rank #2 (Buy), reported first-quarter 2022 adjusted EPS of 83 cents, which beat the Zacks Consensus Estimate by 16.9%. Revenues of $318.8 million outpaced the consensus mark by 0.7%. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Omnicell has an estimated long-term growth rate of 16%. OMCL's earnings surpassed estimates in three of the trailing four quarters and missed once, the average surprise being 13.4%.

UnitedHealth, carrying a Zacks Rank #2, reported first-quarter 2022 adjusted EPS of $5.49, which beat the Zacks Consensus Estimate by 1.7%. Revenues of $80.1 billion outpaced the consensus mark by 1.9%.

UnitedHealth has an estimated long-term growth rate of 14.8%. UNH's earnings surpassed estimates in each of the trailing four quarters, the average surprise being 3.7%.

Alkermes reported first-quarter 2022 adjusted EPS of 12 cents, which beat the Zacks Consensus Estimate of a penny. First-quarter revenues of $278.6 million outpaced the Zacks Consensus Estimate by 6.2%. It currently carries a Zacks Rank #2.

Alkermes has an estimated long-term growth rate of 25.1%. ALKS' earnings surpassed estimates in each of the trailing four quarters, the average surprise being 350.5%.


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