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McKesson (MCK) to Report Q1 Earnings: What's in the Offing?

Zacks Equity Research

McKesson Corporation’s MCK first-quarter fiscal 2020 results are scheduled to release on Jul 31.

In the last reported quarter, the company delivered a positive earnings surprise of 0.8%. Further, it has an average four-quarter positive surprise of 4.5%.

Let’s take a look at how things are shaping up prior to this announcement.

Which Way Are Q1 Estimates Headed?

The Zacks Consensus Estimate for McKesson’s fiscal first-quarter earnings is pegged at $3.05, indicating an improvement of 5.2% from the year-ago quarter. The same for revenues stands at $54 billion, suggesting growth of 2.7% from the year-ago reported figure.

McKesson Corporation Price and EPS Surprise

 

McKesson Corporation Price and EPS Surprise

McKesson Corporation price-eps-surprise | McKesson Corporation Quote

Core Business Unit to Drive Q1 Results

McKesson’s U.S. Pharmaceutical and Specialty Solutions segment is likely to act as a key catalyst in bolstering the company’s fiscal first-quarter results. Notably, the segment is likely to gain momentum on the back of its branded, generic and over-the-counter pharmaceuticals.

The Zacks Consensus Estimate for U.S. Pharmaceutical and Specialty Solutions’ fiscal first-quarter revenues is pegged at $42.21 billion, indicating an improvement of nearly 3% from the year-ago quarter.

This apart, the business line is likely to be a major top-line contributor in the to-be-reported quarter, primarily driven by market growth, which might include better-than-expected performance in specialty business and acquisitions.

Other Factors at Play

European Pharmaceutical Solutions

The company is likely report higher European Pharmaceutical revenues in the fiscal first-quarter possibly driven by market growth. For fiscal 2020, the company projects revenues to grow in low-to-mid-single digits with no incremental UK cuts planned in its fiscal 2020 outlook. Consequently, we can expect the company to witness similar trend to follow in the to-be-reported quarter.

The Zacks Consensus Estimate for European Pharmaceutical's fiscal first-quarter revenues is pegged at $7.14 billion, indicating an improvement of nearly 3% from the year-ago quarter.

Medical Surgical Solutions

This segment is likely to exhibit a rise in the top line in the to-be-reported quarter, primarily on the back of Medical Specialties Distributors (MSD) acquisition, and growth in Primary Care and Lab Solutions businesses. For fiscal 2020, the company anticipates revenues to be in the high-single-digit range and we anticipate a similar scenario in the to-be-reported quarter.

For the quarter to be reported, the Zacks Consensus Estimate for the segment’s sales stands at $1.98 billion, suggesting an improvement of nearly 16% from the prior-year quarter.

Other Segment

This segment, which includes McKesson Canada, McKesson Prescription Technology Solutions and Change Healthcare, is likely to witness better-than-expected performance in the fiscal first quarter. The company’s Canadian retail presence and mitigation actions in Canada are likely to have driven the anticipated improvement.

However, the company might witness an increase in adjusted operating expenses mainly owing to acquisitions, a probable rise in opioid-related litigation costs and investments made to support growth.

Further, McKesson entered fiscal 2020 with an assumption of branded inflation in the mid-single digits. This in turn might adversely affect the company’s overall performance.

Nonetheless, the company might have witnessed higher consolidated revenues in the to-be-reported quarter, owing to better-than-expected performance in U.S. Pharmaceutical and Specialty Solutions segment, acquisitions and anticipated organic growth in Medical-Surgical segment.

For the quarter to be reported, the Zacks Consensus Estimate for revenues stands at $54 billion, suggesting an improvement of 2.7% from the prior-year quarter.

What Our Quantitative Model Suggests

Our proven model clearly indicates that a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to deliver a positive earnings surprise. This is the case here.

Earnings ESP: McKesson has an Earnings ESP of +0.10%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: McKesson carries a Zacks Rank #3.

Please note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.   
 
Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

AmerisourceBergen ABC has an Earnings ESP of +0.92% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

DENTSPLY SIRONA XRAY has an Earnings ESP of +6.95% and a Zacks Rank #1.

Acadia Healthcare Company, Inc. ACHC has an Earnings ESP of +4.30% and a Zacks Rank #2.

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McKesson Corporation (MCK) : Free Stock Analysis Report
 
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