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Why Is McKesson (MCK) Down 5.1% Since Last Earnings Report?

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Zacks Equity Research
·4 min read
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It has been about a month since the last earnings report for McKesson (MCK). Shares have lost about 5.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is McKesson due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

McKesson Earnings and Revenues Beat Estimates in Q3

McKesson Corporation reported third-quarter fiscal 2021 adjusted earnings per share of $4.60, which beat the Zacks Consensus Estimate of $4.13 per share by 11.4%. The bottom line also improved 20.7% on a year-over-year basis.

Revenues of $62.59 billion outpaced the Zacks Consensus Estimate by 1.2%. Further, the top line rose 5.8% year over year.   

Q3 Segmental Analysis

Revenues at the U.S. Pharmaceutical and Specialty Solutions segment were $49.49 billion, up 6.5% year over year. Per management, the upside was primarily driven by market growth and increase in specialty volumes. However, branded to generic conversions partially offset the upside.

At the International segment, revenues amounted to $9.27 billion, down 6% year over year. Also, the metric decreased 10% at constant currency (cc) resulting from the contribution of McKesson’s German wholesale business to a joint venture with Walgreens Boots Alliance.

Revenues at the Medical-Surgical Solutions segment totaled $3.05 billion, up 42.6% year over year. Higher demand for COVID-19 tests in the Primary Care and Extended businesses contributed to the upside.

Revenues at the Prescription Technology Solutions segment totaled $777 million, up 8.8% year over year. New brand support programs and increase in volumes of the existing programs led to the improvement.

Margins

Gross profit in the reported quarter was $3.15 billion, up 3.9% on a year-over-year basis. Meanwhile, gross margin accounted for 5% of net revenues, down 10 basis points (bps) from the prior-year quarter.

The company reported operating loss of $7.36 billion against the year-ago quarter’s operating income of $360 million.

The U.S. Pharmaceutical and Specialty Solutions segment reported adjusted operating profit of $656 million, up 2% from the prior-year quarter. Adjusted operating margin was 1.3% at the segment.

Adjusted operating profit at the International segment was $158 million, up 9% from the year-ago quarter. Meanwhile, the adjusted operating margin at the segment was 1.7%.

The Medical-Surgical segment had adjusted operating profit of $279 million, which increased 52% from the year-ago quarter. Adjusted operating margin was 9.1% at the segment.

Adjusted operating profit was $131 million at the Prescription Technology Solutions segment, up 27% from the prior-year quarter. Adjusted operating margin was 16.9% at the segment.

Financial Update

In the quarter under review, cash and cash equivalents were $3.58 billion, up 15.9% sequentially.

Cumulative cash provided in operating activities for the fiscal third quarter amounted to $1.17 billion against cash used in operating activities worth $280 million in the year-ago period.

Fiscal 2021 Guidance Raised

For fiscal 2021, McKesson projects adjusted earnings per share to be $16.95-$17.25 (up from the previously guided range of $16-$16.50). The Zacks Consensus Estimate for the same is pegged at $16.33.

The abovementioned guidance assumes 25-35 cents associated to COVID-19 vaccine distribution and 20-30 cents with respect to kitting and storage of ancillary supplies for COVID-19 vaccines.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 7.72% due to these changes.

VGM Scores

At this time, McKesson has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise McKesson has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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