McKesson (MCK) Q4 Earnings Beat, Revenues Miss Estimates

McKesson Corporation’s (NYSE:MCK) fourth-quarter fiscal 2019 earnings of $3.69 per share beat the Zacks Consensus Estimate by 0.8%. Further, the bottom line improved 5.7% from the year-ago quarter.

Revenues came in at $52.43 billion, which missed the Zacks Consensus Estimate by 1.9% but improved 1.6% year over year.

FY19 at a Glance

Full-year adjusted earnings per share of $13.57 improved 7.5% from $12.62 a year ago. The reported figure beat the Zacks Consensus Estimate of $13.55.

Revenues in fiscal 2019 grossed $214.31 billion, up 2.9% from fiscal 2018. This figure missed the Zacks Consensus Estimate of $215.3 billion.

Fiscal 2019 cash flow from operations totaled $4 billion and free cash flow amounted to $3.5 billion. McKesson ended the year with cash and cash equivalents of $3 billion.

In fiscal 2019, McKesson returned $1.9 billion to shareholders via share buyback and dividends.

Q4 Segmental Analysis

Revenues at the U.S. Pharmaceutical and Specialty Solutions segment totaled $40.89 billion, up 2.9% year over year. Per management, the upside was primarily driven by market growth.

At the European Pharmaceutical Solutions segment, revenues amounted to $6.76 billion, down 5.8% year over year. However, the metric rose 2% at constant currency (cc).

Revenues at the Medical-Surgical Solutions segment amounted to $1.96 billion, up 13.3% year over year. Acquisition and growth in the Primary Care and Lab Solutions businesses drove the upside.

Revenues at the Other segment were $2.82 billion in the fiscal fourth quarter, down 5.8% year over year and 1% at cc.

Margins

Gross profit in the reported quarter was $3.2 billion, up 4.1% on a year-over-year basis. Meanwhile, gross margin was 6.1% of net revenues, up 20 bps.

Operating loss in the quarter was $569 million, considerably narrower than the year-ago quarter’s loss of $944 million.

The U.S. Pharmaceutical and Specialty Solutions segment reported adjusted operating profit of $752 million. Adjusted operating margin was 1.8% at the segment.

Adjusted operating profit at the European Pharmaceutical Solutions segment amounted to $23 million, while adjusted operating margin was 0.3%.

The Medical-Surgical segment had adjusted operating profit of $172 million. Adjusted operating margin was 8.8% at the segment.

Adjusted operating profit was $258 million at the Other segment.

Fiscal 2020 Guidance

For fiscal2020, McKesson expects adjusted earnings per share in the range of $13.85-$14.45.

The company expects to deliver low to mid-single digit percent revenue growth in fiscal 2020.

Adjusted income from operations is anticipated to decline in the range of flat to low-single digit percent.

Foreign currency exchange rate movement is projected to have a net neutral impact to adjusted earnings per share on a year-over-year basis.

Free cash flow is projected to range between $2.8 billion and $3.0 billion.

Adjusted corporate expenses are estimated to range between $725 million and $775 million.

Cost Savings Target (NYSE:TGT) Update

The company now anticipates generating around $400-$500 million (up from the previously guided range of $300-$400 million that was announced on Oct 25, 2018) in annual pre-tax savings by the end of fiscal 2021.

Summing Up

McKesson exited the fiscal fourth quarter on a mixed note, wherein the bottom line beat the consensus mark while the top line missed the same. Strong fourth-quarter show by core U.S. Pharmaceutical and Specialty Solutions segment buoys optimism. Moreover, expansion in gross margin remains a positive. Further, management remains optimistic about the 10-year partnership signed with Rite Aid.

These apart, the company renewed its pharmaceutical distribution relationship with CVS Health (NYSE:CVS) through June 2023.

Meanwhile, McKesson’s European Pharmaceutical Solutions witnessed soft fourth quarter owing to challenges in the U.K. Price fluctuation of generic pharmaceuticals and stiff competition in the MedTech space are added concerns.

Zacks Rank

Currently, McKesson carries a Zacks Rank #4 (Sell).

Earnings of MedTech Majors at a Glance

Some better-ranked stocks which reported solid results this earning season are Stryker Corporation (NYSE:SYK) , DENTSPLY SIRONA Inc. (NASDAQ:XRAY) and CONMED Corporation (NASDAQ:CNMD) , each carrying a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered first-quarter 2019 adjusted earnings per share of $1.88, beating the Zacks Consensus Estimate by 2.2%. Revenues of $3.52 billion were in line with the Zacks Consensus Estimate.

DENTSPLY reported adjusted earnings per share (EPS) of 49 cents in the first quarter of 2019, beating the Zacks Consensus Estimate of 38 cents. Revenues came in at $946.2 million and surpassed the Zacks Consensus Estimate of $917.1 million.

CONMED posted first-quarter 2019 adjusted earnings per share of 57 cents, which beat the Zacks Consensus Estimate of 54 cents. Revenues were $218.4 million, surpassing the Zacks Consensus Estimate of $213 million.

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