- Revenues of $51.1 billion for the first quarter, up 3% year-over-year.
- First-quarter GAAP earnings per diluted share from continuing operations of $1.44, down 50% year-over-year.
- First-quarter Adjusted Earnings per diluted share of $2.46, down 22% year-over-year.
- Raised Fiscal 2018 Outlook: GAAP earnings per diluted share from continuing operations of $7.10 to $9.00.
- Raised Fiscal 2018 Outlook: Adjusted Earnings of $11.80 to $12.50 per diluted share.
- Board of Directors approved raising the quarterly dividend by 21% from 28 cents to 34 cents per share.
SAN FRANCISCO, July 27, 2017 – McKesson Corporation (NYSE:MCK) today reported that revenues for the first quarter ended June 30, 2017 were $51.1 billion, up 3% compared to $49.7 billion a year ago. On the basis of U.S. generally accepted accounting principles (“GAAP”), first-quarter earnings per diluted share from continuing operations was $1.44, compared to $2.88 a year ago.
First-quarter Adjusted Earnings per diluted share was $2.46, down 22% compared to $3.15 a year ago. First-quarter results included the lapping effect of the lower profit contribution from increased price competition in our independent pharmacy business in Fiscal 2017 and weaker pharmaceutical manufacturer pricing trends in our U.S. Pharmaceutical business within our Distribution Solutions segment, and lower profit in our Technology Solutions segment driven primarily by the contribution of the majority of the businesses to Change Healthcare.
For the first quarter, McKesson generated cash from operations of $741 million, and ended the quarter with cash and cash equivalents of $2.3 billion. During the quarter, McKesson repaid $541 million in long-term debt, paid $1.5 billion for acquisitions, repurchased $250 million of its common stock, invested $118 million internally and paid $62 million in dividends. Yesterday, the Board of Directors approved an increase to the quarterly dividend from 28 cents to 34 cents per share.
“McKesson’s first-quarter operating results were consistent with our expectations,” said John H. Hammergren, chairman and chief executive officer. “We’re off to a solid start to the year and are raising our previous Fiscal 2018 Adjusted Earnings outlook to a range of $11.80 to $12.50 per diluted share. In addition, we generated strong first-quarter cash flows, which allowed us to allocate capital in line with our portfolio approach to capital deployment.”
Segment Results
Distribution Solutions revenues were $50.9 billion for the quarter, up 4% on a reported basis and 5% on a constant currency basis.
North America pharmaceutical distribution and services revenues of $43.0 billion for the quarter were up 4% on a reported basis and 5% on a constant currency basis, primarily reflecting market growth and acquisitions.
International pharmaceutical distribution and services revenues were $6.4 billion for the quarter, up 1% on a reported basis and 6% on a constant currency basis, driven by acquisitions and market growth.
Medical-Surgical distribution and services revenues were up 4% for the quarter, driven by market growth.
In the first quarter, Distribution Solutions GAAP operating profit was $713 million and GAAP operating margin was 1.40%. First-quarter adjusted operating profit was $887 million and adjusted operating margin was 1.73%, both on a constant currency basis. Adjusted operating margin excluding noncontrolling interests for the Distribution Solutions segment was 1.64% on a constant currency basis.
Technology Solutions revenues were down 83% on both a reported and constant currency basis in the first quarter, following the contribution of the majority of our Technology Solutions businesses to the Change Healthcare joint venture on March 1, 2017, and reflecting our remaining Enterprise Information Solutions business.
First-quarter GAAP loss from McKesson’s equity investment in Change Healthcare was $120 million. Adjusted income from McKesson’s equity investment in Change Healthcare was $70 million for the first quarter.
Technology Solutions GAAP operating loss was $78 million for the first quarter. Adjusted operating profit was $87 million for the first quarter, primarily reflecting our equity share of Change Healthcare’s net income.
Fiscal Year 2018 Outlook
McKesson expects GAAP earnings per diluted share between $7.10 to $9.00 for the fiscal year ending March 31, 2018, which includes the following items:
- Amortization of acquisition-related intangibles of $2.40 to $2.70 per diluted share;
- Acquisition-related expenses and adjustments of $1.10 to $1.30 per diluted share;
- LIFO inventory-related adjustments include charges of 20 cents to 60 cents per diluted share;
- Gains from antitrust legal settlements of up to 10 cents per diluted share;
- Restructuring charges of up to 10 cents per diluted share; and
- Other adjustments include net credits of up to 10 cents per diluted share.
McKesson expects Adjusted Earnings of $11.80 to $12.50 per diluted share for the fiscal year ending March 31, 2018.
Adjusted Earnings
McKesson separately reports financial results on the basis of Adjusted Earnings. Adjusted Earnings is a non-GAAP financial measure defined as GAAP income from continuing operations, excluding amortization of acquisition-related intangible assets, acquisition-related expenses and adjustments, Last-In-First-Out (“LIFO”) inventory-related adjustments, gains from antitrust legal settlements, restructuring charges, and other adjustments. A reconciliation of McKesson’s GAAP financial results to Adjusted Earnings is provided in Schedules 2, 3 and 4 of the financial statement tables included with this release.
Constant Currency
McKesson also presents its financial results on a constant currency basis. The company conducts business worldwide in local currencies, including the Euro, British pound and Canadian dollar. As a result, the comparability of the financial results reported in U.S. dollars can be affected by changes in foreign currency exchange rates. Constant currency information is presented to provide a framework for assessing how the company’s business performed excluding the effect of foreign currency exchange rate fluctuations. The supplemental constant currency information of the company’s GAAP financial results and Adjusted Earnings (Non-GAAP) is provided in Schedule 3 of the financial statement tables included with this release.
Adjusted Operating Profit Margin Excluding Noncontrolling Interests
McKesson also provides adjusted operating profit margin excluding noncontrolling interests. The company has arrangements involving third-party noncontrolling interests. As a result, pre-tax results are affected by the portion of pre-tax earnings attributable to noncontrolling interests. Adjusted operating profit margin excluding noncontrolling interests information is presented to provide a framework for assessing how the company’s business performed excluding the effect of pre-tax earnings that is not attributable to McKesson. The supplemental adjusted operating profit margin excluding noncontrolling interests information of the company’s GAAP financial results and Adjusted Earnings (Non-GAAP) is provided in Schedule 3 of the financial statement tables included with this release.
Risk Factors
Except for historical information contained in this press release, matters discussed may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These statements may be identified by their use of forward-looking terminology such as “believes”, “expects”, “anticipates”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates” or the negative of these words or other comparable terminology. The discussion of financial trends, strategy, plans or intentions may also include forward-looking statements. It is not possible to predict or identify all such risks and uncertainties; however, the most significant of these risks and uncertainties are described in the company’s Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission and include, but are not limited to: changes in the U.S. healthcare industry and regulatory environment; managing foreign expansion, including the related operating, economic, political and regulatory risks; changes in the Canadian healthcare industry and regulatory environment; exposure to European economic conditions, including recent austerity measures taken by certain European governments; changes in the European regulatory environment with respect to privacy and data protection regulations; fluctuations in foreign currency exchange rates; the company’s ability to successfully identify, consummate, finance and integrate acquisitions; the company’s ability to manage and complete divestitures; material adverse resolution of pending legal proceedings; competition and industry consolidation; substantial defaults in payment or a material reduction in purchases by, or the loss of, a large customer or group purchasing organization; the loss of government contracts as a result of compliance or funding challenges; public health issues in the U.S. or abroad; cyberattack, natural disaster, or malfunction of sophisticated internal computer systems to perform as designed; the adequacy of insurance to cover property loss or liability claims; the company’s failure to attract and retain customers for its software products and solutions due to integration and implementation challenges, or due to an inability to keep pace with technological advances; the company’s proprietary products and services may not be adequately protected, and its products and solutions may be found to infringe on the rights of others; system errors or failure of our technology products or services to conform to specifications; disaster or other event causing interruption of customer access to data residing in our service centers; the delay or extension of our sales or implementation cycles for external software products; changes in circumstances that could impair our goodwill or intangible assets; new or revised tax legislation or challenges to our tax positions; general economic conditions, including changes in the financial markets that may affect the availability and cost of credit to the company, its customers or suppliers; changes in accounting principles generally accepted in the United States of America; withdrawal from participation in multiemployer pension plans or if such plans are reported to have underfunded liabilities; inability to realize the expected benefits from the company’s restructuring and business process initiatives; difficulties with outsourcing and similar third party relationships; risks associated with the company’s retail expansion; and the company’s inability to keep existing retail store locations or open new retail locations in desirable places. The reader should not place undue reliance on forward-looking statements, which speak only as of the date they are first made. Except to the extent required by law, the company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.
Conference Call Details
The company has scheduled a conference call for today, Thursday, July 27th, at 8:30 AM ET. The dial-in number for individuals wishing to participate on the call is 323-794-2130. Craig Mercer, senior vice president, Investor Relations, is the leader of the call, and the password to join the call is ‘McKesson’. A telephonic replay of this conference call will be available for five calendar days. The dial-in number for individuals wishing to listen to the replay is 719-457-0820 and the pass code is 3179042. An archive of the conference call will also be available on the company’s Investor Relations website at http://investor.McKesson.com.
Shareholders are encouraged to review the company’s filings with the Securities and Exchange Commission.
About McKesson Corporation
McKesson Corporation, currently ranked 5th on the FORTUNE 500, is a global leader in healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information technology. McKesson partners with pharmaceutical manufacturers, providers, pharmacies, governments and other organizations in healthcare to help provide the right medicines, medical products and healthcare services to the right patients at the right time, safely and cost-effectively. United by our ICARE shared principles, our employees work every day to innovate and deliver opportunities that make our customers and partners more successful — all for the better health of patients. McKesson has been named the “Most Admired Company” in the healthcare wholesaler category by FORTUNE, a “Best Place to Work” by the Human Rights Campaign Foundation, and a top military-friendly company by Military Friendly. For more information, visit www.McKesson.com.
Tables and full-text of earnings release also available for viewing and download in PDF format: McKesson Reports Fiscal 2018 First-Quarter Results (PDF, 114 KB).