McKesson Reports Fiscal 2011 First-Quarter Results

“I am pleased to report that McKesson is off to a solid start for Fiscal 2011, driven by strong performance in our Distribution Solutions segment,” said John H. Hammergren, chairman and chief executive officer. “Our results this quarter give us momentum for the remainder of our fiscal year, and we continue to expect that McKesson should earn between $4.72 and $4.92 per diluted share from continuing operations for the fiscal year ending March 31, 2011.”

The company remains committed to its portfolio approach to capital deployment. During the first quarter, McKesson entered into an accelerated share buyback agreement to repurchase $1 billion of common stock, leaving $531 million on its current share repurchase authorization. The company also paid $33 million in dividends during the first quarter. On May 26, the Company announced an increase of 50% to its regular quarterly dividend beginning with the dividend payable on July 1, 2010.

In July of 2010, McKesson sold its wholly-owned subsidiary, McKesson Asia Pacific Pty Limited (“MAP”), a provider of phone and web-based healthcare services in Australia and New Zealand, for net cash proceeds of approximately $116 million. The divestiture is anticipated to generate a pre-tax gain of approximately $94 million ($72 million after-tax), which will be recorded as a discontinued operation in our condensed statement of operations in the second quarter ending September 30, 2010.

For the first quarter, McKesson had cash flow from operations of $528 million and ended the quarter with a cash balance of $3.3 billion.

“With our strong balance sheet and significant cash flow, we have the flexibility to invest in our existing businesses, pursue strategic opportunities, continue to repurchase our shares, and pay dividends,” Hammergren commented. “The breadth of our offering gives us the unique ability to provide our customers with solutions to meet the challenges in healthcare, which positions us very well for long-term growth.”

Distribution Solutions revenues were up 3% in the first quarter. U.S. pharmaceutical distribution revenues were up 2% for the quarter, reflecting market growth adjusted for our mix of business. In the quarter, we continued to see a shift of revenues to direct store delivery from sales to customers’ warehouses.

Canadian revenues, on a constant currency basis, grew 5% for the quarter due to market growth and one additional day of sales. Including a favorable currency impact of 15%, Canadian revenues increased 20% for the quarter. Medical-Surgical distribution revenues were flat for the quarter.

In the first quarter, Distribution Solutions gross profit of $1,067 million improved 12% compared to the first quarter a year ago. The increase in gross profit for the quarter was due primarily to the impact of a $51 million anti-trust settlement and strong generics gross profit growth.

Distribution Solutions operating profit of $505 million was up 17% for the quarter, and operating profit margin was 1.89% compared to 1.66% a year ago. Excluding the impact of the anti-trust settlement, operating profit margin was 1.70%.

“Distribution Solutions started the year with solid growth and operating margin expansion. In the first quarter, we continued to benefit from our generics offering across all of our distribution businesses. With leadership positions across our broad portfolio of customer solutions, and our focus on execution, we are well positioned for continued success,” said Hammergren.

In Technology Solutions, revenues were up 2% for the quarter. Services revenues grew 1%, reflecting higher software maintenance partially offset by lower implementation revenues. Implementation revenues were down due to longer installation cycles associated with the sale of more complex enterprise revenue management and clinical software solutions. Software revenues were up 4% and hardware revenues were up 21%.

Technology Solutions operating profit in the first quarter was $64 million. The operating profit margin was 8.43% compared to 13.86% for the first quarter a year ago. Operating profit margin in the first quarter was impacted by continued investment in our enterprise revenue management and clinical solutions.

“We are pleased that the Department of Health and Human Services released the final rules for meaningful use and certification standards of electronic health record (EHR) systems under the Medicare and Medicaid incentive programs,” said Hammergren. “Providers now have the flexibility to achieve meaningful use by taking different paths to implementing an EHR system based on their needs and priorities, which we believe is critical to broad-based adoption. We remain focused on working with our customers to make sure they have the right resources in place to qualify for stimulus money and improve the quality of care for their patients.”

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: material adverse resolution of pending legal proceedings; changes in the U.S. healthcare industry and regulatory environment; public health issues in the U.S. or abroad; changes in the Canadian healthcare industry and regulatory environment; competition; the frequency or rate of branded drug price inflation and generic drug price deflation; substantial defaults in payment or a material reduction in purchases by, or loss of, a large customer or group purchasing organization; implementation delay, malfunction or failure of internal information systems; 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; loss of third party licenses for technology incorporated into the company’s products and solutions; 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 and solutions to conform to specifications; disaster or other event causing interruption of customer access to data residing in our service centers; increased costs or product delays required to comply with existing and changing regulations applicable to our businesses and products; failure to comply with and changes in government regulations relating to sensitive personal information and to format and data content standards; 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; foreign currency fluctuations or disruptions to our foreign operations; new or revised tax legislation or challenges to our tax positions; the company’s ability to successfully identify, consummate and integrate strategic acquisitions; changes in accounting principles generally accepted in the United States of America; and 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. 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.

A web cast of the company’s regular conference call to review financial results with the financial community is available through McKesson’s website,  www.mckesson.com , live at 8:30 AM ET today and on replay afterwards . Shareholders are encouraged to review SEC filings and more information about McKesson, which are located on the company’s website.

About McKesson

McKesson Corporation, currently ranked 14th on the FORTUNE 500, is a healthcare services and information technology company dedicated to helping its customers deliver high-quality healthcare by reducing costs, streamlining processes, and improving the quality and safety of patient care. Over the course of its 177-year history, McKesson has grown by providing pharmaceutical and medical-surgical supply management across the spectrum of care; healthcare information technology for hospitals, physicians, homecare and payors; hospital and retail pharmacy automation; and services for manufacturers and payors designed to improve outcomes for patients. For more information, visit http://www.mckesson.com .

(1) Certain computations may reflect rounding adjustments

PR Contact

McKesson Corporation
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