- Revenues of $38.1 billion for the fourth quarter and $137.6 billion for the full year.
- Fourth-quarter GAAP earnings per diluted share from continuing operations of $1.56 and full-year GAAP earnings per diluted share from continuing operations of $5.83.
- Fourth-quarter Adjusted Earnings per diluted share of $2.55 and full-year Adjusted Earnings per diluted share of $8.35.
- Fiscal 2014 cash flow from operations of $3.1 billion.
- Fiscal 2015 Outlook: Adjusted Earnings per diluted share of $10.40 to $10.80.
SAN FRANCISCO, May 12, 2014 – McKesson
Corporation (NYSE:MCK) today reported that revenues for the fourth quarter
ended March 31, 2014 were $38.1 billion, up 25% compared to $30.5 billion a
year ago. On the basis of U.S. generally
accepted accounting principles (“GAAP”), fourth-quarter earnings per diluted
share from continuing operations was $1.56 compared to $1.11 a year ago.
For the fiscal year,
McKesson had revenues of $137.6 billion compared to $122.1 billion a year ago. Full-year GAAP earnings per diluted share
from continuing operations was $5.83 compared to $5.62 a year ago.
Fourth-quarter Adjusted Earnings
per diluted share was $2.55, up 72% compared to $1.48 a year ago. Full-year Adjusted Earnings per diluted share was
$8.35, up 31% compared to $6.38 for the prior year. The results of Celesio did not have a material
impact on fourth-quarter or full-year adjusted earnings per share. McKesson’s share of Celesio’s net income for
the two months ended March 31, 2014 was offset by a charge to cost
of sales associated with the reversal of a step-up to fair value of Celesio’s
inventory at the date of acquisition.
“I am pleased with our
fourth-quarter results led by solid execution across the Distribution Solutions
and Technology Solutions segments,” said John H. Hammergren, chairman and chief
executive officer. “For the full year, we had strong growth in adjusted earnings,
up 31% from the prior year, and a record year for operating cash flow generated
by the business. These results were
driven primarily by outstanding performance in the Distribution Solutions
segment and disciplined working capital management across the company. Additionally, during the fourth-quarter, we
secured the acquisition of Celesio which marks an important step for McKesson
as we expand to serve our customers and manufacturing partners with global
scale.”
For the year, McKesson
generated cash from operations of $3.1 billion, and ended the year with cash and cash equivalents of $4.2 billion. During the year, McKesson spent $4.6 billion
on acquisitions, paid $214 million in dividends, and had internal capital
spending of $415 million.
“The strength
of our balance sheet and our ability to deliver excellent cash flow results reflect
the health of our businesses, and during the fourth quarter we successfully
funded the Celesio acquisition while maintaining our investment-grade rating,”
Hammergren commented. “We have a strong
track record of creating long-term value for shareholders through our portfolio
approach to capital deployment and plan to continue that approach through a mix
of acquisitions, share repurchases,
dividends and internal investments.”
Segment Results
Distribution Solutions revenues were up 26% for the
fourth quarter and up 13% for the full year compared to the prior year. North America pharmaceutical distribution and
services revenues, which include results from U.S. Pharmaceutical, McKesson
Canada and McKesson Specialty Health, were up 9% for the fourth quarter,
primarily reflecting market growth and growth from existing customers. For the full year, North America pharmaceutical
distribution and services revenues were up 7% compared to the prior year.
International pharmaceutical distribution and services
revenues, which represent the results of Celesio for the two months ended March
31, 2014, were $4.8 billion for the fourth quarter and full year.
Medical-Surgical distribution and services revenues were
up 28% for the fourth quarter and 57% for the full year driven by the
acquisition of PSS World Medical (“PSS”) and market growth.
In the fourth quarter, Distribution Solutions GAAP
operating profit was $605 million and GAAP operating margin was 1.62%. Fourth-quarter adjusted operating profit was $905
million and the adjusted operating margin was 2.42%. For the full year, GAAP
operating profit was $2.5 billion and GAAP operating margin was 1.83%. For the full year, adjusted operating profit
was $3.2 billion, up 30% from the prior year, and the adjusted operating margin
was 2.39%, up 31 basis points year-over-year.
“Distribution
Solutions had another outstanding year with strong performance across the
segment. We continue to deliver
tremendous value for our customers through the combination of our industry-leading
service, our depth of experience in the healthcare supply chain and our global
sourcing expertise,” said Hammergren. “Distribution
Solutions also has a strong track record of delivering value through
acquisitions. During the fourth quarter,
we passed the one-year anniversary of the PSS acquisition and we continue to
perform well against our original expectations.
We are also excited about the opportunities we see for McKesson’s future
as a global healthcare leader through our acquisition of Celesio.”
Technology Solutions products and services revenues were
down 1% for the fourth quarter and up 5% for the full year. GAAP operating profit was $118 million for
the fourth quarter and GAAP operating margin was 14.59%. Adjusted operating profit was $131 million
for the fourth quarter and adjusted operating margin was 16.19%. For the full year, GAAP operating profit was
$387 million and GAAP operating margin was 12.16%. For the full year, adjusted operating profit
was $467 million, up 25% from the prior year, and the adjusted operating margin
was 14.67%.
“Fourth-quarter Technology Solutions revenues were
impacted by an anticipated year-over-year decline in our Horizon hospital
software business. This revenue
decline was partially offset by the solid growth we experienced in our
connectivity and payer-focused businesses. Our Technology businesses remain
focused on innovating for important customer priorities including solutions for
value-based reimbursement, business intelligence and analytics, and healthcare
data interoperability,” Hammergren
said.
Fiscal Year 2014
Reconciliation of GAAP Results to Adjusted Earnings
Adjusted
Earnings per diluted share of $8.35 for the fiscal year ended March 31, 2014
excludes the following GAAP items:
- Amortization
of acquisition-related intangible assets of 85 cents per diluted
share.
- Acquisition
expenses and related adjustments of 63 cents per diluted share.
- Litigation
reserve adjustments of 23 cents per diluted share.
- LIFO
inventory-related adjustments of 81 cents per diluted share.
Fiscal Year 2015
Outlook
“Our
Fiscal 2015 guidance reflects solid growth across our broad portfolio of
businesses and McKesson’s share of the results of Celesio. McKesson expects
Adjusted Earnings per diluted share between $10.40 and $10.80 for the fiscal
year ending March 31, 2015,” Hammergren concluded.
Key Assumptions
for Fiscal Year 2015 Outlook
The
Fiscal 2015 outlook is based on the following key assumptions and is also
subject to the Risk Factors outlined below:
- Distribution Solutions revenue growth will increase
significantly driven by the acquisition of Celesio.
- North America pharmaceutical distribution and
services and Medical-Surgical distribution and services will deliver mid-single
digit revenue growth in Fiscal 2015 compared to Fiscal 2014.
- Branded drug price trends in Fiscal 2015 are
expected to be similar to those we experienced in Fiscal 2014.
- We expect the contribution to profit from the
launch of new oral generic pharmaceuticals will increase year-over-year.
- Price trends on generic drugs outside an
exclusivity period are expected to be in the high single digits in Fiscal 2015,
a decline from the price trends experienced in Fiscal 2014.
- Technology Solutions revenue will decline modestly
year-over-year driven by the elimination of a low-margin product line and an
expected revenue decline in our Horizon hospital software business.
- The guidance range assumes a full-year
adjusted tax rate of approximately
31.5%, which may vary from quarter to quarter.
- Property
acquisitions and capitalized software expenditures should be between $575
million and $625 million.
- We assume that
our ownership position in Celesio will be approximately 76% for Fiscal 2015.
- The guidance range assumes an exchange rate of $1.36 per Euro.
- Weighted
average diluted shares used in the calculation of earnings are
expected to be approximately 236 million for the year.
- Cash flow from operations is expected to be
approximately $3 billion.
- Based on acquisitions closed as of March 31,
2014:
- We expect amortization of acquisition-related
intangible assets of approximately $1.31 per diluted share.
- We expect acquisition expenses and related
adjustments of 54 cents per diluted share.
- We expect LIFO inventory-related charges of 86
cents per diluted share.
- The Fiscal 2015 guidance range does not
include any potential litigation reserve adjustments, or the impact of any
potential new acquisitions, divestitures, impairments or material
restructurings.
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 expenses and
related adjustments, certain litigation reserve adjustments, and
Last-In-First-Out (“LIFO”) inventory-related adjustments. A reconciliation of McKesson’s financial
results determined in accordance with GAAP to Adjusted Earnings is provided in Schedules
2, 3 and 4 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; changes in the Canadian healthcare industry and regulatory
environment; changes in the European regulatory environment with respect to
privacy and data protection regulations; managing foreign expansion, including
the related operating, economic, political and regulatory risks; the company’s
ability to successfully identify, consummate, finance and integrate
acquisitions; material adverse resolution of pending legal proceedings;
exposure to European economic conditions, including recent austerity measures
taken by certain European governments; competition; 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; malfunction, failure or breach of sophisticated internal information
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 and solutions 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;
and withdrawal from participation in multiemployer pension plans or if such
plans are reported to have underfunded liabilities. 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.
The company has scheduled a conference call for 5:00 PM
ET. The dial-in number for individuals
wishing to participate on the call is 719-234-7317. Erin Lampert, senior vice president, Investor
Relations, is the leader of the call, and the password to join the call is
‘McKesson’. A 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
888-203-1112 and the pass code is 3302075.
A webcast of the conference call will also be available live and
archived on the company’s Investor Relations website at http://investor.McKesson.com.
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 making the business of healthcare
run better. We
partner with payers, hospitals, physician offices, pharmacies, pharmaceutical
companies and others across the spectrum of care to build healthier
organizations that deliver better care to patients in every setting. McKesson helps
its customers improve their financial, operational, and clinical performance
with solutions that include pharmaceutical and medical-surgical supply
management, healthcare information technology, and business and clinical services. For more information, visit http://www.McKesson.com.
Tables and full-text of earnings release also available for viewing and download in PDF format: McKesson Reports Fiscal 2014 Fourth-Quarter and Full-Year Results (256KB, PDF)
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