- Revenues of $34.3 billion for the third quarter, up 10%.
- Distributions Solutions adjusted operating profit growth of 37%.
- Third-quarter GAAP earnings per diluted share from continuing operations of $0.67, down 47%.
- Third-quarter Adjusted Earnings per diluted share from continuing operations of $1.45, up 1%.
- Fiscal 2014 Outlook: Adjusted Earnings per diluted share from continuing operations of $8.05 to $8.20.
SAN FRANCISCO, January 30, 2014 – McKesson Corporation (NYSE:MCK) today reported that revenues for the third quarter ended December 31, 2013 were $34.3 billion, up 10% compared to $31.1 billion a year ago. On the basis of U.S. generally accepted accounting principles (“GAAP”), third-quarter earnings per diluted share from continuing operations was $0.67 compared to $1.27 a year ago. Third-quarter GAAP earnings per diluted share from continuing operations includes charges of $142 million, or 37 cents per share, related to LIFO adjustments, $122 million, or 52 cents per share, related to an ongoing dispute with the Canada Revenue Agency and $42 million, or 18 cents per share, in the Technology Solutions segment from restructuring actions in the Horizon Clinicals software platform. Third-quarter GAAP earnings per diluted share was $0.28 which includes a 39 cent loss from discontinued operations.
Third-quarter Adjusted Earnings per diluted share from continuing operations was $1.45 compared to $1.44 a year ago. Third-quarter Adjusted Earnings per share includes charges of $122 million, or 52 cents per share, related to the Canadian dispute and $42 million, or 18 cents per share, in the Technology Solutions segment.
“We are extremely pleased by the third-quarter performance of our Distribution Solutions segment where adjusted operating profit grew by 37% and our full-year view of the performance in Distribution Solutions is better than our previous expectations,” said John H. Hammergren, chairman and chief executive officer. “This operating strength is offset by an increase in our tax reserves due to a dispute with the Canadian tax authorities and a charge in our Technology Solutions segment as we continue to align our Horizon Clinicals software platform development efforts and size the organization appropriately given regulatory delays. As a result, we are updating our previous outlook and now expect Adjusted Earnings per diluted share of $8.05 to $8.20 for the fiscal year ending March 31, 2014.”
For the first nine months of the fiscal year, McKesson generated cash from operations of $472 million, and ended the quarter with cash and cash equivalents of $2.4 billion. During the first nine months of the fiscal year, McKesson paid $154 million in dividends, had internal capital spending of $296 million, and spent $116 million on acquisitions.
Segment Results
Distribution Solutions revenues were up 10% in the third quarter, driven mainly by strong growth in U.S. pharmaceutical direct distribution and services revenues due to market growth and our mix of business.
Canadian revenues, on a constant currency basis, increased 12% for the third quarter primarily due to market growth and new customer wins. Including an unfavorable currency impact of 6%, Canadian revenues increased 6% for the third quarter.
Medical-Surgical distribution and services revenues were up 67% for the third quarter driven primarily by the acquisition of PSS World Medical and market growth.
In the third quarter, Distribution Solutions GAAP operating profit was $552 million and GAAP operating margin was 1.65%. Third-quarter adjusted operating profit was $783 million and the adjusted operating margin was 2.34%.
Technology Solutions revenues were up 6% in the third quarter compared to the prior year driven primarily by acquisitions completed in the prior year. GAAP operating profit was $37 million for the third quarter and GAAP operating margin was 4.72%. Adjusted operating profit was $67 million for the third quarter and adjusted operating margin was 8.55%. Technology Solutions third-quarter segment results include a charge of $42 million driven by restructuring actions in the Horizon Clinicals software platform.
Fiscal Year 2014 Outlook
McKesson expects Adjusted Earnings per diluted share from continuing operations between $8.05 and $8.20 for the fiscal year ending March 31, 2014, which excludes the following GAAP items:
- Amortization of acquisition-related intangible assets of 76 cents per diluted share, based on acquisitions closed to date.
- Acquisition expenses and related adjustments of 55 cents per diluted share.
- Litigation reserve adjustments of approximately 23 cents per diluted share.
- LIFO inventory-related charges of 71 to 77 cents per diluted share.
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: material adverse resolution of pending legal proceedings; changes in the U.S. healthcare industry and regulatory environment; changes in the Canadian healthcare industry and regulatory environment; 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; 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, finance and integrate strategic acquisitions; 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; and changes in accounting principles generally accepted in the United States of America. 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 5:00PM 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 (from the U.S. and Canada) or 719-457-0820 (from all other countries) and the pass code is 8657683. 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 Third-Quarter Results (496KB, PDF)