McKesson Reports Fiscal 2015 Fourth-Quarter and Full-Year Results

• Revenues of $44.9 billion for the fourth quarter and $179.0 billion for the full year, up 30% year-over-year.
• Fourth-quarter GAAP earnings per diluted share from continuing operations of $1.69 and full-year GAAP earnings per diluted share from continuing operations of $7.54, up 24% year-over-year.
• Fourth-quarter Adjusted Earnings per diluted share of $2.94 and full-year Adjusted Earnings per diluted share of $11.11, up 29% year-over-year.
• Fiscal 2015 cash flow from operations of $3.1 billion.
• Board of Directors authorized a new $500 million share repurchase program.
• Fiscal 2016 Outlook: Adjusted Earnings per diluted share of $12.20 to $12.70.

SAN FRANCISCO, May 12, 2015 – McKesson Corporation (NYSE:MCK) today reported that revenues for the fourth quarter ended March 31, 2015 were $44.9 billion, up 19% compared to $37.8 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 $1.69 compared to $1.72 a year ago. Fourth-quarter GAAP earnings from continuing operations include a pre and post-tax charge of $150 million, or 64 cents per diluted share, related to a previously disclosed settlement agreement in principle with the U.S. Drug Enforcement Administration (DEA) and the U.S. Department of Justice (DOJ) regarding McKesson’s monitoring and reporting of controlled substances orders.

For the fiscal year, McKesson had revenues of $179.0 billion compared to $137.4 billion a year ago, up 30% year-over-year. Full-year GAAP earnings per diluted share from continuing operations was $7.54 compared to $6.08 a year ago, up 24% year-over-year.

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 claim and litigation reserve adjustments reflecting changes to the company’s reserves for controlled substance distribution claims and average wholesale price litigation matters, and Last-In-First-Out (“LIFO”) inventory-related 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.

Fourth-quarter Adjusted Earnings per diluted share was $2.94, up 8% compared to $2.71 a year ago. Full-year Adjusted Earnings per diluted share was $11.11, up 29% compared to $8.60 for the prior year.

“Our fourth-quarter results wrapped up another year of outstanding earnings growth, led by strong execution in our Distribution Solutions segment,” said John H. Hammergren, chairman and chief executive officer. “For the full year, adjusted earnings per diluted share increased 29% from the prior year. Our strong financial and operating performance combined with our disciplined portfolio approach to capital deployment provides strong momentum for Fiscal 2016.”

For the full year, McKesson generated cash from operations of $3.1 billion, and ended the year with cash and cash equivalents of $5.3 billion. During the year, McKesson had internal capital spending of $545 million, spent $170 million on acquisitions, repurchased $340 million of its common stock and paid $227 million in dividends.

In addition, the Board of Directors has issued a new authorization for the repurchase of up to $500 million of common stock.

“In Fiscal 2015, we continued our strong track record of creating value for our shareholders with solid cash flow results and investments in the future growth of our business,” Hammergren commented. “During the fourth quarter, we repurchased $340 million in common stock as part of our portfolio approach to capital deployment which includes maintaining our investment-grade ratings, while deploying our capital through a mix of internal investments, acquisitions, share repurchases and dividends.”

Segment Results

Distribution Solutions revenues were up 19% on a reported basis and 23% on a constant currency basis for the fourth quarter. For the full year, Distribution Solutions revenues were up 31% on a reported basis and 33% on a constant currency basis 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 18% on a reported basis and 19% and constant currency basis 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 16% on a reported basis and 17% on a constant currency basis compared to the prior year.

International pharmaceutical distribution and services revenues were $5.9 billion for the fourth quarter and $26.4 billion for the full year, an increase of 3% for the quarter and 5% for the full year on the underlying results of Celesio on a constant currency basis. As previously announced, full-year and prior-year results for the Brazilian businesses, PanPharma and Oncoprod, are reported as discontinued operations.

Medical-Surgical distribution and services revenues were up 5% for the fourth quarter and full year driven by market growth.

In the fourth quarter, Distribution Solutions GAAP operating profit was $714 million and GAAP operating margin was 1.62%. Fourth-quarter adjusted operating profit was $1.1 billion and adjusted operating margin was 2.43%. For the full year, GAAP operating profit was $3.0 billion and GAAP operating margin was 1.73%. For the full year, adjusted operating profit was $4.2 billion, up 30% on a reported basis and 31% on a constant currency basis from the prior year, and adjusted operating margin was 2.38%.

“Distribution Solutions had another outstanding year with strong performance across the segment. We continue to deliver tremendous value for our customers by developing solutions that help drive better business health. We are proud to be a global leader in healthcare services while remaining grounded in our tradition of operational excellence in everything we do,” said Hammergren.

Technology Solutions products and services revenues were down 10% for the fourth quarter and down 8% for the full year. Fourth-quarter and full-year Technology Solutions revenues were impacted by an anticipated year-over-year decline in our hospital software business, the planned elimination of a product line, and the previously disclosed wind down of our international technology business. This revenue decline was partially offset by growth in our other technology businesses.

In the fourth quarter, GAAP operating profit was $133 million and GAAP operating margin was 17.14%. Fourth-quarter adjusted operating profit was $143 million and adjusted operating margin was 18.43%. For the full year, GAAP operating profit was $438 million and GAAP operating margin was 14.27%. For the full year, adjusted operating profit was $486 million and adjusted operating margin was 15.84%.

“I am encouraged by the solid results in our Relay Health, Payer Solutions and Medical Imaging businesses for Fiscal 2015. At the same time, we continue to optimize our portfolio in Technology Solutions and focus on helping our customers use information technology strategically to enable better business, better care, and better connectivity,” Hammergren said.

Fiscal Year 2015 Reconciliation of GAAP Results to Adjusted Earnings

Adjusted Earnings per diluted share of $11.11 for the fiscal year ended March 31, 2015 excludes the following GAAP items:

• Amortization of acquisition-related intangible assets of $1.43 per diluted share.
• Acquisition expenses and related adjustments of 63 cents per diluted share.
• Certain claim and litigation reserve adjustments of 64 cents per diluted share.
• LIFO inventory-related adjustments of 87 cents per diluted share.
  
  

Fiscal Year 2016 Outlook

“Our Fiscal 2016 guidance reflects strong growth across our broad portfolio of businesses. McKesson expects Adjusted Earnings per diluted share of $12.20 to $12.70 for the fiscal year ending March 31, 2016, representing 12% to 16% growth year-over-year on a constant currency basis,” Hammergren concluded.

Key Assumptions for Fiscal Year 2016 Outlook

The Fiscal 2016 outlook is based on the following key assumptions and is also subject to the Risk Factors outlined below:

• Distribution Solutions revenue growth is expected to increase by mid-single digits driven by market growth.
• We expect North America pharmaceutical distribution and services will deliver high-single digit revenue growth in Fiscal 2016 compared to Fiscal 2015.
• International pharmaceutical and distribution services revenues are expected to be flat year-over-year on a constant currency basis.
• Medical-Surgical distribution and services is expected to deliver mid-single digit revenue growth in Fiscal 2016 compared to Fiscal 2015.
• Fiscal 2016 branded drug price trends in the U.S. market are expected to be similar to those we experienced in Fiscal 2015.
• Price trends on generic drugs outside an exclusivity period, in the U.S. market, are expected to be slightly below those we experienced in Fiscal 2015.
• We expect the profit contribution from the launch of new oral generic pharmaceuticals in the U.S. market will decrease year-over-year.
• Technology Solutions revenue is expected to decline mid-single digits year-over-year driven by an anticipated revenue decline in our hospital software business and the pending sale of a business line during Fiscal 2016.
• 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 $600 million and $650 million.
• We assume that our ownership position in Celesio will be approximately 76% for Fiscal 2016.
• The guidance range assumes an exchange rate of $1.10 per Euro.
• Weighted average diluted shares used in the calculation of earnings per share are expected to be approximately 236 million for the year.
• Cash flow from operations is expected to be approximately $3 billion.
• Based on acquisitions announced as of March 31, 2015:
  • We expect amortization of acquisition-related intangible assets of approximately $1.23 per diluted share.
  • We expect acquisition expenses and related adjustments of 29 cents per diluted share.
  • We expect LIFO inventory-related charges of 86 cents per diluted share.
    • The Fiscal 2016 guidance range does not include any potential claim or litigation reserve adjustments, or the impact of any potential new acquisitions and divestitures, and impairments or material restructurings. 
   

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; foreign currency fluctuations; 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; 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; cyber attacks or other privacy and data security incidents; 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 5:00PM 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 719-457-0820 and the pass code is 3809029. 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 15th 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 2015 Fourth-Quarter and Full-Year Results (PDF, 188 KB)