McKesson’s revenues increase 11% to $33B in second quarter 2014

McKesson Corporation (NYSE:MCK) today reported that revenues for the second quarter ended September 30, 2013 were $33 billion, up 11% compared to $29.8 billion a year ago. On the basis of U.S. generally accepted accounting principles ("GAAP"), second-quarter earnings per diluted share was $1.74 compared to $1.67 a year ago.

Second-quarter Adjusted Earnings per diluted share from continuing operations was $2.27, up 19% compared to $1.91 a year ago.

For the first half of the fiscal year, McKesson generated cash from operations of $813 million, and ended the quarter with cash and cash equivalents of $3 billion. During the first half of the fiscal year, McKesson paid $99 million in dividends, had internal capital spending of $197 million, and spent $116 million on acquisitions.

"McKesson delivered another quarter of strong operating performance," said John H. Hammergren, chairman and chief executive officer. "I am pleased with the excellent performance across all of our businesses for the first half of our fiscal year. Based on our performance to date and our expectations for the fiscal year, we are updating our previous outlook and now expect Adjusted Earnings per diluted share of $8.40 to $8.70 for the fiscal year ending March 31, 2014."

Segment Results

Distribution Solutions revenues were up 11% in the second quarter, driven mainly by strong growth in U.S. pharmaceutical direct distribution and services revenues due to market growth, our mix of business and one additional sales day.

Canadian revenues, on a constant currency basis, increased 14% for the second quarter primarily due to market growth and new customer wins. Including an unfavorable currency impact of 5%, Canadian revenues increased 9% for the second quarter.

Medical-Surgical distribution and services revenues were up 68% for the second quarter driven primarily by the acquisition of PSS World Medical and market growth.

In the second quarter, Distribution Solutions GAAP operating profit was $685 million and GAAP operating margin was 2.13%. Second-quarter adjusted operating profit was $827 million and the adjusted operating margin was 2.57%.

Technology Solutions revenues were up 8% in the second quarter compared to the prior year driven primarily by acquisitions completed in the prior year. GAAP operating profit was $113 million for the second quarter and GAAP operating margin was 14.39%. Adjusted operating profit was $132 million for the second quarter and adjusted operating margin was 16.82%.

Fiscal Year 2014 Outlook

McKesson expects Adjusted Earnings per diluted share from continuing operations between $8.40 and $8.70 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.
• Acquisition expenses and related adjustments of 23 cents per diluted share.
• Litigation reserve adjustments of approximately 18 cents per diluted share.
• LIFO inventory-related charges of 37 to 43 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 8:30 AM 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 6981076. A webcast of the conference call will also be available live and archived on the company's Investor Relations website at www.mckesson.com/investors.

Shareholders are encouraged to review SEC filings and more information about McKesson, which are located on the company's website.

Source: McKesson Corporation