McKesson first-quarter revenues increase to $27.5 billion

McKesson Corporation (NYSE: MCK) today reported that revenues for the first quarter ended June 30, 2010 were $27.5 billion compared to $26.7 billion a year ago. First-quarter earnings per diluted share was $1.10 compared to $1.06 per diluted share a year ago.

"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."