01—Abstract
Summary
Summary of the 10-K filed May 5, 2016. Cited figures are marked; the original filing is the authoritative source.
McKesson Corporation's fiscal year 2016 (ending March 31, 2016) report highlights a period of significant revenue growth, driven primarily by its Distribution Solutions segment, which accounted for approximately 98%a of consolidated revenues.
The company experienced a 7% increase in total revenues to $190.9 billionb, largely due to market growth and expanded business with existing customers in North America, partially offset by unfavorable foreign currency effects and customer losses. Despite revenue growth, the company's gross profit margin saw a slight decrease, mainly attributed to lower sell margins in North America distribution, though this was partially offset by benefits from global procurement arrangements and lower LIFO-related inventory charges. Operating expenses also decreased by 7% year-over-year, benefiting from the sale of certain businesses and lower acquisition-related expenses, but were impacted by restructuring charges.
Net income attributable to McKesson Corporation saw a substantial increase of 53% to $2.26 billionc, leading to diluted earnings per share of $9.70. The company also continued its commitment to returning capital to shareholders through share repurchases and dividend increases.
02—Key points
Key Highlights
- McKesson reported a 7% increase in total revenues to $190.9 billion for fiscal year 2016, driven by its Distribution Solutions segment.
- Net income attributable to McKesson Corporation grew significantly by 53% to $2.26 billion, resulting in diluted EPS of $9.70.
- The company's Distribution Solutions segment, comprising over 98% of total revenues, saw a 7% increase, primarily from North America pharmaceutical distribution.
- Gross profit remained flat year-over-year, with a decline in gross profit margin attributed to lower sell margins in North America distribution, partly offset by improved buy margins and lower LIFO charges.
- Operating expenses decreased by 7% due to business divestitures and lower acquisition-related expenses, but were impacted by $229 million in restructuring charges for the 'Cost Alignment Plan'.
- The company repurchased approximately $1.5 billion of its common stock during the fiscal year.
- McKesson completed several strategic acquisitions and entered into agreements for others, including Rexall Health in Canada, to strengthen its market position.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, McKesson Corp kept $0.01.
- Revenue$190.88B100.0%
- Cost of revenue−$179.47B94.0%
- Gross profit$11.42B6.0%
- Operating costs−$7.87B4.1%
- Operating income$3.54B1.9%
- Interest, other & tax−$1.29B0.7%
- Net income$2.26B1.2%
Where FY2016 revenue went
$190.88B- Cost of revenue: $179.47B, 94% of revenue
- Net income: $2.26B, 1.2% of revenue
- R&D: $392.0M, 0.2% of revenue
- SG&A: $7.38B, 3.9% of revenue
- Interest, other & tax: $1.29B, 0.7% of revenue
Kept 1.2% as net incomeNet income $2.26B · 1.2%R&D $392.0M · 0.2%Interest, other & tax $1.29B · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed May 5, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $190.88B$179.04B | +6.6% |
| Cost of Revenue | $179.47B$167.63B | +7.1% |
| Gross Profit | $11.42B$11.41B | 0.0% |
| R&D Expenses | $392.00M$392.00M | 0.0% |
| SG&A Expenses | $7.38B$7.90B | −6.6% |
| Operating Expenses | $7.87B$8.44B | −6.8% |
| Operating Income | $3.54B$2.97B | +19.4% |
| Net Income | $2.26B$1.48B | +53.0% |
| EPS (Basic) | $9.82$6.37 | +54.2% |
| EPS (Diluted) | $9.70$6.27 | +54.7% |
| Shares Outstanding (Basic) | 230.00M232.00M | −0.9% |
| Shares Outstanding (Diluted) | 233.00M235.00M | −0.9% |
05—Questions
Frequently Asked Questions
What were McKesson's primary revenue drivers in fiscal year 2016?
McKesson's primary revenue driver was its Distribution Solutions segment, which accounted for approximately 98% of its consolidated revenues. This segment experienced growth driven by market expansion, increased drug utilization, and new drug launches, particularly in North America.
How did the company's profitability fare in fiscal year 2016?
While revenue grew, the gross profit margin experienced a slight decrease due to lower sell margins in its North America distribution business. However, net income attributable to McKesson Corporation saw a significant increase of 53%, reaching $2.26 billion, and diluted earnings per share rose to $9.70. This improvement was partly due to lower operating expenses and benefits from global procurement.
What significant strategic initiatives or events occurred during fiscal year 2016?
McKesson continued to execute its growth strategy through strategic acquisitions and business process initiatives. Notable events include the planned acquisition of Rexall Health in Canada and the completed acquisitions of Biologics, Inc. and Vantage Oncology Holdings LLC to enhance its specialty and oncology offerings. The company also initiated a 'Cost Alignment Plan' involving workforce reductions and business process improvements to lower operating costs.
What were the key risks and challenges identified in the report?
Key risks include changes in the healthcare industry and regulatory environment, pricing pressures on pharmaceuticals, increased competition and industry consolidation, potential loss of major customers like CVS, and cybersecurity threats. The company also noted risks associated with its international operations and foreign currency fluctuations.
06—Continue