01—Abstract
Summary
Summary of the 10-K filed May 24, 2018. Cited figures are marked; the original filing is the authoritative source.
McKesson Corporation's 2018 10-K filing reveals a complex operating landscape, marked by significant goodwill impairments and strategic adjustments.
While the company experienced revenue growth in its core Distribution Solutions segment, driven by market expansion and acquisitions, the overall profitability was heavily impacted by substantial non-cash goodwill impairment charges totaling $1.7 billiona related to its McKesson Europe and Rexall Health reporting units. These impairments stem from ongoing reimbursement pressures in the UK retail market and challenging dynamics in Canada. The company also divested its Enterprise Information Solutions (EIS) business and contributed a significant portion of its Technology Solutions business to a joint venture, Change Healthcare.
Despite these headwinds, McKesson continues to return capital to shareholders through dividends and share repurchases, and it has announced a strategic growth initiative focused on efficiency and innovation. The company's financial health remains robust with significant cash flows from operations, although its significant customer concentration, particularly with CVS Health, and ongoing legal and regulatory scrutiny, especially concerning controlled substance distribution, represent key risks.
02—Key points
Key Highlights
- Significant goodwill impairment charges of $1.7 billion recognized in the fiscal year 2018, primarily impacting McKesson Europe and Rexall Health businesses due to market conditions and reimbursement pressures.
- Revenue growth of 5% to $208.4 billion, largely driven by the Distribution Solutions segment, but gross profit margins declined by 31 basis points due to various factors including UK reimbursement reductions and weaker pharmaceutical pricing.
- The company completed the sale of its Enterprise Information Solutions (EIS) business and contributed the majority of its Technology Solutions businesses to a joint venture, Change Healthcare, significantly altering its segment reporting structure for future periods.
- McKesson returned approximately $4.3 billion to shareholders through share repurchases and dividends during the fiscal year, demonstrating a commitment to capital allocation.
- The company announced a multi-year strategic growth initiative in April 2018 aimed at improving efficiency and driving profit growth, which includes a comprehensive review of operations and cost structure.
- Significant legal and regulatory challenges persist, notably related to the distribution of controlled substances, with ongoing litigation and investigations, including a $150 million settlement with the DEA in January 2017.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, McKesson Corp kept $0.00.
- Revenue$208.36B100.0%
- Cost of revenue−$197.17B94.6%
- Gross profit$11.18B5.4%
- Operating costs−$10.42B5.0%
- Operating income$762.0M0.4%
- Interest, other & tax−$695.0M0.3%
- Net income$67.0M0.0%
Where FY2018 revenue went
$208.36B- Cost of revenue: $197.17B, 95% of revenue
- Net income: $67.0M, 0.0% of revenue
- R&D: $125.0M, 0.1% of revenue
- SG&A: $8.14B, 3.9% of revenue
- Other operating costs: $2.16B, 1.0% of revenue
Kept 0.0% as net incomeNet income $67.0M · 0.0%R&D $125.0M · 0.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed May 24, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $208.36B$198.53B | +4.9% |
| Cost of Revenue | $197.17B$187.26B | +5.3% |
| Gross Profit | $11.18B$11.27B | −0.8% |
| R&D Expenses | $125.00M$341.00M | −63.3% |
| SG&A Expenses | $8.14B$7.45B | +9.3% |
| Operating Expenses | $10.42B$4.15B | +151.2% |
| Operating Income | $762.00M$7.12B | −89.3% |
| Interest Expense | $283.00M— | — |
| Net Income | $67.00M$5.07B | −98.7% |
| EPS (Basic) | $0.32$22.95 | −98.6% |
| EPS (Diluted) | $0.32$22.73 | −98.6% |
| Shares Outstanding (Basic) | 208.00M221.00M | −5.9% |
| Shares Outstanding (Diluted) | 209.00M223.00M | −6.3% |
05—Questions
Frequently Asked Questions
What was the primary driver of the significant decline in net income attributable to McKesson Corporation in fiscal year 2018?
The primary driver of the significant decline in net income attributable to McKesson Corporation in fiscal year 2018 was the recognition of substantial non-cash goodwill impairment charges totaling $1.7 billion. These impairments were primarily associated with the McKesson Europe and Rexall Health reporting units, reflecting challenging market conditions, particularly government reimbursement reductions in the UK and pricing pressures in Canada.
How has McKesson's business structure changed as reflected in this filing?
McKesson has undergone significant structural changes. It contributed the majority of its Technology Solutions businesses to a joint venture, Change Healthcare, and also divested its Enterprise Information Solutions (EIS) business. The company also announced that it would realign its operating segments starting in fiscal year 2019 into three reportable segments: U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions, and Medical-Surgical Solutions.
What are the major risks and challenges highlighted in the filing for McKesson?
Key risks and challenges include intense competition, pricing pressures in pharmaceutical distribution, significant government regulatory changes affecting healthcare reimbursement, ongoing litigation and investigations related to controlled substance distribution and alleged fraud, a high concentration of revenue from a few large customers (notably CVS Health), and the integration risks associated with acquisitions. The company also faces operational risks, cyber security threats, and potential impacts from foreign currency exchange rate fluctuations.
What is the company's approach to returning capital to shareholders?
McKesson continues to return capital to shareholders through regular cash dividends, which were increased in July 2017, and significant share repurchase programs. The company repurchased $1.65 billion of its common stock in fiscal year 2018 and maintained substantial authorization for future repurchases.
06—Continue