10-QPeriod: Q1 FY2010

MCKESSON CORP Quarterly Report for Q1 Ended Jun 30, 2009

Filed July 28, 2009For Securities:MCK

Summary

McKesson Corporation's 10-Q filing for the quarter ended June 29, 2009, reveals a stable top line with revenues of $26.7 billion, largely flat compared to the prior year. However, the company demonstrated significant bottom-line growth, with net income increasing by 23% to $288 million and diluted earnings per share rising by 28% to $1.06. This performance was driven by an 18% increase in income before income taxes, bolstered by improved operating profit in the Distribution Solutions and Technology Solutions segments, and a reduction in weighted average diluted shares outstanding due to ongoing share repurchase programs. Operationally, the Distribution Solutions segment, accounting for approximately 97% of total revenue, saw mixed results with a slight increase in direct distribution and services revenue offset by a decrease in sales to customers' warehouses. The Technology Solutions segment remained flat. Gross profit margins improved across both segments, notably in Distribution Solutions due to higher buy-side margins and a shift towards higher-margin generic drugs. Operating expenses were down 6%, benefiting from cost containment efforts, lower employee compensation, and the sale of businesses. Despite increased interest expenses from a recent debt issuance, the company's financial condition remains robust, with strong cash flow from operations and ample liquidity.

Financial Highlights

48 data points
Beta

Revenue

$26.66B

4.9% Gross Margin

Net Income

$288.00M

1.1% Net Margin

EPS (Diluted)

$1.06

Total Assets

$25.72B

Cash & Equivalents

$2.64B

Free Cash Flow

$865.00M

Financial Statements
Beta
Revenue$26.66B
Cost of Revenue$25.35B
Gross Profit$1.30B
Operating Expenses$844.00M
Operating Income$459.00M
Net Income$288.00M
EPS (Basic)$1.07
EPS (Diluted)$1.06
Shares Outstanding (Basic)270.00M
Shares Outstanding (Diluted)272.00M

Key Highlights

  • 1Revenue remained stable at $26.7 billion, approximately flat year-over-year, indicating consistent market presence.
  • 2Net income saw a substantial 23% increase to $288 million, demonstrating strong profitability.
  • 3Diluted Earnings Per Share (EPS) grew by an impressive 28% to $1.06, significantly benefiting from share repurchases.
  • 4The Distribution Solutions segment, the company's largest revenue driver, showed resilience with a slight increase in direct distribution and services revenue.
  • 5Gross profit margins improved year-over-year in both Distribution Solutions (3.68%) and Technology Solutions (46.97%), indicating enhanced operational efficiency and product mix.
  • 6Operating expenses decreased by 6% due to cost containment measures and lower compensation costs, contributing to improved profitability.
  • 7Cash flow from operations was strong at $907 million for the quarter, providing ample liquidity.

Frequently Asked Questions

The increase in net income was primarily driven by a combination of factors: improved operating profit from the Distribution Solutions and Technology Solutions segments, a significant reduction in operating expenses (down 6%), and a decrease in the weighted average diluted shares outstanding due to the company's active share repurchase program. These factors collectively boosted profitability despite the stable revenue.

The Distribution Solutions segment, which constitutes about 97% of total revenue, remained largely flat. Within this segment, direct pharmaceutical distribution and services revenue increased by 4%, driven by market growth and new business, though partially offset by lost customers. Sales to customers' warehouses decreased by 9%, attributed to a shift towards direct store delivery and the loss of a large customer. The Technology Solutions segment's revenues were also flat year-over-year.

McKesson maintains a strong liquidity position, expecting its available cash generated from operations, along with its accounts receivable sales facility and credit facilities, to be sufficient for its capital expenditures and other cash requirements. Cash flow from operations was robust at $907 million for the quarter. The company also has a $1.1 billion accounts receivable sales facility renewed in May 2009. While confident in its ability to meet financial needs, the company notes that continued volatility in capital markets could impact liquidity or borrowing costs.

The share repurchase program significantly benefited the company's earnings per share (EPS). The weighted average diluted shares outstanding decreased from 282 million in the prior year's quarter to 272 million in the current quarter. This reduction in outstanding shares directly contributed to the 28% increase in diluted EPS, making the EPS figures more attractive to investors.