10-QPeriod: Q3 FY2010

MCKESSON CORP Quarterly Report for Q3 Ended Dec 31, 2009

Filed January 26, 2010For Securities:MCK

Summary

McKesson Corporation (MCK) reported a profitable third quarter for fiscal year 2010, with net income of $326 million, a significant improvement from a net loss of $20 million in the prior year's quarter. This turnaround was driven by an increase in revenue, up 4% to $28.3 billion, and a substantial increase in operating income. The company's Distribution Solutions segment showed strong performance, benefiting from increased demand related to the flu season and higher margin sales, while the Technology Solutions segment maintained stable revenues. Key factors contributing to the improved financial results include a substantial reduction in operating expenses, largely due to the absence of a significant litigation charge recorded in the prior year's quarter. The company also benefited from a gain on the sale of an equity investment. McKesson's financial position remains solid, with a healthy increase in cash and cash equivalents and a decrease in its debt-to-capital ratio, indicating effective management of financial resources and a positive outlook for the remainder of the fiscal year.

Financial Highlights

46 data points
Beta

Revenue

$28.27B

5.1% Gross Margin

Net Income

$326.00M

1.2% Net Margin

EPS (Diluted)

$1.19

Total Assets

$27.54B

Cash & Equivalents

$3.43B

Free Cash Flow

$148.00M

Financial Statements
Beta
Revenue$28.27B
Cost of Revenue$26.82B
Gross Profit$1.46B
Operating Expenses$946.00M
Operating Income$509.00M
Net Income$326.00M
EPS (Basic)$1.21
EPS (Diluted)$1.19
Shares Outstanding (Basic)269.00M
Shares Outstanding (Diluted)274.00M

Key Highlights

  • 1Revenue increased by 4% year-over-year to $28.3 billion for the third quarter ended December 31, 2009.
  • 2Net income turned positive at $326 million, a significant improvement from a net loss of $20 million in the same quarter of the previous year.
  • 3Diluted Earnings Per Share (EPS) improved dramatically to $1.19 from a loss of $(0.07) in the prior year's quarter.
  • 4The Distribution Solutions segment saw its operating profit increase significantly, benefiting from market growth and flu season demand.
  • 5Operating expenses decreased by 32% year-over-year, primarily due to the absence of a large litigation charge recorded in the prior year.
  • 6The company's cash and cash equivalents increased substantially to $3.4 billion, and the debt-to-capital ratio decreased to 26.1%.

Frequently Asked Questions

The primary driver of McKesson's improved net income was the significant increase in revenue, up 4% year-over-year, combined with a substantial reduction in operating expenses. Notably, a large litigation charge recorded in the prior year's quarter was absent this period, contributing significantly to the profitability swing. The Distribution Solutions segment also performed well, boosted by flu season demand.

The Distribution Solutions segment showed strong performance, with revenues increasing and operating profit significantly improving year-over-year. This was bolstered by market growth, flu season demand, and higher-margin sales. The Technology Solutions segment also saw revenue growth, albeit at a slower pace, and maintained stable operating profit.

McKesson's financial health appears strong. Cash and cash equivalents increased significantly to $3.4 billion. The company also reduced its debt-to-capital ratio to 26.1% and its net debt to net capital employed ratio to a negative figure (-14.8%), indicating a healthy balance sheet and strong liquidity position. The company expects its available cash from operations and existing liquidity sources to be sufficient for its capital needs.

Yes, a significant factor in comparing this quarter to the prior year's quarter was the absence of a $493 million pre-tax litigation charge related to the Average Wholesale Price (AWP) litigation that was recorded in the third quarter of fiscal year 2009. The company reported that private party AWP claims were settled and concluded, while public payor actions were ongoing but the company had accrued for expected claims.