10-QPeriod: Q1 FY2013

MCKESSON CORP Quarterly Report for Q1 Ended Jun 30, 2012

Filed July 26, 2012For Securities:MCK

Summary

McKesson Corporation (MCK) reported strong revenue growth and improved profitability for the quarter ended June 30, 2012. Total revenues increased by 3% year-over-year, driven primarily by the Distribution Solutions segment, which continues to benefit from market growth, increased volumes with existing customers, and new customer acquisitions. The company also saw a significant increase in operating income and net income, largely due to a substantial $81 million gain from acquiring the remaining stake in its corporate headquarters building and continued operational efficiencies. Despite a $16 million charge related to Average Wholesale Price (AWP) litigation, the company's net income rose by 33% and diluted earnings per share (EPS) increased by 40% compared to the prior year. McKesson also continued its commitment to returning capital to shareholders through share repurchases, further boosting EPS. The company's liquidity remains strong, with ample cash and access to credit facilities to support ongoing operations and strategic initiatives.

Financial Highlights

51 data points
Beta

Revenue

$30.70B

5.1% Gross Margin

Net Income

$380.00M

1.2% Net Margin

EPS (Diluted)

$1.58

Total Assets

$31.75B

Cash & Equivalents

$2.01B

Free Cash Flow

-$597.00M

Financial Statements
Beta
Revenue$30.70B
Cost of Revenue$29.14B
Gross Profit$1.56B
Operating Expenses$985.00M
Operating Income$576.00M
Net Income$380.00M
EPS (Basic)$1.61
EPS (Diluted)$1.58
Shares Outstanding (Basic)236.00M
Shares Outstanding (Diluted)240.00M

Key Highlights

  • 1Total revenues increased by 3% to $30.8 billion, driven by growth in the Distribution Solutions segment.
  • 2Net income increased by 33% to $380 million.
  • 3Diluted Earnings Per Common Share (EPS) surged by 40% to $1.58.
  • 4A significant $81 million pre-tax gain was recorded from acquiring the remaining 50% ownership in McKesson's corporate headquarters.
  • 5The company paid $273 million towards AWP litigation settlements during the quarter.
  • 6Shareholder returns were supported by continued share repurchases, with an additional $700 million authorized for buybacks.
  • 7The company maintained strong liquidity, with $2.01 billion in cash and cash equivalents at quarter-end.

Frequently Asked Questions

The primary driver of McKesson's revenue growth was its Distribution Solutions segment, which accounts for approximately 97% of consolidated revenues. This growth was attributed to overall market expansion, increased drug utilization, price adjustments, higher volumes from existing customers, and the acquisition of new customers.

The substantial increase in net income and EPS was driven by a combination of factors. A significant one-time gain of $81 million from acquiring the remaining 50% stake in its corporate headquarters building boosted earnings. Additionally, the company experienced growth in its Distribution Solutions segment and benefited from ongoing share repurchase programs, which reduce the number of outstanding shares and thus increase EPS.

The Average Wholesale Price (AWP) litigation concerns historical practices related to how pharmacies and providers were reimbursed for dispensing certain prescription drugs. McKesson made significant progress in resolving these matters, including paying $273 million towards settlements during the quarter. The company recorded a $16 million charge related to this litigation, but has also benefited from a $196 million AWP litigation reserve at quarter-end, which has been updated based on ongoing developments.

McKesson's liquidity remains strong, with $2.01 billion in cash and cash equivalents at the end of the quarter. The company expects its operating cash flow and existing credit facilities, including a renewed accounts receivable sales facility and a revolving credit facility, to be sufficient to meet its financial obligations. Additionally, McKesson continues to actively repurchase its own stock, indicating confidence in its financial position and commitment to shareholder returns.