10-QPeriod: Q1 FY2014

MCKESSON CORP Quarterly Report for Q1 Ended Jun 30, 2013

Filed July 25, 2013For Securities:MCK

Summary

McKesson Corporation reported solid financial performance for the quarter ended June 30, 2013, with a 5% increase in total revenues to $32.2 billion compared to the prior year. This growth was driven primarily by the Distribution Solutions segment, which benefited from market expansion, increased drug utilization, price increases, and the recent acquisition of PSS World Medical. The company also saw a significant improvement in gross profit, up 23%, and a notable increase in operating income. Net income rose by 12% to $424 million, translating to a 16% increase in diluted earnings per common share to $1.83. The company demonstrated strong operational cash flow generation of $716 million for the quarter. McKesson also continues its commitment to returning value to shareholders, with a recent increase in its quarterly dividend and ongoing share repurchase programs. While facing ongoing litigation, the company maintains a solid financial position and expects its liquidity sources to be sufficient for its needs.

Financial Highlights

50 data points
Beta

Revenue

$32.24B

6.0% Gross Margin

Net Income

$424.00M

1.3% Net Margin

EPS (Diluted)

$1.83

Total Assets

$35.49B

Cash & Equivalents

$2.90B

Free Cash Flow

$647.00M

Financial Statements
Beta
Revenue$32.24B
Cost of Revenue$30.31B
Gross Profit$1.93B
Operating Expenses$1.27B
Operating Income$655.00M
Net Income$424.00M
EPS (Basic)$1.86
EPS (Diluted)$1.83
Shares Outstanding (Basic)227.00M
Shares Outstanding (Diluted)232.00M

Key Highlights

  • 1Revenues increased by 5% to $32.2 billion, driven by the Distribution Solutions segment.
  • 2Gross profit saw a substantial increase of 23% to $1.92 billion, with gross profit margin improving to 5.96%.
  • 3Income from continuing operations before income taxes grew by 13% to $594 million.
  • 4Net income rose 12% to $424 million, and diluted earnings per common share increased 16% to $1.83.
  • 5Operating cash flow was strong, generating $716 million for the quarter.
  • 6The company acquired PSS World Medical for approximately $1.9 billion, expanding its Medical-Surgical business.
  • 7McKesson increased its quarterly dividend from $0.20 to $0.24 per common share and maintained authorization for share repurchases.

Frequently Asked Questions

Revenue growth was primarily driven by the Distribution Solutions segment, which experienced market growth including increased drug utilization and price increases. The acquisition of PSS World Medical and expanded volume with existing customers also contributed significantly. This growth was partially offset by price deflation from brand to generic drug conversions.

The acquisition of PSS World Medical, completed in February 2013 for approximately $1.9 billion, expanded McKesson's Medical-Surgical business. It contributed to the revenue growth in the Distribution Solutions segment and led to an increase in amortization expense for acquired intangible assets. The acquisition was also a factor in the increased operating expenses and benefited the gross profit margin.

McKesson continues to be involved in litigation related to the Average Wholesale Price (AWP), with various actions pending. The company recorded pre-tax charges of $15 million in the current quarter related to changes in its AWP litigation reserve. While some claims have been dismissed, others are ongoing, and the company is unable to estimate the range of reasonably possible losses for most unresolved proceedings, though it maintains a reserve for estimated probable losses.

McKesson expects its available cash generated from operations, along with its accounts receivable sales facility and revolving credit facility, to be sufficient for its capital expenditures, working capital, and other cash requirements. The company generated $716 million in operating cash flow this quarter. They also maintain a substantial cash balance of $2.9 billion and have an ongoing authorization for share repurchases.