10-QPeriod: Q2 FY2014

MCKESSON CORP Quarterly Report for Q2 Ended Sep 30, 2013

Filed October 24, 2013For Securities:MCK

Summary

McKesson Corporation reported solid financial results for the second quarter and first six months ended September 30, 2013. The company demonstrated consistent revenue growth, driven primarily by its Distribution Solutions segment. Net income saw a slight increase year-over-year for the quarter and a more significant jump for the six-month period, indicating effective cost management and operational efficiency. Key financial highlights include substantial revenue increases driven by market growth and the PSS World Medical acquisition, alongside improvements in gross profit margin. While facing some litigation charges and LIFO adjustments, the company's core business operations remain robust. McKesson also continues to manage its capital effectively through share repurchases and dividend payments, signaling confidence in its ongoing financial health and commitment to shareholder returns.

Financial Highlights

51 data points
Beta

Revenue

$32.98B

6.1% Gross Margin

Net Income

$404.00M

1.2% Net Margin

EPS (Diluted)

$1.74

Total Assets

$35.95B

Cash & Equivalents

$2.96B

Free Cash Flow

$33.00M

Financial Statements
Beta
Revenue$32.98B
Cost of Revenue$30.96B
Gross Profit$2.02B
Operating Expenses$1.33B
Operating Income$686.00M
Net Income$404.00M
EPS (Basic)$1.76
EPS (Diluted)$1.74
Shares Outstanding (Basic)229.00M
Shares Outstanding (Diluted)233.00M

Key Highlights

  • 1Revenues increased by 11% for the quarter and 8% for the six months, reaching $32.95 billion and $65.16 billion respectively, largely driven by the Distribution Solutions segment and the PSS World Medical acquisition.
  • 2Gross profit increased by 19% for the quarter and 21% for the six months, with gross profit margin improving to 6.10% and 6.03% respectively.
  • 3Net income for the quarter was $404 million, a slight increase from $401 million in the prior year, while six-month net income rose 6% to $828 million.
  • 4Diluted earnings per share from continuing operations increased by 8% for the quarter to $1.79 and by 11% for the six months to $3.60.
  • 5The company acquired PSS World Medical for approximately $1.9 billion, significantly expanding its Medical-Surgical business.
  • 6McKesson is involved in ongoing Average Wholesale Price (AWP) litigation, with a reserve of $72 million at the end of the six-month period.
  • 7Cash and cash equivalents increased to $2,960 million from $2,456 million, reflecting strong operating cash flow generation.

Frequently Asked Questions

Revenue growth was primarily driven by McKesson's Distribution Solutions segment, which accounts for approximately 98% of consolidated revenues. This growth was fueled by market expansion, increased drug utilization, price increases, a favorable business mix, and the significant acquisition of PSS World Medical in the fourth quarter of 2013.

The acquisition of PSS World Medical, completed in February 2013 for approximately $1.9 billion, contributed to the revenue growth, particularly within the Medical-Surgical distribution and services business. It also led to an increase in operating expenses and amortization of acquired intangible assets as the company integrated the new business.

McKesson is subject to various Average Wholesale Price (AWP) litigation and claims. The company has recorded a reserve for estimated probable losses from these claims, which stood at $72 million at the end of the six-month period. While some settlements have been reached, the ultimate costs remain uncertain and could potentially exceed or fall short of the current reserve.

McKesson expects its available cash from operations, along with its accounts receivable sales facility and revolving credit facility, to be sufficient for its liquidity needs. The company generated $813 million in cash from operating activities in the first six months of 2014. They also increased their quarterly dividend and continued share repurchase programs, demonstrating a commitment to returning capital to shareholders.