10-QPeriod: Q1 FY2015

MCKESSON CORP Quarterly Report for Q1 Ended Jun 30, 2014

Filed July 31, 2014For Securities:MCK

Summary

McKesson Corporation's (MCK) fiscal first quarter of 2015 (ending June 29, 2014) showed robust revenue growth of 37% year-over-year, reaching $44.1 billion. This significant increase was primarily driven by the recent acquisition of Celesio AG, which contributed $7.6 billion in international pharmaceutical distribution and services revenue and was consolidated into the Distribution Solutions segment. Despite the revenue surge, net income attributable to McKesson Corporation declined by 5% to $403 million, resulting in diluted earnings per share of $1.72, down from $1.83 in the prior year's quarter. The substantial revenue growth is largely attributable to the integration of Celesio, expanding McKesson's global footprint. However, increased operating expenses, including higher amortization and acquisition-related costs stemming from the Celesio acquisition, along with a LIFO-related inventory charge of $98 million, impacted profitability. Investors should note the significant increase in long-term debt ($1.2 billion more than the prior quarter) primarily due to financing the Celesio acquisition, which also led to a rise in interest expense.

Financial Highlights

52 data points
Beta

Revenue

$43.48B

6.3% Gross Margin

Net Income

$403.00M

0.9% Net Margin

EPS (Diluted)

$1.72

Total Assets

$53.01B

Cash & Equivalents

$4.11B

Free Cash Flow

$99.00M

Financial Statements
Beta
Revenue$43.48B
Cost of Revenue$40.74B
Gross Profit$2.73B
Operating Expenses$2.05B
Operating Income$681.00M
Net Income$403.00M
EPS (Basic)$1.75
EPS (Diluted)$1.72
Shares Outstanding (Basic)231.00M
Shares Outstanding (Diluted)235.00M

Key Highlights

  • 1Revenue surged by 37% to $44.1 billion, largely due to the acquisition of Celesio AG.
  • 2Net income attributable to McKesson Corporation decreased by 5% to $403 million compared to the prior year's quarter.
  • 3Diluted Earnings Per Share (EPS) for the quarter was $1.72, a decline from $1.83 in the same period last year.
  • 4The Celesio acquisition significantly boosted international pharmaceutical distribution and services revenue to $7.6 billion.
  • 5Operating expenses increased by 65% due to acquisition-related costs, higher amortization, and a $98 million LIFO inventory charge.
  • 6Long-term debt increased substantially, reflecting financing for the Celesio acquisition, leading to higher interest expenses.
  • 7The company continues to pay a quarterly dividend, which was raised to $0.24 per common share.

Frequently Asked Questions

The primary driver for the substantial revenue increase of 37% was the acquisition of Celesio AG, which was completed in February 2014. This acquisition significantly expanded McKesson's international operations, contributing $7.6 billion in revenue from its international pharmaceutical distribution and services segment.

Net income decreased by 5% due to several factors, including a 65% increase in operating expenses. This rise in expenses was driven by acquisition-related costs, higher amortization of intangible assets from the Celesio acquisition, and a $98 million LIFO inventory charge. Additionally, interest expense increased due to the debt taken on to finance the Celesio acquisition.

The Celesio acquisition led to a significant increase in McKesson's long-term debt, which rose from $8.9 billion in the prior quarter to $10.1 billion. This reflects the consolidation of Celesio's debt and the financing used for the acquisition. Goodwill also increased considerably due to the acquisition.

McKesson's Board of Directors raised the quarterly dividend to $0.24 per common share in July 2013 and anticipates continuing to pay quarterly cash dividends. However, the payment and amount of future dividends are at the discretion of the Board and will depend on the company's future earnings, financial condition, capital requirements, and other factors.