10-QPeriod: Q1 FY2017

MCKESSON CORP Quarterly Report for Q1 Ended Jun 30, 2016

Filed July 27, 2016For Securities:MCK

Summary

McKesson Corporation reported a 5% increase in revenue for the first quarter of fiscal year 2017, reaching $49.7 billion, compared to $47.5 billion in the prior year. This growth was primarily driven by the Distribution Solutions segment, bolstered by recent acquisitions and market expansion. While revenue saw a healthy increase, net income attributable to McKesson Corporation decreased by 6% to $542 million ($2.38 per diluted share) from $576 million ($2.45 per diluted share) in the same period last year. This decline was largely due to a significant $113 million after-tax loss from the divestiture of its Brazilian pharmaceutical distribution business. The company announced a significant strategic move: a joint venture with Change Healthcare Holdings, Inc., which will combine a majority of McKesson's Technology Solutions (MTS) business with Change Healthcare's assets. This move is expected to create a new healthcare information technology company, with McKesson retaining a 70% ownership stake. The transaction is anticipated to close in the first half of calendar year 2017, subject to regulatory approvals. This strategic partnership is a key development for McKesson's future growth and focus in the healthcare technology sector.

Financial Highlights

50 data points
Beta

Revenue

$49.73B

5.8% Gross Margin

Net Income

$542.00M

1.1% Net Margin

EPS (Diluted)

$2.38

Total Assets

$57.90B

Cash & Equivalents

$4.66B

Free Cash Flow

$1.78B

Financial Statements
Beta
Revenue$49.73B
Cost of Revenue$46.83B
Gross Profit$2.91B
Operating Expenses$1.94B
Operating Income$972.00M
Net Income$542.00M
EPS (Basic)$2.41
EPS (Diluted)$2.38
Shares Outstanding (Basic)225.00M
Shares Outstanding (Diluted)228.00M

Key Highlights

  • 1Revenue increased by 5% to $49.7 billion in Q1 FY17, primarily driven by the Distribution Solutions segment.
  • 2Net income attributable to McKesson Corporation decreased by 6% to $542 million ($2.38/share) due to a loss from discontinued operations.
  • 3Announced a joint venture with Change Healthcare, contributing the majority of McKesson's Technology Solutions business, retaining a 70% stake.
  • 4Acquired Vantage Oncology Holdings LLC and Biologics, Inc. in April 2016 to enhance specialty pharmaceutical distribution and oncology offerings.
  • 5Acquired UDG Healthcare Plc's pharmaceutical distribution businesses in Ireland and the UK to expand international presence.
  • 6Operating expenses saw a slight increase due to acquisitions, partially offset by cost savings from a restructuring plan.
  • 7The company maintained a debt-to-capital ratio of 42.5% as of June 30, 2016, indicating a solid financial position.

Frequently Asked Questions

McKesson's revenue increased by 5% to $49.7 billion, driven primarily by its Distribution Solutions segment. Key factors included market growth, expanded business with existing customers, and the positive impact of recent acquisitions such as Vantage Oncology, Biologics, and UDG Healthcare.

Net income attributable to McKesson Corporation decreased by 6% to $542 million due to a significant $113 million after-tax loss incurred from the sale of its Brazilian pharmaceutical distribution business, which was classified as discontinued operations.

The joint venture with Change Healthcare is a major strategic initiative. McKesson will contribute most of its Technology Solutions business to this new entity, in which it will hold a 70% stake. This move aims to create a leading healthcare information technology company by combining complementary strengths, and is expected to shape McKesson's future focus in this sector.

The acquisitions of Vantage Oncology, Biologics, and UDG Healthcare contributed to the revenue growth in the Distribution Solutions segment. However, these acquisitions also led to an increase in operating expenses and acquisition-related costs during the quarter.