What caused the significant drop in net income and earnings per share?

The significant decline in net income and EPS was primarily driven by a substantial decrease in income from continuing operations. This was influenced by lower gross profit margins, partly due to a competitive pricing environment and weaker pharmaceutical manufacturer pricing trends, and a newly recognized $120 million loss from the equity method investment in Change Healthcare. Additionally, the sale of the Brazilian business in the prior year's comparable period resulted in a significant loss from discontinued operations, which is not present in the current period.

How is the Change Healthcare transaction impacting McKesson's financials?

McKesson's investment in Change Healthcare is accounted for using the equity method. In this quarter, the company recorded a $120 million loss from this investment, which includes transaction and integration expenses incurred by Change Healthcare and amortization of equity method intangible assets. While the deconsolidation of McKesson's core MTS business into the Change Healthcare joint venture resulted in a significant gain in a prior period, the ongoing equity method investment is now a drag on current earnings.

What is the impact of recent acquisitions on the company's performance?

McKesson completed two significant acquisitions: CoverMyMeds (CMM) for $1.3 billion and Rexall Health for approximately $2.1 billion. These acquisitions contributed to revenue growth, particularly within the Distribution Solutions segment. However, they also contributed to increased operating expenses and potentially impacted gross profit margins due to integration costs and the nature of the acquired businesses. The company is actively integrating these entities into its operations.

How is McKesson managing its liquidity and capital resources?

McKesson expects its available cash from operations, credit facilities, and commercial paper program to be sufficient for its capital needs. Cash flow from operations was impacted by working capital changes, with investing activities significantly reduced compared to the prior year due to a lower level of acquisition spending in the current period. Financing activities included substantial share repurchases, and the company announced an increase in its quarterly dividend. McKesson maintains a debt-to-capital ratio of 37.5% and believes its liquidity position is adequate.

MCK 10-Q Quarterly Report Q1 FY2018 — Revenue, Net Income, EPS

Summary

McKesson Corporation's Q1 2018 (ended June 30, 2017) results show a significant year-over-year decline in net income attributable to McKesson Corporation, falling by 43% to $309 million, with diluted earnings per share down 39% to $1.45. This was primarily driven by a substantial decrease in income from continuing operations, impacted by lower gross profit and a newly recognized loss from the equity method investment in Change Healthcare. While overall revenues saw a modest 3% increase to $51.1 billion, largely due to growth in the Distribution Solutions segment, the Technology Solutions segment experienced an 83% revenue decline due to the deconsolidation of its core businesses. The company continued its strategic acquisitions, notably the acquisition of CoverMyMeds for $1.3 billion. However, these investments, combined with ongoing restructuring efforts and a shift in business mix, contributed to margin pressures and higher operating expenses in certain segments, overshadowing the revenue growth. Investors should note the significant impact of the Change Healthcare transaction, which resulted in a substantial loss from equity method investment and a one-time gain related to final adjustments, alongside a continuing trend of share repurchases and a dividend increase.

Financial Highlights

50 data points

Beta

Revenue

$51.05B

0.1% Gross Margin

Net Income

$309.00M

0.0% Net Margin

EPS (Diluted)

$1.45

Total Assets

$61.82B

Cash & Equivalents

$2.34B

Free Cash Flow

$666.00M

Financial Statements

Beta

Revenue	$51.05B
Cost of Revenue	$48.49B
Gross Profit	$2.56B
Operating Expenses	$1.93B
Operating Income	$633.00M
Net Income	$309.00M
EPS (Basic)	$1.46
EPS (Diluted)	$1.45
Shares Outstanding (Basic)	211.00M
Shares Outstanding (Diluted)	213.00M

Key Highlights

1Net income attributable to McKesson Corporation decreased by 43% to $309 million, and diluted EPS fell 39% to $1.45, compared to the prior year period.
2Total revenues increased by 3% to $51.1 billion, primarily driven by the Distribution Solutions segment, which saw a 4% increase.
3The Technology Solutions segment experienced a significant revenue decline of 83% due to the deconsolidation of its core McKesson Technology Solutions (MTS) business.
4A substantial loss of $120 million was recorded from the equity method investment in Change Healthcare, impacting profitability.
5The company completed the acquisition of CoverMyMeds (CMM) for $1.3 billion, funded by cash on hand, and also acquired Rexall Health for approximately $2.1 billion.
6Gross profit margin declined by 84 basis points to 5.01%, primarily due to competitive pricing pressures and weaker pharmaceutical manufacturer pricing trends in the Distribution Solutions segment.
7McKesson continues to return capital to shareholders, with $300 million in share repurchases during the quarter and an increase in the quarterly dividend to $0.34 per share.

MCKESSON CORP Quarterly Report for Q1 Ended Jun 30, 2017

Summary

Financial Highlights

Key Highlights

Frequently Asked Questions