10-QPeriod: Q3 FY2018

MCKESSON CORP Quarterly Report for Q3 Ended Dec 31, 2017

Filed February 1, 2018For Securities:MCK

Summary

McKesson Corporation reported a significant increase in revenue for the third quarter of fiscal year 2018, reaching $53.6 billion, up 7% year-over-year. This growth was primarily driven by its Distribution Solutions segment, particularly in North America, benefiting from market growth and strategic acquisitions. Despite revenue gains, net income attributable to McKesson Corporation saw a decrease of 18% for the first nine months of the year, totaling $1.21 billion, down from $1.48 billion in the prior year period. This decline was influenced by a substantial goodwill impairment charge of $350 million related to its European operations, restructuring and asset impairment charges in the UK, and increased operating expenses from acquisitions and business integration efforts. The company also reported a loss from its equity method investment in Change Healthcare, impacting profitability. Financially, McKesson maintained a solid liquidity position with $2.6 billion in cash and cash equivalents. The company continued its share repurchase program, demonstrating a commitment to returning capital to shareholders. However, investors should note the impact of significant non-cash charges related to goodwill impairment and restructuring, particularly in its European segment, which weigh on profitability. The company's outlook is subject to risks including changes in the healthcare industry, regulatory environments, and operational challenges in international markets.

Financial Statements
Beta
Revenue$53.62B
Cost of Revenue$50.90B
Gross Profit$2.71B
Operating Expenses$1.88B
Operating Income$834.00M
Net Income$903.00M
EPS (Basic)$4.35
EPS (Diluted)$4.33
Shares Outstanding (Basic)207.00M
Shares Outstanding (Diluted)208.00M

Key Highlights

  • 1Revenue increased by 7% to $53.6 billion for the third quarter, driven by the Distribution Solutions segment.
  • 2Net income attributable to McKesson Corporation decreased by 18% for the first nine months, totaling $1.21 billion.
  • 3A significant non-cash goodwill impairment charge of $350 million was recorded for McKesson Europe.
  • 4Restructuring and asset impairment charges of $189 million and $53 million were recognized for the UK retail business.
  • 5The company reported a loss of $90 million from its equity method investment in Change Healthcare for the quarter.
  • 6Cash and cash equivalents remained strong at $2.6 billion.
  • 7Share repurchases continued, with $1.8 billion authorized outstanding at the end of the period.

Frequently Asked Questions

Revenue growth is primarily driven by the Distribution Solutions segment, particularly in North America, due to market growth, expanding business with existing customers, and acquisitions such as Rexall Health. International pharmaceutical distribution and services also contributed positively.

Profitability is being negatively impacted by significant non-cash charges, including a $350 million goodwill impairment charge for McKesson Europe and $189 million in asset impairment charges for the UK retail business. Additionally, restructuring charges, increased operating expenses from acquisitions, and a loss from the equity method investment in Change Healthcare are weighing on net income.

McKesson maintains a strong liquidity position with $2.6 billion in cash and cash equivalents. The company is actively engaged in its share repurchase program, demonstrating a commitment to shareholder returns, and has maintained its quarterly dividend, which was recently increased.

Key risks include changes in the U.S. and international healthcare and regulatory environments, foreign currency fluctuations, successful integration of acquisitions, potential adverse resolutions of legal and regulatory proceedings, and competition. Specific operational challenges in the UK market due to government reimbursement reductions are also a significant concern.