10-QPeriod: Q1 FY2021

MCKESSON CORP Quarterly Report for Q1 Ended Jun 30, 2020

Filed August 3, 2020For Securities:MCK

Summary

McKesson Corporation's (MCK) fiscal first quarter of 2021 (ending June 30, 2020) showed resilience with revenues holding steady year-over-year at $55.7 billion. This stability was achieved despite the initial impacts of the COVID-19 pandemic, which led to decreased pharmaceutical distribution volumes in certain segments. However, market growth in the U.S. Pharmaceutical and Specialty Solutions segment largely offset these declines. While gross profit saw a slight decrease due to COVID-19 related disruptions like doctor's office closures and deferred procedures, the company managed operating expenses effectively, partly due to travel restrictions and a significant insurance settlement related to a shareholder derivative action. Net income attributable to McKesson Corporation increased by 5% to $444 million, resulting in diluted earnings per share of $2.72, up 21% from the prior year, benefiting from a lower share count post-spin-off of its Change Healthcare investment. The company also continued its commitment to shareholder returns by raising its quarterly dividend.

Financial Highlights

51 data points
Beta

Revenue

$55.68B

4.8% Gross Margin

Net Income

$444.00M

0.8% Net Margin

EPS (Diluted)

$2.72

Total Assets

$57.67B

Cash & Equivalents

$2.61B

Free Cash Flow

-$1.13B

Financial Statements
Beta
Revenue$55.68B
Cost of Revenue$52.98B
Gross Profit$2.70B
SG&A Expenses$2.10B
Operating Expenses$2.02B
Operating Income$678.00M
Net Income$444.00M
EPS (Basic)$2.74
EPS (Diluted)$2.72
Shares Outstanding (Basic)162.00M
Shares Outstanding (Diluted)163.20M

Key Highlights

  • 1Revenues remained flat at $55.7 billion, demonstrating resilience amidst COVID-19 impacts.
  • 2Diluted EPS from continuing operations increased by 20% to $2.72, supported by a lower share count.
  • 3Net income attributable to McKesson Corporation rose 5% to $444 million.
  • 4Operating expenses decreased 6% due to cost savings and a significant insurance settlement, partially offsetting increased restructuring charges.
  • 5The company returned $74 million to shareholders via dividends and announced a dividend increase.
  • 6A substantial legal settlement related to controlled substances monitoring program resulted in a $131 million gain, boosting corporate results.
  • 7The company is realigning its reporting segments to better reflect evolving healthcare industry needs.

Frequently Asked Questions

The COVID-19 pandemic had mixed impacts. While it led to decreased pharmaceutical distribution volumes in some segments due to factors like doctor's office closures and deferred procedures, it also drove increased demand for personal protective equipment and COVID-19 tests. The company also experienced cost savings from reduced travel and entertainment expenses. Overall, the effects on revenue were largely offset by market growth in the U.S. Pharmaceutical and Specialty Solutions segment.

The diluted earnings per share increased by 21% to $2.72. This improvement was driven by several factors, including a higher net income, a reduction in the weighted-average number of diluted shares outstanding (largely due to the separation of the Change Healthcare JV investment), and effective management of operating expenses, including a significant insurance settlement gain.

McKesson is involved in over 3,100 legal proceedings related to opioid distribution across federal and state courts. The company is actively defending these claims and participating in discussions aimed at a broad resolution. While a potential settlement framework has been discussed, the terms and participation of all parties are still uncertain. An adverse judgment or a negotiated resolution could have a material impact on the company's financial position.

McKesson believes its available cash from operations, short-term investments, credit facilities, and commercial paper program are sufficient to meet its financial obligations. The company has maintained strong liquidity and has not experienced material impacts to its liquidity or net working capital due to the COVID-19 pandemic. It also noted that debt markets and commercial paper markets remained accessible.