01—Abstract
Summary
Summary of the 10-Q filed August 2, 2023. Cited figures are marked; the original filing is the authoritative source.
McKesson Corporation (MCK) reported strong revenue growth of 11% year-over-year for the quarter ending June 29, 2023, reaching $74.5 billiona.
This increase was primarily driven by robust performance in the U.S. Pharmaceutical segment, benefiting from market growth, higher volumes, and specialty pharmaceutical expansion. Despite flat gross profit, operating expenses saw a 3% decrease, contributing to a significant 24% rise in income from continuing operations to $997 millionb. Diluted earnings per share (EPS) from continuing operations also saw a substantial increase, growing by 34% to $7.02.
The company demonstrated effective capital management, returning $770 millionc to shareholders through $696 million in stock repurchases and $74 million in dividends. Management also announced an increase in the quarterly dividend and a significant expansion of its share repurchase authorization, signaling confidence in future financial performance. While the company faces ongoing litigation, particularly related to opioid claims, the overall financial health appears solid, supported by consistent revenue generation and disciplined expense management.
02—Key points
Key Highlights
- Revenues increased by 11% year-over-year to $74.5 billion, driven by the U.S. Pharmaceutical segment.
- Income from continuing operations rose 24% to $997 million.
- Diluted EPS from continuing operations grew 34% to $7.02.
- Total operating expenses decreased by 3%, indicating effective cost management.
- The company returned $770 million to shareholders via dividends and share repurchases.
- A net discrete tax benefit of $147 million was recognized related to intellectual property repatriation.
- McKesson completed a $1 billion debt offering and used proceeds to repurchase outstanding notes.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, McKesson Corp kept $0.01.
- Revenue$74.48B100.0%
- Cost of revenue−$71.46B95.9%
- Gross profit$3.02B4.1%
- Operating costs−$1.92B2.6%
- Operating income$1.10B1.5%
- Interest, other & tax−$142.0M0.2%
- Net income$958.0M1.3%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed August 2, 2023Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $74.48B$67.15B | +10.9% |
| Cost of Revenue | $71.46B$64.13B | +11.4% |
| Gross Profit | $3.02B$3.02B | 0.0% |
| SG&A Expenses | $1.87B$1.96B | −4.5% |
| Operating Expenses | $1.92B$1.99B | −3.3% |
| Operating Income | $1.10B$1.04B | +6.2% |
| Interest Expense | $47.00M$45.00M | +4.4% |
| Net Income | $958.00M$768.00M | +24.7% |
| EPS (Basic) | $7.07$5.32 | +32.9% |
| EPS (Diluted) | $7.02$5.26 | +33.5% |
| Shares Outstanding (Basic) | 135.50M144.20M | −6.0% |
| Shares Outstanding (Diluted) | 136.60M145.90M | −6.4% |
05—Questions
Frequently Asked Questions
What drove the significant revenue growth in the quarter?
Revenue growth was primarily driven by the U.S. Pharmaceutical segment, which saw an 18% increase. This growth was attributed to market expansion, higher volumes from retail national account customers, strong performance in specialty pharmaceuticals, and price increases for branded drugs, partially offset by generic drug conversions.
How is McKesson managing its expenses and profitability?
McKesson effectively managed its expenses, with total operating expenses decreasing by 3% year-over-year. This was achieved through a 5% reduction in Selling, Distribution, General, and Administrative (SDG&A) expenses, partly due to the divestiture of European businesses. Despite a flat gross profit, these expense controls led to a substantial increase in operating income and net income.
What is the company's strategy regarding capital allocation and shareholder returns?
McKesson is actively returning capital to shareholders. In the quarter, $770 million was returned through share repurchases ($696 million) and dividends ($74 million). The company also announced an increase in its quarterly dividend to $0.62 per share and approved a significant $6.0 billion increase in its share repurchase authorization, indicating a strong commitment to enhancing shareholder value.
What is the company's exposure to litigation, particularly concerning opioid claims?
McKesson remains a defendant in numerous opioid-related litigation cases, with an estimated total accrued liability of $7.2 billion as of June 30, 2023. While the company has entered into settlement agreements with many governmental entities, it continues to defend against other claims. The company has paid $529 million in July 2023 related to settlements. While these liabilities are significant, the company believes it has valid legal defenses for claims not covered by settlements.
06—Continue