01—Abstract
Summary
Summary of the 10-Q filed February 8, 2024. Cited figures are marked; the original filing is the authoritative source.
McKesson Corporation reported an increase in revenues for the third quarter and first nine months of fiscal year 2024, driven by strong performance in its U.S. Pharmaceutical segment, particularly in specialty pharmaceuticals and retail national accounts.
Despite revenue growth, gross profit saw a slight decrease due to the impact of the European divestiture and increased operating expenses. Diluted earnings per share from continuing operations experienced a significant decline year-over-year, largely influenced by a substantial provision for bad debts related to the bankruptcy of its customer, Rite Aid. The company's financial position remains solid, with active capital allocation strategies including significant share repurchases and dividend payments.
McKesson is managing its debt effectively and has a substantial remaining authorization for stock buybacks. However, investors should note the ongoing legal proceedings, particularly those related to opioid litigation, which represent a significant contingent liability. The company continues to navigate these challenges while focusing on operational efficiencies and strategic growth.
02—Key points
Key Highlights
- Revenues increased by 15% for the three months ended December 31, 2023, and by 12% for the nine months ended December 31, 2023, driven by the U.S. Pharmaceutical segment.
- Diluted earnings per share from continuing operations attributable to McKesson Corporation decreased significantly to $4.42 from $7.65 year-over-year for the three-month period.
- A substantial provision for bad debts of $515 million and $725 million was recorded for the three and nine months ended December 31, 2023, respectively, due to the bankruptcy of customer Rite Aid.
- Gross profit decreased by 1% for both the three and nine-month periods, impacted by the divestiture of European businesses and increased operating expenses.
- The company returned approximately $2.6 billion to shareholders in the first nine months of fiscal year 2024 through share repurchases and dividends, with a remaining authorization of $7.3 billion for stock buybacks.
- McKesson's total estimated liability for opioid-related claims stood at $6.6 billion as of December 31, 2023, with $516 million classified as current.
- Operating expenses increased by 30% for the three-month period and 11% for the nine-month period, primarily due to the provision for bad debts.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2024, McKesson Corp kept $0.01.
- Revenue$80.90B100.0%
- Cost of revenue−$77.75B96.1%
- Gross profit$3.15B3.9%
- Operating costs−$2.51B3.1%
- Operating income$642.0M0.8%
- Interest, other & tax−$53.0M0.1%
- Net income$589.0M0.7%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed February 8, 2024Financial Statements
Q3 FY2024 against Q3 FY2023
| Line item | Q3 FY2024Q3 FY2023 | Change |
|---|---|---|
| Revenue | $80.90B$70.49B | +14.8% |
| Cost of Revenue | $77.75B$67.32B | +15.5% |
| Gross Profit | $3.15B$3.17B | −0.7% |
| SG&A Expenses | $2.51B$1.90B | +31.7% |
| Operating Expenses | $2.51B$1.93B | +29.8% |
| Operating Income | $642.00M$1.24B | −48.3% |
| Interest Expense | $64.00M$69.00M | −7.2% |
| Net Income | $589.00M$1.08B | −45.4% |
| EPS (Basic) | $4.45$7.71 | −42.3% |
| EPS (Diluted) | $4.42$7.66 | −42.3% |
| Shares Outstanding (Basic) | 132.50M139.90M | −5.3% |
| Shares Outstanding (Diluted) | 133.30M141.00M | −5.5% |
05—Questions
Frequently Asked Questions
What is the primary driver of the revenue increase reported in this quarter?
The revenue increase was primarily driven by market growth in McKesson's U.S. Pharmaceutical segment. This growth includes higher volumes from retail national account customers and an increase in specialty pharmaceuticals, along with branded pharmaceutical price increases, partially offset by the transition from branded to generic drugs.
What caused the significant decrease in diluted earnings per share (EPS)?
The significant decrease in diluted EPS is largely attributable to a substantial provision for bad debts amounting to $515 million for the quarter and $725 million for the nine months, related to the bankruptcy filing of their customer, Rite Aid Corporation. Additionally, increased operating expenses and a decrease in gross profit also contributed.
How is McKesson managing its substantial opioid-related litigation liabilities?
McKesson has entered into settlement agreements with numerous state and local governmental entities and Native American tribes, committing to pay significant amounts through 2038. As of December 31, 2023, the company's total estimated liability for opioid-related claims was $6.6 billion. While a significant portion is long-term, $516 million is expected to be paid within the next twelve months. The company continues to defend itself vigorously against claims not covered by these settlements.
What is the outlook for capital returns to shareholders?
McKesson remains committed to returning capital to shareholders. In the first nine months of fiscal year 2024, approximately $2.6 billion was returned through share repurchases and dividends. The company's Board of Directors increased the quarterly dividend to $0.62 per share and approved an additional $6.0 billion for share repurchases, with a remaining authorization of $7.3 billion as of December 31, 2023.
06—Continue