On May 20, 2020 McKesson Corporation (NYSE:MCK) reported results for the fourth quarter and fiscal year ended March 31, 2020 (Press release, McKesson, MAY 20, 2020, View Source [SID1234558337]).
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"McKesson delivered a strong finish to fiscal 2020, reflecting continued momentum in the business and meaningful progress in our transformation towards becoming a more focused organization as we look to capture future growth opportunities," said Brian Tyler, chief executive offer. "During fiscal 2020, we achieved adjusted operating profit growth in all three operating segments, generated $3.9 billion of free cash flow, and successfully completed the exit of our investment in Change Healthcare."
"As we enter fiscal 2021, McKesson is leveraging our expertise, leadership and scale to play a critical role in the fight against the COVID-19 pandemic," Mr. Tyler continued. "We continue to remain focused on supporting our people, our customers and our communities during this challenging time. I want to thank caregivers worldwide for their heroic efforts and acknowledge the entire McKesson team, particularly our frontline workers, for their extraordinary dedication. Despite the uncertainties in the near-term macro environment, we remain confident in the resiliency of our business model and committed to creating long-term shareholder value."
Fourth-quarter revenues were $58.5 billion, up 12%, and full-year revenues were $231.1 billion, up 8%, driven by growth in the U.S. Pharmaceutical and Specialty Solutions segment, largely due to branded pharmaceutical price increases and higher volumes from retail national account customers.
Fourth-quarter earnings per diluted share of $5.82 included an after-tax gain of $414 million, recognized upon the separation of the company’s investment in Change Healthcare LLC ("Change Healthcare"). Full-year earnings per diluted share of $4.99 also included after-tax impairment and dilution charges of $1 billion related to Change Healthcare and after-tax charges of $275 million within our European Pharmaceutical Solutions segment for the remeasurement to fair value of assets and liabilities held for sale related to the expected formation of a new German wholesale joint venture with Walgreens Boots Alliance.
Fourth-quarter Adjusted Earnings per diluted share was $4.27 compared to $3.69 a year ago, an increase of 16%, primarily driven by a lower share count and growth in the European Pharmaceutical Solutions segment. Full-year Adjusted Earnings per diluted share was $14.95 compared to $13.57 a year ago, an increase of 10%, primarily driven by a lower share count and growth in the U.S. Pharmaceutical and Specialty Solutions and Medical Surgical segments, partially offset by higher corporate expenses and the lapping of a prior year pre-tax benefit of $90 million related to a reversal of a contractual liability associated with McKesson’s investment in Change Healthcare.
For the full year, McKesson returned $2.2 billion of cash to shareholders via $1.9 billion of common stock repurchases and $294 million of dividend payments. During the fiscal year, McKesson generated cash from operations of $4.4 billion, and invested $506 million internally, resulting in free cash flow of $3.9 billion.
U.S. Pharmaceutical and Specialty Solutions Segment
Fourth-Quarter:
Revenues were $46.3 billion, up 13%, driven by branded pharmaceutical price increases and higher volumes from retail national account customers, partially offset by branded to generic conversions.
Operating profit was $862 million and operating margin was 1.86%. Adjusted operating profit was $772 million, up 3% from a year ago, driven by continued growth in the specialty businesses. Adjusted operating margin was 1.67%, down 17 basis points.
Full-Year:
Revenues were $183.3 billion, up 9%, driven by branded pharmaceutical price increases and higher volumes from retail national account customers, partially offset by branded to generic conversions.
Operating profit was $2.8 billion and operating margin was 1.51%. Adjusted operating profit was $2.7 billion, up 6% from a year ago, driven by growth in the specialty businesses and the lapping of a prior year approximately $60 million pre-tax charge related to a customer bankruptcy. Adjusted operating margin was 1.46%, down 4 basis points.
European Pharmaceutical Solutions Segment
Fourth-Quarter:
Revenues were $7.2 billion, up 6% on a reported basis and up 9% on an FX-adjusted basis, driven by growth in the pharmaceutical distribution business.
Operating profit was $36 million and operating margin was 0.50%. Adjusted operating profit was $75 million, up 226%, and adjusted operating margin was 1.05%. On an FX-adjusted basis, adjusted operating profit was $78 million, up 239%, and adjusted operating margin was 1.06%, up 72 basis points, driven by expense rationalization and the lapping of a prior year inventory charge of approximately $20 million.
Full-Year:
Revenues were $27.4 billion, up 1% on a reported basis and up 5% on an FX-adjusted basis, driven by growth in the pharmaceutical distribution business.
Operating loss was ($261) million and operating margin was (0.95%), driven by after-tax charges of $275 million for the remeasurement to fair value of assets and liabilities held for sale related to the expected formation of a new German wholesale joint venture with Walgreens Boots Alliance. Adjusted operating profit was $231 million, up 5%, and adjusted operating margin was 0.84%. On an FX-adjusted basis, adjusted operating profit was $240 million, up 10%, and adjusted operating margin was 0.84%, driven by expense rationalization and the lapping of a prior year inventory charge of approximately $20 million.
Medical-Surgical Solutions Segment
Fourth-Quarter:
Revenues were $2.2 billion, up 13%, driven by growth in the Primary Care business, due to higher pharmaceutical volumes and a stronger influenza season.
Operating profit was $121 million and operating margin was 5.49%. Adjusted operating profit was $170 million, down 1%, driven primarily by higher operating expenses, partially offset by growth in the Primary Care business. Adjusted operating margin was 7.71%, down 109 basis points.
Full-Year:
Revenues were $8.3 billion, up 9%, driven by growth in the Primary Care business.
Operating profit was $499 million and operating margin was 6.01%. Adjusted operating profit was $679 million, up 12%, and adjusted operating margin was 8.18%, up 24 basis points, driven by growth in the Primary Care business.
Other remaining businesses
Fourth-Quarter:
Revenues were $2.9 billion, up 3% on a reported basis and up 4% on an FX-adjusted basis, driven by growth in the Canadian and MRxTS businesses.
Operating profit was $514 million, driven by an after-tax gain of $414 million, recognized upon the separation of the company’s investment in Change Healthcare. Adjusted operating profit was $242 million, down 6% on both a reported and FX-adjusted basis, driven by a lower contribution from the company’s investment in Change Healthcare, partially offset by growth in the MRxTS business.
Full-Year:
Revenues were $12.0 billion, up 3% on a reported basis and up 4% on an FX-adjusted basis, driven by growth in the Canadian and MRxTS businesses.
Operating loss was ($595) million, primarily driven by a previously disclosed impairment in the second quarter, in connection with McKesson’s separation of its investment in Change Healthcare. Adjusted operating profit was $953 million, down 4% on both a reported and FX-adjusted basis, driven by the lapping of the $90 million contractual liability reversal in the prior year partially offset by organic growth in the MRxTS and Canadian businesses.
Company Updates
On March 10, 2020, McKesson completed the separation of its investment in Change Healthcare.
McKesson awarded approximately $30 million in special one-time bonus payments in the fourth-quarter to recognize frontline workers and other non-bonus eligible employees for their contributions.
McKesson invested approximately $20 million into the McKesson Foundation in the fourth-quarter, designating $5 million for deployment to McKesson’s "Taking Care of Our Own Fund" to provide support for employees impacted by the COVID-19 pandemic.
Fiscal 2021 Outlook
McKesson expects full-year fiscal 2021 Adjusted Earnings per diluted share of $13.95 to $14.75, which reflects anticipated headwinds in fiscal 2021 as a result of the COVID-19 pandemic and a continuation of disciplined, efficient capital deployment, including investments in the business. McKesson expects Adjusted Earnings per diluted share growth in the second half of fiscal 2021.
Conference Call Details
The company has scheduled a conference call for today, Wednesday, May 20th at 8:00 AM ET to discuss the company’s financial results. A live audio webcast of the conference call will be available on McKesson’s Investor Relations website at View Source The conference call can also be accessed by dialing 786-815-8297. The password is ‘McKesson’. A telephonic replay of this conference call will be available for 14 calendar days. For individuals wishing to listen to the replay, the dial-in number is 404-537-3406 and the passcode is 6206708. An archive of the conference call will also be available on the company’s Investor Relations website at View Source
Upcoming Investor Events
McKesson management will be participating in the following investor conferences:
Jefferies Virtual Healthcare Conference, June 2, 2020
Goldman Sachs 41st Annual Global Healthcare Conference, June 9, 2020
Audio webcasts will be available live and archived on the company’s Investor Relations website at View Source A complete listing of upcoming events for the investment community, including details and updates, will be available on the company’s Investor Relations website.