On August 2, 2023 McKesson Corporation (NYSE:MCK) reported results for the first quarter ended June 30, 2023 (Press release, McKesson, AUG 2, 2023, View Source [SID1234633651]).
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Fiscal 2024 First Quarter Result Summary
First Quarter
($ in millions, except per share amounts) FY24 FY23 Change
Revenues $ 74,483 $ 67,154 11 %
Income from Continuing Operations 2
958 766 25
Adjusted Earnings 2,3
993 851 17
Earnings per Diluted Share 2
7.02 5.25 34
Adjusted Earnings per Diluted Share 2,3
7.27 5.83 25
1 See below under "Fiscal 2024 Outlook" for full explanation
2 Reflects continuing operations attributable to McKesson, net of tax
3 Adjusted results in this earnings release are non-GAAP financial measures; refer to the accompanying definitions, reconciliation schedules, and schedule 2
"Our strong first quarter results reflect continued momentum across our business, led by the dedication and commitment of over 50,000 Team McKesson employees," said Brian Tyler, chief executive officer. "Our performance in the quarter further demonstrates operating execution and continued focus on our strategy. We remain confident in our ability to deliver sustainable growth. Based on the strong first quarter and our outlook for the remainder of the year, we are raising our guidance range for fiscal 2024 Adjusted Earnings per Diluted Share to $26.55 to $27.35."
First quarter revenues were $74.5 billion, an increase of 11% from a year ago, primarily driven by growth in the U.S. Pharmaceutical segment, resulting from increased prescription volumes, including higher volumes from retail national account customers and specialty and GLP-1 products, partially offset by lower revenues in the International segment as a result of the divestitures of McKesson’s European businesses.
First quarter earnings per diluted share from continuing operations was $7.02 compared to $5.25 a year ago, an increase of $1.77.
First quarter Adjusted Earnings per Diluted Share was $7.27 compared to $5.83 a year ago, an increase of 25%, driven by a lower tax rate, lower share count, and growth in the U.S. Pharmaceutical and Prescription Technology Solutions segments. First quarter Adjusted Earnings per Diluted Share also included pre-tax losses of approximately $7 million associated with McKesson Ventures’ equity investments, compared to pre-tax losses of approximately $22 million in the first quarter of fiscal 2023.
For the first three months of the fiscal year, McKesson returned $770 million of cash to shareholders, which included $696 million of common stock repurchases and $74 million of dividend payments. During the first three months of the fiscal year, McKesson used cash from operations of $1.1 billion, and invested $124 million in capital expenditures, resulting in negative Free Cash Flow of $1.2 billion.
Business Highlights
•McKesson maintains a disciplined approach to capital allocation, centered on delivering sustainable growth and long-term shareholder value. On July 21, 2023, the Board of Directors:
◦Declared a 15% increase to its quarterly dividend from $0.54 per share to $0.62 per share.
◦Approved the company to repurchase up to an additional $6.0 billion of its common shares to a total authorization of $8.9 billion as of July 2023, in a manner and timing deemed in the best interest of the company and its stockholders, considering factors such as other growth opportunities and prevailing business and market conditions.
•In July 2023, The US Oncology Network expanded its footprint with the addition of the Cancer Center of Kansas, strengthening its market leading position in community oncology practices and growing its total number of providers to over 2,400.
•McKesson released its latest Impact Report for fiscal years 2022 and 2023, showcasing its ongoing commitment to advancing health outcomes for all. The report describes McKesson’s continued efforts to track, measure, and communicate its progress in achieving its corporate purpose, with a focus on how the company is making an impact with its people, partners, community, and planet.
U.S. Pharmaceutical Segment
•Revenues were $67.2 billion, an increase of 18%, driven by increased prescription volumes, including higher volumes from retail national account customers and specialty and GLP-1 products, partially offset by branded to generic conversions.
•Segment Operating Profit was $827 million. Adjusted Segment Operating Profit was $771 million, an increase of 8%, driven by growth in the distribution of specialty products to providers and health systems and increased contributions from our generics program. Excluding the impact of COVID-19 vaccine distribution from fiscal 2023, the U.S. Pharmaceutical segment delivered Adjusted Segment Operating Profit growth of 14%.
Prescription Technology Solutions Segment
•Revenues were $1.2 billion, an increase of 17%, driven by growth in our third-party logistics and technology services businesses due to increased prescription volumes.
•Segment Operating Profit was $231 million. Adjusted Segment Operating Profit was $223 million, an increase of 35%, driven by increasing demand for access solutions, primarily related to prior authorization services due to increased prescription volumes.
Medical-Surgical Solutions Segment
•Revenues were $2.6 billion, an increase of 1%, driven by growth in the extended and primary care businesses, including growth in lab and equipment, and specialty pharmaceuticals, partially offset by lower sales of COVID-19 tests and lower contribution from kitting, storage, and distribution of ancillary supplies for the U.S. government’s COVID-19 vaccine program.
•Segment Operating Profit was $227 million. Adjusted Segment Operating Profit was $235 million, a decrease of 12%, driven by lower contribution from kitting, storage, and distribution of ancillary supplies for the U.S. government’s COVID-19 vaccine program. Excluding the impact of COVID-19 related items from fiscal 2023, the Medical-Surgical Solutions segment delivered Adjusted Segment Operating Profit growth of 7%, driven by growth in the extended and primary care businesses.
International Segment
•Revenues were $3.5 billion. On an FX-Adjusted basis, revenues were $3.7 billion, a decrease of 44%, driven by the divestitures of McKesson’s European businesses.
•Segment Operating Profit was $57 million. On an FX-Adjusted basis, Adjusted Segment Operating Profit was $95 million, a decrease of 31%, driven by the divestitures of McKesson’s European businesses.
Fiscal 2024 Outlook
McKesson does not provide forward-looking guidance on a GAAP basis as the Company is unable to provide a quantitative reconciliation of forward-looking Non-GAAP measures to the most directly comparable forward-looking GAAP measure, without unreasonable effort. McKesson cannot reliably forecast LIFO inventory-related adjustments, certain litigation loss and gain contingencies, restructuring, impairment and related charges, and other adjustments, which are difficult to predict and estimate. These items are generally uncertain and depend on various factors, many of which are beyond the company’s control, and as such, any associated estimate and its impact on GAAP performance could vary materially.
McKesson is raising fiscal 2024 Adjusted Earnings per Diluted Share guidance to $26.55 to $27.35 from the previous range of $26.10 to $26.90 to reflect strong first quarter performance and outlook in the North American businesses.
Fiscal 2024 Adjusted Earnings per Diluted Share guidance includes ($0.04) related to year-to-date losses associated with McKesson Ventures’ equity investments.
Fiscal 2024 Adjusted Earnings per Diluted Share Excluding Certain Items guidance indicates 13% to 16% forecasted growth compared to prior year.
Additional modeling considerations will be provided in the earnings call presentation.
Conference Call Details
McKesson has scheduled a conference call for today, Wednesday, August 2nd at 4:30 PM ET to discuss the company’s financial results. The audio webcast of the conference call will be available live and archived on McKesson’s Investor Relations website at investor.mckesson.com.
Upcoming Investor Events
McKesson management will be participating in the following investor conference:
•Morgan Stanley Healthcare Conference, September 12, 2023
•Baird Global Healthcare Conference, September 13, 2023
The audio webcast, and a complete listing of upcoming events for the investment community, including details and updates, will be available on McKesson’s Investor Relations website.