On November 1, 2022 McKesson Corporation (NYSE:MCK) reported results for the second-quarter ended September 30, 2022 (Press release, McKesson, NOV 1, 2022, View Source [SID1234622696]).
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"Our financial results for the second quarter demonstrate how the continued development of our strategy, operating execution, and talented teams are driving solid growth. This performance enables further investments in both our oncology and biopharma businesses, which are foundations for our ability to deliver long term shareholder value," said Brian Tyler, chief executive officer. "McKesson continues to advance as a diversified healthcare services leader. Our expanding capabilities, combined with continued execution, give us the confidence in our outlook, and as a result, we are raising our guidance for fiscal 2023 Adjusted Earnings per Diluted Share to $24.45 to $24.95."
Second-quarter revenues were $70.2 billion, an increase of 5% from a year ago, primarily driven by growth in the U.S. Pharmaceutical segment, resulting from increased specialty product volumes, including retail national account customers, and market growth, partially offset by lower revenues in the International segment as a result of the progress on the planned divestiture of McKesson’s European business.
Second-quarter earnings per diluted share from continuing operations was $6.46 compared to $1.71 a year ago, an increase of $4.75.
Second-quarter Adjusted Earnings per Diluted Share was $6.06 compared to $6.15 a year ago, a decrease of 1%, driven by prior year net gains from McKesson Ventures’ equity investments and lower contribution from the U.S. government’s COVID-19 vaccine distribution, kitting, and storage programs and COVID-19 tests, partially offset by a lower share count. Second-quarter Adjusted Earnings per Diluted Share included pre-tax net losses of approximately $3 million associated with McKesson Ventures’ equity investments, compared to pre-tax net gains of approximately $97 million in the second-quarter of fiscal 2022.
For the first six months of the fiscal year, McKesson returned $1.6 billion of cash to shareholders, which included $1.5 billion of common stock repurchases and $139 million of dividend payments. During the first six months of the fiscal year, McKesson generated cash from operations of $166 million, and invested $222 million in capital expenditures, resulting in negative Free Cash Flow of $56 million.
Business Highlights
McKesson signed an agreement in principle to extend its pharmaceutical distribution partnership with CVS Health through June 2027.
McKesson continues to expand its differentiated oncology and biopharma businesses, further demonstrating meaningful progress against its company priorities.
On October 31, 2022, McKesson and HCA Healthcare completed its transaction and formed a joint venture combining McKesson’s US Oncology Research and HCA Healthcare’s Sarah Cannon Research Institute to advance cancer care and increase access to oncology clinical research. McKesson also acquired Genospace, a leading innovator in precision medicine and clinical trial matching.
On November 1, 2022, McKesson closed the transaction of Rx Savings Solutions (RxSS), a prescription price transparency and benefit insight company that offers affordability and adherence solutions to health plans and employers.
McKesson progressed in its planned exit of business operations within the European region and has completed divestitures in 11 of the 12 countries. After entering into an agreement in July 2021 to sell certain McKesson Europe businesses in France, Italy, Ireland, Portugal, Belgium, and Slovenia to the PHOENIX Group, McKesson closed the transaction on October 31, 2022.
U.S. Pharmaceutical Segment
Second-quarter revenues were $60.1 billion, an increase of 12%, driven by increased volume of specialty products, including higher volumes from retail national account customers, and market growth, partially offset by branded to generic conversions.
Second-quarter Segment Operating Profit was $896 million. Adjusted Segment Operating Profit was $756 million, an increase of 3%, driven by growth in distribution of specialty products to providers and health systems, partially offset by lower demand of COVID-19 vaccine distribution. Excluding the impact of COVID-19 vaccine distribution, the U.S. Pharmaceutical segment delivered Adjusted Segment Operating Profit growth of 5%.
Prescription Technology Solutions Segment
Second-quarter revenues were $1.0 billion, an increase of 9%, driven by growth in prescription volumes in our third-party logistics business and higher technology service revenues.
Second-quarter Segment Operating Profit was $120 million. Adjusted Segment Operating Profit was $141 million, a decrease of 2%, driven by higher operating expenses, resulting from increased headcount associated with annual support of customer programs.
Medical-Surgical Solutions Segment
Second-quarter revenues were $2.8 billion, a decrease of 9%, driven by lower sales of COVID-19 tests, partially offset by growth in the primary care business.
Second-quarter Segment Operating Profit was $299 million. Adjusted Segment Operating Profit was $307 million, a decrease of 4%, driven by lower sales of COVID-19 tests, partially offset by organic business performance. Excluding the impact of COVID-19 related items, the Medical-Surgical Solutions segment delivered Adjusted Segment Operating Profit growth of 7%.
International Segment
Second-quarter revenues were $6.2 billion. On an FX-Adjusted basis, revenues were $6.9 billion, a decrease of 25%, driven by the divestitures of McKesson’s UK and Austrian businesses.
Second-quarter Segment Operating Loss was $37 million. On an FX-Adjusted basis, Adjusted Segment Operating Profit was $151 million, a decrease of 7%, driven by the divestitures of McKesson’s UK and Austrian businesses.
Company Updates
Kathleen Wilson-Thompson, a member of McKesson’s independent Directors, was recognized with the Distinguished Alumna Award by the DirectWomen Organization for her leadership and contributions to board service.
Brian Tyler signed the Disability:IN’s "CEO Letter on Disability Inclusion," reaffirming McKesson’s commitment to create an inclusive workplace for its employees.
Fiscal 2023 Outlook
McKesson raised fiscal 2023 Adjusted Earnings per Diluted Share guidance to $24.45 to $24.95 from the previous range of $23.95 to $24.65 to reflect operating business performance and increased contribution from the U.S. government’s COVID-19 vaccine distribution, kitting, and storage programs and COVID-19 tests.
Fiscal 2023 Adjusted Earnings per Diluted Share guidance includes approximately $1.45 to $1.65 of impacts attributable to the following:
Fiscal 2023 Adjusted Earnings per Diluted Share guidance indicates 11% to 14% forecasted growth compared to prior year, excluding the impacts of the above items from both fiscal 2023 guidance and fiscal 2022 results.
Additional modeling considerations will be provided in the earnings call presentation.
Conference Call Details
McKesson has scheduled a conference call for today, Tuesday, November 1st 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:
J.P. Morgan Healthcare Conference, January 9-12, 2023
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.
Non-GAAP Financial Measures
GAAP refers to the U.S. generally accepted accounting principles. This press release includes GAAP financial measures as well as Non-GAAP financial measures, including Adjusted Gross Profit, Adjusted Operating Expenses, Adjusted Other Income, Adjusted Loss on Debt Extinguishment, Adjusted Income Tax Expense, Adjusted Earnings, Adjusted Earnings per Diluted Share, Adjusted Segment Operating Profit, Adjusted Segment Operating Profit Margin, Adjusted Corporate Expenses, Adjusted Operating Profit, FX-Adjusted results and Free Cash Flow which are financial measures not calculated in accordance with GAAP. Refer to the "Supplemental Non-GAAP Financial Information" section of the accompanying financial statement tables for the definitions and usefulness of the Company’s Non-GAAP financial measures and the attached schedules for reconciliations of the differences between the Non-GAAP financial measures and their most directly comparable GAAP financial measures.
The Company does not provide forward-looking guidance on a GAAP basis as McKesson is unable to provide a quantitative reconciliation of this forward-looking Non-GAAP measure to the most directly comparable forward-looking GAAP measure, without unreasonable effort, because 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 inherently 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.