On November 1, 2023 McKesson Corporation (NYSE:MCK) reported results for the second quarter ended September 30, 2023 (Press release, McKesson, NOV 1, 2023, View Source [SID1234636644]).

Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:

Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing

                  Schedule Your 30 min Free Demo!

Fiscal 2024 Second Quarter Result Summary
Second Quarter
Year-to-Date
($ in millions, except per share amounts) FY24 FY23 Change FY24 FY23 Change
Revenues $ 77,215 $ 70,157 10 % $ 151,698 $ 137,311 10 %
Income from Continuing Operations 2
664 932 (29) 1,622 1,698 (4)
Adjusted Earnings 2,3
841 874 (4) 1,834 1,725 6
Earnings per Diluted Share 2
4.92 6.46 (24) 11.95 11.71 2
Adjusted Earnings per Diluted Share 2,3
6.23 6.06 3 13.51 11.89 14
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

"McKesson delivered second quarter results above expectations, demonstrating continued progress against our company priorities," said Brian Tyler, chief executive officer. "This performance and continued momentum reflect the dedication and contribution of our McKesson team members. The continued strength of our differentiated capabilities in our oncology and biopharma services platforms positions McKesson to deliver sustainable growth and compelling long-term shareholder value. As a result of our first half performance and outlook for the remainder of the year, we are raising our guidance range for fiscal 2024 Adjusted Earnings per Diluted Share to $26.80 to $27.40."

Second quarter revenues were $77.2 billion, an increase of 10% from a year ago. Revenue increases were primarily driven by growth in the U.S. Pharmaceutical segment, resulting from increased prescription volumes, including higher volumes from retail national account customers, specialty products, and GLP-1 medications, partially offset by lower revenues in the International segment as a result of the divestitures of McKesson’s European businesses.

Second quarter earnings per diluted share from continuing operations was $4.92 compared to $6.46 a year ago, a decrease of $1.54, which includes a pre-tax provision for bad debts of $210 million within the U.S. Pharmaceutical segment for uncollected trade accounts receivable related to the bankruptcy of Rite Aid Corporation.

Second quarter Adjusted Earnings per Diluted Share was $6.23 compared to $6.06 a year ago, an increase of 3%, driven by a lower share count and growth in the Prescription Technology Solutions and U.S. Pharmaceutical segments, partially offset by a higher tax rate. Second quarter Adjusted Earnings per Diluted Share also included pre-tax losses of approximately $10 million associated with McKesson Ventures’ equity investments, compared to pre-tax losses of approximately $3 million in the second quarter of fiscal 2023.

For the first six months of the fiscal year, McKesson returned $1.7 billion of cash to shareholders, which included $1.5 billion of common stock repurchases and $149 million of dividend payments. During the first six months of the fiscal year, McKesson used cash from operations of $87 million, and invested $264 million in capital expenditures, resulting in negative Free Cash Flow of $351 million.

Business Highlights
•Ontada was awarded a contract with the U.S. Food and Drug Administration to advance the use of real-world data in the U.S. community oncology setting. The research aims to strengthen the scientific understanding of the natural history of rare cancers by leveraging Ontada’s community oncology footprint, unique real-world data, and experience in real-world research.
•McKesson received two awards and recognitions exemplifying its commitment to diversity and inclusion.
◦Named "Best Place to Work for Disability Inclusion" for the eighth consecutive year. McKesson earned a top-ranking score of 100 on the 2023 Disability Equality Index, a joint initiative of the American Association of People with Disabilities and Disability:IN.
◦Recognized by Forbes as one of America’s Best Employers for Women," demonstrating its outstanding progress in promoting gender equality and diversity in the workplace.

Executive Leadership Transition
•Lori Schechter, Executive Vice President, Chief Legal Officer & General Counsel, has made the decision to retire from McKesson in June 2024. On January 1, 2024, Lori will assume the role of Board and Enterprise Risk Advisor and step down as an Executive Officer of the company, a role she has held since June 2014.
•With Lori’s decision to retire, we are also announcing the appointment of Michele Lau as Executive Vice President and Chief Legal Officer, effective January 1, 2024. For the past two and a half years, Michele has served as Chief Legal Officer & Corporate Secretary for GoDaddy. Prior to that role, Michele spent thirteen years as a member of McKesson’s General Counsel Organization, most recently as Senior Vice President, Corporate Secretary & Associate General Counsel.

U.S. Pharmaceutical Segment
•Revenues were $69.8 billion, an increase of 16%, driven by increased prescription volumes, including higher volumes from retail national account customers, specialty products, and GLP-1 medications, partially offset by branded to generic conversions.
•Segment Operating Profit was $593 million. Adjusted Segment Operating Profit was $815 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 15%.

Prescription Technology Solutions Segment
•Revenues were $1.1 billion, an increase of 12%, driven by increased prescription volumes in our technology services and third-party logistics businesses.
•Segment Operating Profit was $238 million. Adjusted Segment Operating Profit was $209 million, an increase of 48%, driven by higher demand for access solutions, primarily related to prior authorization services due to increased prescription volumes.

Medical-Surgical Solutions Segment
•Revenues were $2.8 billion, flat to the prior year, driven 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 $244 million. Adjusted Segment Operating Profit was $254 million, a decrease of 17%, driven by lower contribution from kitting, storage, and distribution of ancillary supplies for the U.S. government’s COVID-19 vaccine program and lower sales of COVID-19 tests. Excluding the impact of COVID-19 related items from fiscal 2023, the Medical-Surgical Solutions segment delivered Adjusted Segment Operating Profit growth of 5%, driven by growth in the extended care business due to increased volumes of nutritional supplements.

International Segment
•Revenues were $3.5 billion. On an FX-Adjusted basis, revenues were $3.6 billion, a decrease of 43%, driven by the divestitures of McKesson’s European businesses.
•Segment Operating Profit was $66 million. On an FX-Adjusted basis, Adjusted Segment Operating Profit was $93 million, a decrease of 32%, 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 $26.80 to $27.40 from the previous range of $26.55 to $27.35 to reflect solid operating business performance.

Fiscal 2024 Adjusted Earnings per Diluted Share guidance includes ($0.10) related to year-to-date losses associated with McKesson Ventures’ equity investments. Fiscal 2024 Adjusted Earnings per Diluted Share Excluding Certain Items guidance indicates 14% to 17% 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, 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.