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McKesson (MCK) Down 1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for McKesson (MCK - Free Report) . Shares have lost about 1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is McKesson due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

McKesson Earnings and Revenues Beat Estimates in Q2

McKesson Corporation reported second-quarter fiscal 2022 adjusted earnings per share of $6.15, which beat the Zacks Consensus Estimate of $4.67 per share by 31.7%. The bottom line improved 28% on a year-over-year basis.

GAAP earnings per share in the quarter was $3.09, down 51.7% from the year-ago quarter.

Revenue Details

Revenues of $66.58 billion surpassed the Zacks Consensus Estimate by 6.1%. The top line increased 9% year over year.

Q2 Segmental Analysis

Per McKesson’s segment realignment effective in the quarter under review, the reporting is as follows:

Revenues at the U.S. Pharmaceutical and Specialty Solutions segment were $53.41 billion, up 11.1% year over year. The metric improved 11% at constant currency (cc). Per management, the upside was primarily driven by market growth and increase in specialty volumes. However, branded to generic conversions partially offset the upside.

The U.S. Pharmaceutical and Specialty Solutions segment reported adjusted operating profit of $735 million, up 12% from the prior-year quarter.

At the International segment, revenues amounted to $9.11 billion, down 5% year over year. The metric fell 8% at cc due to the contribution of McKesson’s German wholesale business to a joint venture with Walgreens Boots Alliance (completed in third-quarter fiscal 2021). Recovery in volume in the pharmaceutical distribution and retail pharmacy businesses partially offset the downside.

Adjusted operating profit at the segment was $155 million, up 34% from the year-ago quarter.

Revenues at the Medical-Surgical Solutions segment totaled $3.12 billion, up 23% year over year as well at cc. Higher demand for COVID-19 tests and improvement in primary care business contributed to the upside.

The Medical-Surgical segment delivered an adjusted operating profit of $319 million, which surged 52% from the year-ago quarter.

Revenues at the Prescription Technology Solutions segment totaled $932 million, up 40% year over year and at cc. The improvement can be attributed to increase in volumes of technology and service offerings to lend support to biopharma customers, and prescription volume growth.

Adjusted operating profit was $144 million at the Prescription Technology Solutions segment, up 38% from the prior-year quarter.

Margins

Gross profit in the reported quarter was $3.35 billion, up 12% on a year-over-year basis. Meanwhile, gross margin accounted for 5% of net revenues, up 10 basis points (bps) on a year-over-year basis.

The company reported an operating income of $539 million, down 15% from the year-ago quarter. Operating margin accounted for 0.8% of net revenues, down 20 bps from the prior-year quarter.

Financial Update

In the quarter under review, cash and cash equivalents were $2.15 billion, compared with $2.42 billion in the previous quarter.

Cumulative net cash provided in operating activities in the fiscal second quarter amounted to $170 million, against the net cash used of $41 million in the year-ago period.

Fiscal 2022 Guidance Raised

Backed by a robust second-quarter performance and higher contribution from the U.S. government’s COVID-19 vaccine distribution and kitting programs, McKesson has raised its fiscal 2022 earnings outlook.

For fiscal 2022, the company now projects adjusted earnings per share to be $21.95-$22.55 (up from the prior guided range of $19.80-$20.40). The raised outlook reflects solid operating performance and higher contribution from the U.S. government’s COVID-19 vaccine distribution, kitting and storage programs. The Zacks Consensus Estimate for the same is pegged at $20.26.

The abovementioned guidance assumes $1.30 to $1.80 associated with the U.S. government’s COVID-19 vaccine distribution, kitting and storage programs.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 6.06% due to these changes.

VGM Scores

At this time, McKesson has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise McKesson has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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