McKesson Corporation reported Fiscal 2010 Third-Quarter Results

McKesson reports revenues for the third quarter ended December 31, 2009 were $28.3 billion compared to $27.1 billion a year ago. Third quarter earnings per diluted share was $1.19 compared to a loss of seven cents per diluted share a year ago. Last year’s results included the impact of a pre-tax charge of $493 million, or $1.12 per diluted share, for the Average Wholesale Price (AWP) litigation.

“McKesson demonstrated solid execution in the third quarter. Our results were driven by our performance in Distribution Solutions, including a strong contribution from the incremental demand we are experiencing across our businesses from the impact of the flu season,” said John H. Hammergren, chairman and chief executive officer.
 
“Based on our year-to-date progress, we are raising our previous outlook and now expect that McKesson should earn between $4.55 and $4.70 per diluted share for the fiscal year ending March 31, 2010, excluding the favorable impact of the litigation credit in our second quarter,” Hammergren said.
 
In the third quarter, Distribution Solutions revenues were up 4%. U.S. pharmaceutical distribution revenues were up 2% for the quarter, primarily reflecting market growth, which was partially offset by the loss of certain customers in late Fiscal 2009. In addition, we continued to see a shift of revenues to direct store delivery from sales to customers’ warehouses.
 
Canadian revenues, on a constant currency basis, grew 8% for the quarter primarily due to market growth. Including a favorable currency impact of 15%, Canadian revenues grew 23% for the quarter. Medical-Surgical distribution revenues were up 11% for the quarter, reflecting an increase in demand related to the flu season and aided by acquisitions made in late Fiscal 2009.
 
Distribution Solutions gross profit was $1,104 million compared to $988 million in the third quarter a year ago. Distribution Solutions gross profit margin in the third quarter was higher compared to the third quarter a year ago, primarily due to the impact of the H1N1 flu virus, which helped drive an improved mix of higher margin revenues stemming from increased flu-related demand across our distribution businesses. Gross profit margin also benefited from higher profit from the sale of generic drugs. These benefits were partially offset by lower sell margin in our U.S. pharmaceutical business and the timing of compensation from branded pharmaceutical manufacturers.
 
Distribution Solutions operating profit of $558 million was up 27% when compared to operating profit before the AWP litigation charge of $493 million in the same period a year ago. In the third quarter, operating margin of 2.03% benefited from the higher gross profit margin and a $17 million pre-tax gain from the sale of our 50% equity interest in McKesson Logistics Solutions L.L.C., a Canadian logistics company.
 
“I am extremely pleased with the team’s ability to execute on opportunities to increase our business and improve profitability,” Hammergren said. “In particular, I am proud of the tremendous effort across McKesson to safely and efficiently deliver over 100 million doses of H1N1 flu vaccine and ancillary medical supplies in partnership with the Centers for Disease Control and Prevention. Our success with this program is just one example of the operational excellence that we deliver to all of our customers.”
 
In Technology Solutions, revenues were up 3% for the quarter. Services revenues grew 6% reflecting the steady nature of our offering. Software revenues were down 2% and hardware revenues were down 32%.
 
Technology Solutions operating profit in the third quarter was $81 million, down 11% from $91 million a year ago. The operating margin was 10.51% compared to 12.12% in the same period a year ago, primarily reflecting a decrease in gross profit margin due to a higher software deferral rate and additional amortization related to McKesson’s Horizon Enterprise Revenue Management TM solution, which became generally available in the second quarter of this fiscal year.
 
“We have the largest and most diverse technology offering in the industry with solutions that help hospitals, payors, pharmacies and physicians deliver high quality care in a cost efficient manner,” Hammergren said. “We are well-positioned to benefit from the increased focus on clinical solutions that has been created by the stimulus funding provided by the federal government, and we can also provide the connectivity that moves clinical and financial information through the entire healthcare network.”
 
About McKesson
 
McKesson Corporation, currently ranked 15th on the FORTUNE 500, is a healthcare services and information technology company dedicated to helping its customers deliver high-quality healthcare by reducing costs, streamlining processes, and improving the quality and safety of patient care. McKesson has been in continuous operation for more than 175 years, making it the longest-operating company in healthcare today. Over the course of its history, McKesson has grown by providing pharmaceutical and medical-surgical supply management across the spectrum of care; healthcare information technology for hospitals, physicians, homecare and payors; hospital and retail pharmacy automation; and services for manufacturers and payors designed to improve outcomes for patients. For more information, visit www.mckesson.com .