McKesson Reports Fiscal 2016 Fourth-Quarter and Full-Year Results





  • Revenues of $46.7 billion for the fourth quarter and $190.9 billion for the full year, up 7% year-over-year.
  • Fourth-quarter GAAP earnings per diluted share from continuing operations of $1.97 and full-year GAAP earnings per diluted share from continuing operations of $9.84, up 31% year-over-year.
  • Fourth-quarter Adjusted Earnings per diluted share of $2.44 and full-year Adjusted Earnings per diluted share of $12.08, up 9% year-over-year.
  • Excluding Cost Alignment Plan charges of 73 cents and the previously-recorded gains on the sale of two businesses of 29 cents from Adjusted Earnings, full-year results per diluted share of $12.52, up 14% on a constant currency basis, year-over-year.
  • Fiscal 2016 cash flow from operations of $3.7 billion, up 18% year-over-year.
  • Fiscal 2017 Outlook: $13.30 to $13.80 per diluted share, which excludes approximately 12 to 15 cents in expected charges to Adjusted Earnings for the Cost Alignment Plan.
McKesson Corporation reported that revenues for the fourth quarter ended March 31, 2016 were $46.7 billion, up 4% compared to $44.9 billion a year ago. On a constant currency basis, revenues increased 5% over the prior year. On the basis of U.S. generally accepted accounting principles (“GAAP”), fourth-quarter earnings per diluted share from continuing operations was $1.97 compared to $1.69 a year ago. Fourth-quarter Adjusted Earnings per diluted share was $2.44, down 17% compared to the prior year.
 
For the fiscal year, McKesson had revenues of $190.9 billion, up 7% compared to $179.0 billion a year ago. On a constant currency basis, revenues increased 9% over the prior year. Full-year GAAP earnings per diluted share from continuing operations was $9.84 compared to $7.54 a year ago, up 31% year-over-year. Full-year Adjusted Earnings per diluted share was $12.08, up 9% compared to the prior year.
 
Full-year GAAP and Adjusted Earnings include pre-tax charges totaling $229 million, or 73 cents per diluted share, related to the company’s cost alignment plan as disclosed in March 2016 (the “Cost Alignment Plan”). Full-year GAAP and Adjusted Earnings also include pre-tax gains of $103 million, or 29 cents per diluted share, related to the sale of two businesses earlier in Fiscal 2016. Excluding the Cost Alignment Plan charges and the gains on the sale of two businesses from Adjusted Earnings, full-year results per diluted share was $12.52, up 14% on a constant currency basis, year-over-year.
 
“I am pleased with our fourth-quarter results, driven by solid execution across both our Distribution Solutions and Technology Solutions segments,” said John H. Hammergren, chairman and chief executive officer. “Fiscal 2016 was a year of growth at McKesson, and I am encouraged by the many new and expanded customer relationships throughout our businesses. McKesson’s focus on driving value and innovation in our daily interactions with our customers, built on a deep foundation of operational excellence, will continue to propel our company going forward as we look to Fiscal 2017 and beyond.”
 
For the full year, McKesson generated cash from operations of $3.7 billion, repaid approximately $1.6 billion in long-term debt and ended the year with cash and cash equivalents of $4.0 billion. During the year, McKesson had internal capital spending of $677 million, spent $40 million on acquisitions, repurchased 0approximately $1.5 billion of its common stock and paid $244 million in dividends.
 
“We delivered strong cash flow results for Fiscal 2016, which exceeded our original expectations,” Hammergren commented. “In Fiscal 2016, we executed across the full range of our portfolio approach to capital deployment, which included capital investments in support of growth of our businesses, more than $4.0 billion in announced acquisitions, which will contribute to McKesson’s growth in Fiscal 2017 and beyond, $1.5 billion in share repurchases, and $244 million in dividends paid. I am exceptionally proud of our disciplined approach to capital deployment and our track record of creating long-term value for our shareholders.”
Fiscal Year 2016 Reconciliation of GAAP Results to Adjusted Earnings
 
Adjusted Earnings per diluted share of $12.08 for the fiscal year ended March 31, 2016 excludes the following GAAP items:
  • Amortization of acquisition-related intangible assets of $1.27 per diluted share;
  • Acquisition expenses and related adjustments of 34 cents per diluted share; and
  • LIFO inventory-related adjustments of 63 cents per diluted share.
Fiscal Year 2017 Outlook
For the fiscal year ending March 31, 2017, McKesson expects $13.30 to $13.80 per diluted share, which excludes approximately 12 to 15 cents in expected charges from Adjusted Earnings related to the Cost Alignment Plan.
“Our Fiscal 2017 outlook balances solid growth across our businesses and growth from capital deployment, with the negative impact from customer consolidation and generic pharmaceutical pricing trends in the United States,” concluded Hammergren.
 
Key Assumptions for Fiscal Year 2017 Outlook
The Fiscal 2017 outlook is based on the following key assumptions and is also subject to the Risk Factors outlined below:
  • Distribution Solutions revenue growth is expected to increase by high-single digits driven by market growth and acquisitions.
  • We expect North America pharmaceutical distribution and services to deliver high-single digit revenue growth in Fiscal 2017.
  • International pharmaceutical distribution and services revenues are anticipated to grow low-double digits on a constant currency basis in Fiscal 2017.
  • Medical-Surgical distribution and services is expected to deliver mid-single digit revenue growth in Fiscal 2017.
  • Technology Solutions revenues are expected to be down slightly year-over-year driven by an anticipated revenue decline in our hospital software business.
  • Fiscal 2017 branded pharmaceutical price trends in the U.S. market are expected to be modestly below those experienced in Fiscal 2016.
  • We expect a nominal contribution to our Fiscal 2017 results from generic pharmaceuticals that increase in price.
  • We expect the profit contribution from the launch of new oral generic pharmaceuticals in the U.S. market to decrease year-over-year.
  • Proceeds from anticipated antitrust litigation settlements are estimated to be $140 million, pre-tax, for Fiscal 2017, compared to $76 million, pre-tax, in Fiscal 2016.
  • Fiscal 2017 pre-tax charges associated with our Cost Alignment Plan are expected to be between $40 million and $50 million and are excluded from our Fiscal 2017 outlook of $13.30 to $13.80 per diluted share.
  • The guidance range assumes a full-year adjusted tax rate of approximately 31.0%, which may vary from quarter to quarter.
  • Property acquisitions and capitalized software expenditures are expected to be between $700 million and $800 million.
  • We assume that our ownership position in Celesio will be approximately 76% for Fiscal 2017.
  • We expect the impact of foreign currency exchange rate movements will have a net unfavorable impact of approximately 3 cents per diluted share year-over-year as modest improvements in the Euro / USD average rate will be more than offset by the GBP / Euro average rate when compared to the prior year.
  • Weighted average diluted shares used in the calculation of earnings per share are expected to be approximately 228 million for the year.
  • Cash flow from operations is expected to increase approximately 15% year-over-year, excluding approximately $270 million in cash payments expected in
About McKesson Corporation
McKesson Corporation, currently ranked 11th on the FORTUNE 500, is a healthcare services and information technology company dedicated to making the business of healthcare run better. McKesson partners with payers, hospitals, physician offices, pharmacies, pharmaceutical companies and others across the spectrum of care to build healthier organizations that deliver better care to patients in every setting. McKesson helps its customers improve their financial, operational, and clinical performance with solutions that include pharmaceutical and medical-surgical supply management, healthcare information technology, and business and clinical services. For more information, visit http://www.mckesson.com.