McKesson Corp.’s (MCK) second quarter fiscal 2011 earnings of $1.03 per share (excluding special items) fell short of the Zacks Consensus Estimate by 5 cents and the year-ago earnings by 4 cents. However, on a reported basis (including special items), the company’s earnings increased approximately 13% to $1.25. Reported earnings for the quarter were inclusive of a gain of 28 cents per share from the sale of McKesson Asia-Pacific Pty Limited.
Revenues for the second quarter of fiscal 2011 climbed 1% to $27.53 billion but fell short of the Zacks Consensus Revenue Estimate of $27.97 billion.
Quarter in Detail
McKesson operates through two segments: Distribution Solutions and Technology Solutions. Revenues at the Distribution Solutions segment grew 2% to $26.8 billion in the reported quarter. Sales improved across all the sub-groups of the Distribution Solutions segment.
Revenues from the US pharmaceutical distribution business climbed 1% to $23.6 billion. The results at the division were aided by generics. Sales of generics through McKesson’s proprietary program, OneStop, climbed 21%.Canadian revenues grew 4% to $2.4 billion in the reported quarter, reflecting a 5% favorable impact of foreign exchange. Medical-Surgical distribution revenues increased 5% to $770 million.
Revenues at the Technology Solutions segment slipped 3% to $770 million during the quarter. The reduction was primarily attributable to the sale of McKessonAsia-Pacific Pty Limited. Revenues from the segment are derived from Services, sale of software & software systems and hardware.
Within the Technology Solutions segment, service revenues decreased 1% to $604 million. While software revenues slipped 3% in the reported quarter to $138 million, hardware revenues plummeted 20% to $28 million in the second quarter of fiscal 2011.
Gross profit for the quarter increased 2% to $1.36 billion. McKesson reported a 9% increase in operating expenses, which came in at $949 million.
Outlook Backed
McKesson reaffirmed its earnings guidance for fiscal 2011. The company continues to expect earnings (excluding special items) in the range of $4.72 to $4.92.
During the quarter, McKesson repurchased shares worth $531 million, thereby fully utilizing the current share buyback plan which authorized it to repurchase $1.5 billion of common stock.
Apart from announcing second quarter fiscal 2011 results, the Board of Directors at McKesson approved a new $1 billion share buyback program.
Neutral on McKesson
Currently, we have a Neutral recommendation on McKesson, which is supported by the Zacks #3 Rank (short-term Hold recommendation) carried by the company.
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