What happened
McKesson Corporation (MCK 1.96%) surged 17.8% in May, according to data from S&P Global Market Intelligence. Shares of America's largest prescription-drug distributor received some lift from a positive fiscal year-end report.
So what
The market was expecting an even $3 per share in adjusted earnings when McKesson delivered fiscal fourth-quarter earnings last month. Instead, the company delivered a pleasant surprise, with adjusted earnings of $3.42 per share.
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Downward pressure on prescription-drug pricing has been tough on McKesson and its peers. Plenty of prescription drugs carry a wide margin for the companies that develop them, but wholesale distributors operate on a razor-thin margin. The stock has been depressed for the past couple of years because of fear that payer pushback over prescription-drug pricing would stifle profitability, but this doesn't seem to be the case. During the three months ended in March, gross profit from the distribution segment grew about 7% at constant currency exchange rates, which was a percentage point faster than revenue grew when compared with the same period last year.
Now what
For the current fiscal year, McKesson expects adjusted earnings to fall within a range between $11.75 and $12.45 per share. Not meeting the high end of the guidance range would lead to a slight decrease on the bottom line. Given the industry's headwinds, that's not so bad.
Although political uncertainty surrounding healthcare reform and tax relief clouds McKesson's future, it's still the nation's biggest distributor of prescription drugs. Whatever happens in Washington won't change the need to source drugs from manufacturers, store, and ship them. The next several quarters might be nervy, but this stock still has what it takes to outperform over the long run.
