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How McKesson's Mixed Q1 Results Still Beat Wall Street Estimates

By Keith Speights – Aug 3, 2020 at 2:40PM

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The big healthcare company faced COVID-19 headwinds. But its business improved more strongly than expected.

McKesson Corporation (MCK 1.45%) easily beat Wall Street estimates with its fiscal 2020 fourth-quarter results in May despite COVID-19 headwinds. And its shares have also performed pretty well so far in 2020 with the ongoing pandemic.

The giant healthcare company probably isn't going to lose any of its momentum after announcing fiscal 2021 first-quarter results before the market opened on Monday. Here are the highlights from McKesson's Q1 update.

Multi-colored pills forming dollar sign.

Image source: Getty Images.

By the numbers

McKesson reported revenue in the first quarter of $55.7 billion, roughly matching its revenue total in the prior-year period. The result, though, topped the consensus Wall Street Q1 revenue estimate of $53.85 billion.

The company announced Q1 net income of $444 million, or $2.72 per share, based on generally accepted accounting principles (GAAP). This reflected solid improvement from McKesson's GAAP earnings of $423 million, or $2.27 per share, recorded in the prior-year period.

McKesson posted adjusted earnings of $2.77 per share in the first quarter, down 16% year over year. Despite the decline, the result trounced the average analysts' Q1 adjusted-earnings estimate of $2.30 per share.

Behind the numbers

McKesson CEO Brian Tyler stated, "Thanks to the strong execution of our employees around the world, McKesson delivered first-quarter results ahead of our original expectations, as volumes across the business improved earlier than anticipated." But while the company beat expectations, there were some trouble spots. 

The good news for McKesson's top line in Q1 was that revenue for its biggest segment, U.S. pharmaceutical and specialty solutions, rose 2% year over year to $45.1 billion. This modest growth was driven mainly by an expanding market and higher volumes from major retail customers. However, more brand-to-generic conversions and lower overall prescription volumes weighed on the segment's Q1 sales.

There was bad news, though, for McKesson's other segments. Revenue for its European pharmaceutical solutions segment fell 7% year over year to $6.2 billion on lower volumes in its pharmaceutical distribution business. Its medical-surgical solutions segment generated revenue of $1.8 billion in Q1, down 5% year over year. Fewer primary care patient visits as a result of the COVID-19 pandemic was the primary culprit behind this decline. McKesson's other businesses' revenue in Q1 totaled $2.6 billion, a 13% year-over-year decrease driven mainly by lower pharmaceutical volumes in Canada.

The company's GAAP earnings result was boosted by an after-tax net gain of $97 million from insurance proceeds connected to McKesson's settlement of a shareholder-derivation action related to its controlled substances monitoring program. Its adjusted earnings were lower largely due to the effects of the COVID-19 pandemic on prescription volumes and primary care patient visits.

Looking ahead

McKesson boosted its full-year 2021 guidance. It now projects non-GAAP earnings per share of between $14.70 and $15.50, up from its previous forecast of between $13.95 and $14.75. 

The primary wild card for the healthcare stock over the next few quarters will be the COVID-19 outbreak. McKesson's upward revision to its full-year guidance likely assumes continued improvement with prescription volumes and primary care visits, both of which depend on avoiding coronavirus-related lockdowns in the future.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends McKesson. The Motley Fool has a disclosure policy.

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