Now that the dust has settled after McKesson Corporation's (MCK 0.96%) second-quarter financial results were announced on Tuesday, it's time to look past the numbers. Yes, McKesson beat expectations for earnings and revenue -- but the real story is what's going on with the company that will impact the next quarter and beyond. With that in mind, here are five things McKesson's management wants you to know (quotes courtesy of our friends at S&P Capital IQ).
Source: McKesson Corporation
1. Celesio deal moving full steam ahead
McKesson announced plans to acquire Celesio, an international pharmacy retailer and provider of logistics and services to the pharmaceutical and health care sector, back in January. Where does this deal stand?
Practically the first words out of CEO John Hammergren's mouth in the earnings conference call this week were to express confidence that the Celesio acquisition would soon be finalized. Hammergren noted that the next big step "is the registration of the domination and profit and loss transfer agreement with a relevant German court", adding that it should be done by the end of December.
2. Revenue growth looks solid
Revenue was strong in the second quarter -- and should remain that way. Distribution Solutions, the biggest business segment for McKesson, should experience double-digit revenue growth for full-year 2014. That's thanks in large part to strong hepatitis-C drug sales and delays in the launches of some generic drugs.
When McKesson's management team refers to hep-C drug sales, they're talking about Gilead Sciences' (GILD 2.42%) Sovaldi -- for now, at least. Other rival drugs should be on the way in the near future. Gilead's Harvoni received FDA approval earlier this month and should also help drive revenue for McKesson.
3. Margins could be so-so
There is a downside to the good news from hep-C drug sales and the generic drug launch delays. While revenue goes up with these two factors, margin goes down.
Hammergren stated that 2014 operating margin for Distribution Solutions will be "flat to modestly up year-over-year". He also added that margin from the company's international distribution business will dip from 2013. As Distribution Solutions goes, so goes McKesson as a whole.
4. Rite Aid (RAD +0.00%) benefits are right on track
McKesson and Rite Aid announced in February a significant expansion of their distribution agreement. John Hammergren was "very pleased to report that during the [third] quarter, we completed the operational transition associated with the implementation of our expanded agreement with Rite Aid." He added that both companies are seeing the benefits from the deal.
Rite Aid seems to agree that the transition has been a success. The pharmacy retailer noted in September that it saw higher gross profit as a result of the McKesson distribution deal. It's always good when a plan works -- and could help McKesson as it woos other big customers in the future.
5. Technology Solutions is still important
In case you thought Technology Solutions was fading in importance to McKesson because of declining revenue, think again. Despite that revenue drop, Hammergren still placed a solid emphasis on the business segment in his comments to analysts Tuesday night, stating that the company "will continue to focus on our key strategic priorities for Technology Solutions".
Core operating margin is improving. McKesson is heavily involved with the CommonWell Health Alliance, an industry group trying to promote health data interoperability. And revenue growth could be in the cards down the road. Hammergren expects to grow the technology business "at or above market rates" as it winds down the transition from its Horizon software to its Paragon platform.
Juggernaut juggling
McKesson's earnings call underscores two important things investors should know about the company. First, it is truly a health care juggernaut. From distribution to technology, McKesson is and will continue to be a major player in the industry.
Second, the management team appears to know what they're doing. They seem to be keenly aware of the changing dynamics in health care and how to juggle those dynamics well. Those are two good reasons to consider owning a stock.
It's not too surprising that McKesson's shares have surged over 20% so far this year, much better than the broader market indexes. I'm sure the company's management wouldn't mind you knowing that fact, either.
