What: After narrowing the range of expected earnings per share for fiscal 2016 and providing a glimpse into its expectations for fiscal 2017, shares in McKesson Corporation (NYSE:MCK) finished the day 10.3% lower.
So what: Downward price pressure on generic and branded drugs distributed to key accounts -- such as CVS Health (NYSE:CVS) -- has resulted in McKesson lowering the top end of its fiscal 2016 EPS guidance to $12.90 from its prior forecast for as much as $13.
Specifically, McKesson expects that fiscal 2016 EPS will be within a range of $12.60 to $12.90, a narrowing of its previously issued guidance for fiscal 2016 EPS of $12.50 to $13.
The company also offered up insight into fiscal 2017, stating that it projects adjusted EPS growth of 3% to 8% from 2016, and it indicated that it has signed a contract to supply drugs to CVS Health's newly acquired Target retail store pharmacies.
Now what: McKesson hopes to offset some of the headwinds tied to pricing with a lower tax rate and share repurchases. In fiscal Q3, McKesson spent $350 million buying back shares and management plans to spend more on repurchases this quarter, too.
Additionally, management is going to be taking a hard look at its expenses in hopes of freeing up more money for the bottom line. Depending on how that review progresses, earnings may benefit from cost-cutting in 2017. For that reason, investors may want to keep close tabs on management's comments as we get deeper into the quarter.