McKesson Reports Fiscal 2019 Fourth-Quarter and Full-Year Results

  • Fourth-quarter fiscal 2019 revenues of $52.4 billion and full-year
    fiscal 2019 revenues of $214.3 billion, a full-year increase of 3%.
  • Fourth-quarter GAAP loss per diluted share from continuing
    operations of $(4.17) and full-year GAAP earnings per diluted share
    from continuing operations of $0.17.
  • Fourth-quarter Adjusted Earnings per diluted share of $3.69, up 6%
    from a year ago. Full-year Adjusted Earnings per diluted share of
    $13.57, up 8% from a year ago.
  • Fiscal 2019 cash flow from operations of $4.0 billion and free cash
    flow of $3.5 billion. McKesson returned $1.9 billion to shareholders
    through share repurchases and dividends in fiscal 2019.
  • Fiscal 2020 Financial Outlook: Adjusted Earnings of $13.85 to
    $14.45 per diluted share.
  • Renewed pharmaceutical distribution relationship with CVS Health
    through June 2023.
  • Cost Savings Target Update: Increased previously announced
    anticipated annual savings by $100 million to approximately $400
    million to $500 million by end of fiscal 2021.

IRVING, Texas–(BUSINESS WIRE)–McKesson Corporation (NYSE:MCK) today reported that revenues for the
fourth quarter ended March 31, 2019, were $52.4 billion compared to
$51.6 billion a year ago, an increase of 2% on a reported basis and an
increase of 3% on an FX-adjusted basis. For the fiscal year, McKesson
had revenues of $214.3 billion, compared to $208.4 billion a year ago,
an increase of 3% on a reported and FX-adjusted basis.

McKesson delivered solid adjusted operating results, and we are pleased
to conclude fiscal 2019 with adjusted EPS growth of 8%,” said Brian
Tyler, chief executive officer. “We successfully executed in a
challenging environment and took action to address the headwinds in our
European business. McKesson exits fiscal 2019 with improving momentum
across many of our businesses. Our financial flexibility, reinforced by
a strong balance sheet and solid cash flow generation, positions us to
continue delivering shareholder value.”

On the basis of U.S. generally accepted accounting principles (“GAAP”),
fourth-quarter loss per diluted share from continuing operations was
$(4.17), compared to loss per diluted share of $(5.58) a year ago.
Full-year GAAP earnings per diluted share from continuing operations was
$0.17, compared to GAAP earnings per diluted share from continuing
operations of $0.30 a year ago. Fourth-quarter GAAP loss per diluted
share and full-year GAAP earnings per diluted shared included after-tax
net charges totaling approximately $1.5 billion and $2.2 billion,
respectively, or $7.63 and $11.00 per diluted share, respectively,
reflecting non-cash goodwill and long-lived asset impairment charges, as
well as restructuring charges largely in the company’s European
businesses.

Fourth-quarter Adjusted Earnings per diluted share was $3.69, an
increase of 6% compared to $3.49 a year ago, primarily driven by a lower
share count and growth in the Medical-Surgical business, partially
offset by weakness in the U.K. retail pharmacy business, including an
inventory charge recorded in the fourth quarter, and a higher adjusted
tax rate. Full-year Adjusted Earnings per diluted share was $13.57, an
increase of 8% compared to $12.62 for the prior year, primarily driven
by a lower share count, growth in the McKesson Prescription Technology
Solutions (MRxTS) and Medical-Surgical businesses and a lower adjusted
tax rate, partially offset by lower profit contribution from the U.S.
Pharmaceutical business related to the fourth quarter fiscal 2018
customer losses and weakness in the U.K. retail pharmacy business.

For the full year, McKesson generated cash from operations of $4.0
billion, and invested $557 million internally, resulting in free cash
flow of $3.5 billion. During the year, McKesson paid $905 million for
acquisitions, repurchased approximately $1.6 billion of its common
stock, and paid $292 million in dividends. The company ended the quarter
with cash and cash equivalents of $3.0 billion.

U.S. Pharmaceutical and Specialty Solutions Segment

  • Fourth Quarter: Revenues were $40.9 billion, up 3%, driven
    primarily by market growth, partially offset by branded to generic
    conversions and fourth-quarter fiscal 2018 customer losses. GAAP
    operating profit was $873 million and GAAP operating margin was 2.13%.
    Adjusted operating profit was $752 million, down 1%, and adjusted
    operating margin was 1.84%.
  • Full Year: Revenues were $167.8 billion, up 3%, driven
    primarily by market growth and acquisitions, partially offset by
    fourth-quarter fiscal 2018 customer losses and branded to generic
    conversions. GAAP operating profit was $2.7 billion and GAAP operating
    margin was 1.61%. Adjusted operating profit was $2.5 billion, down 2%,
    and adjusted operating margin was 1.50%.

European Pharmaceutical Solutions Segment

  • Fourth Quarter: Revenues were $6.8 billion, down 6% on a
    reported basis and up 2% on an FX-adjusted basis, driven primarily by
    market growth, partially offset by the fiscal 2018 actions to sell or
    divest owned retail pharmacies and a challenging market environment in
    the U.K. GAAP operating loss was $(1.5) billion and GAAP operating
    margin was (21.52)%. The segment recorded non-cash impairment charges
    of $1.4 billion in the fourth quarter, mainly due to declines in
    estimated future cash flows primarily attributed to the continued
    effects of U.K. government reimbursement reductions and competitive
    pressures in the U.K. Adjusted operating profit was $23 million, down
    72%, and adjusted operating margin was 0.34%. On an FX-adjusted basis,
    adjusted operating profit was $26 million, down 68%, and adjusted
    operating margin was 0.36%. The segment results include an inventory
    charge of approximately $20 million in the fourth quarter.
  • Full Year: Revenues were $27.2 billion, flat on a reported
    basis and up 1% on an FX-adjusted basis, driven primarily by market
    growth, partially offset by the fiscal 2018 reduction in owned retail
    pharmacies and a challenging market environment in the U.K. and
    France. GAAP operating loss was $(2.0) billion and GAAP operating
    margin was (7.26)%. The segment GAAP results include full-year pre-tax
    restructuring charges of $63 million as a result of actions taken to
    address performance in the segment. Adjusted operating profit was $219
    million, down 36%, and adjusted operating margin was 0.80%. On an
    FX-adjusted basis, adjusted operating profit was $220 million, down
    35%, and adjusted operating margin was 0.80%.

Medical-Surgical Solutions Segment

  • Fourth Quarter: Revenues were $2.0 billion, up 13%, driven
    primarily by an acquisition and growth in the Primary Care and Lab
    Solutions businesses. GAAP operating profit was $121 million and GAAP
    operating margin was 6.19%. Adjusted operating profit was $172
    million, up 21%, and adjusted operating margin was 8.80%.
  • Full Year: Revenues were $7.6 billion, up 15%, driven primarily
    by an acquisition and growth in the Primary Care and Lab Solutions
    businesses. GAAP operating profit was $455 million and GAAP operating
    margin was 5.97%. Adjusted operating profit was $605 million, up 11%,
    and adjusted operating margin was 7.94%.

Other remaining businesses (primarily including McKesson
Canada, MRxTS and equity accounting method investment in Change
Healthcare)

  • Fourth Quarter: Revenues were $2.8 billion, down 6% on a
    reported basis and down 1% on an FX-adjusted basis, driven primarily
    by April 2018 government actions taken in Canada, partially offset by
    market growth. GAAP operating profit was $111 million and adjusted
    operating profit was $258 million, up 6%. On an FX-adjusted basis,
    adjusted operating profit was $261 million, up 7%.
  • Full Year: Revenues were $11.7 billion, down 1% on a reported
    basis and up 1% on an FX-adjusted basis, driven primarily by market
    growth, partially offset by government actions enacted in Canada and
    the fiscal 2018 sale of the company’s Enterprise Information Solutions
    business. GAAP operating profit was $394 million and adjusted
    operating profit was $995 million, up 7%. On an FX-adjusted basis,
    adjusted operating profit was $1.0 billion, up 8%.

Company Updates

  • Renewed pharmaceutical distribution relationship with CVS Health
    through June 2023.
  • McKesson relocated its global corporate headquarters from San
    Francisco, California, to Irving, Texas, effective April 1, 2019.
  • Board of Directors elected Dominic Caruso and Brad Lerman as new
    independent directors.
  • In January of 2019, the Board of Directors formed a Compliance
    Committee to enhance oversight of the company’s compliance programs
    and management’s identification and evaluation of the principal legal
    and regulatory compliance risks. Brad Lerman, who has significant
    experience leading global legal, government affairs, ethics and
    compliance functions, chairs the committee.
  • Following McKesson’s announcement of a $100 million contribution to
    create a non-profit foundation to address the opioid epidemic in March
    2018, the Foundation for Opioid Response Efforts (FORE) appointed Dr.
    Andrea Barthwell as board chair and Dr. Karen A. Scott as president.
  • Enhanced leadership and executive teams: appointed Kirk Kaminsky
    president of U.S. Pharmaceutical and Specialty Solutions business
    effective April 15, 2019, and appointed Tracy Faber executive vice
    president and chief human resources officer effective October 1, 2019,
    following Jorge Figueredo’s announced retirement.

Cost Savings Target Update

As a result of actions taken in the second half of fiscal 2019 to
address challenges in the European business and to better position the
U.S. and Canadian businesses, the company now anticipates it will
generate approximately $400 million to $500 million in annual pre-tax
savings that will be substantially realized by the end of fiscal 2021,
an increase from the prior expectation of $300 million to $400 million
as previously announced on October 25, 2018.

We are making important progress towards our initiatives and are
confident that the actions we are taking position us for growth in
fiscal 2020 and beyond,” Tyler concluded.

Fiscal 2020 Outlook and Key Assumptions

McKesson expects full-year fiscal 2020 Adjusted Earnings per diluted
share of $13.85 to $14.45, which reflects solid growth across the
company’s operating segments, a continuation of disciplined, efficient
capital deployment, investments in the business, increased costs for
opioids litigation and modest improvement in the U.K. business.

The fiscal 2020 outlook is based on the following key assumptions and
expectations, and is also subject to risk factors such as those
described below:

  • McKesson to deliver low- to mid-single digit percent revenue growth
    and flat to low-single digit percent adjusted income from operations
    decline in fiscal 2020.
  • U.S. Pharmaceutical and Specialty Solutions to deliver low- to
    mid-single digit percent revenue and adjusted operating profit growth
    in fiscal 2020.
  • European Pharmaceutical Solutions to deliver low- to mid-single digit
    percent revenue and adjusted operating profit growth in fiscal 2020.
  • Medical-Surgical Solutions to deliver high-single digit percent
    revenue growth and high-single to low double-digit percent adjusted
    operating profit growth in fiscal 2020.
  • Other to deliver approximately flat to low-single digit percent
    revenue decline and adjusted operating profit is expected to decline
    low- to mid-single digit percent in fiscal 2020, which assumes the
    company’s continued 70% equity interest in Change Healthcare through
    March 31, 2020.
  • Adjusted corporate expenses to be between approximately $725 million
    and $775 million, primarily driven by an anticipated increase in
    opioid-related litigation costs, and investments in technology-related
    infrastructure and growth-oriented data and analytics capabilities.
  • Interest expense to be between $245 million and $265 million.
  • The guidance range assumes a full-year adjusted tax rate of
    approximately 18-19%, which may vary from quarter to quarter.
  • Foreign currency exchange rate movements to have a net neutral impact
    to adjusted earnings per diluted share year over year.
  • Free cash flow to be $2.8 billion to $3.0 billion, which is net of
    expected payments for property, plant and equipment and capitalized
    software expenditures of between $500 million and $700 million.
  • Weighted average diluted shares used in the calculation of earnings
    per share to be approximately 185 million for the year.

Conference Call Details

The company has scheduled a conference call for today, Wednesday, May 8th,
at 8:00 AM ET. The dial-in number for individuals wishing to participate
on the call is 323-794-2093. Holly Weiss, senior vice president,
Investor Relations, is the leader of the call, and the password to join
the call is ‘McKesson’. A telephonic replay of this conference call will
be available for five calendar days. For individuals wishing to listen
to the replay, the dial-in number is 719-457-0820 and the pass code is
3096337. An archive of the conference call will also be available on the
company’s Investor Relations website at http://investor.mckesson.com.

Upcoming Investor Events

McKesson management will be participating in the following investor
conferences:

  • Bank of America Merrill Lynch Health Care Conference, May 14, 2019, in
    Las Vegas, Nevada; and
  • Goldman Sachs 40th Annual Global Healthcare Conference,
    June 11, 2019, in Rancho Palos Verdes, California.

Audio webcasts will be available live and archived on the company’s
Investor Relations website at http://investor.mckesson.com.
A complete listing of upcoming events for the investment community is
available on the company’s Investor Relations website.

Adjusted Earnings

McKesson separately reports financial results on the basis of Adjusted
Earnings. Adjusted Earnings is a non-GAAP financial measure defined as
GAAP income from continuing operations, excluding amortization of
acquisition-related intangible assets, acquisition-related expenses and
adjustments, LIFO inventory-related adjustments, gains from antitrust
legal settlements, restructuring and asset impairment charges, and other
adjustments. A reconciliation of McKesson’s GAAP financial results to
Adjusted Earnings is provided in Schedules 2 and 3 of the financial
statement tables included with this release.

The company does not provide forward-looking guidance on a GAAP basis
prospectively as McKesson is unable to provide a quantitative
reconciliation of this forward-looking non-GAAP measure to the most
directly comparable forward-looking GAAP measure, without unreasonable
effort, because McKesson cannot reliably forecast LIFO inventory-related
adjustments, gains from antitrust legal settlements, restructuring and
asset impairment charges, and other adjustments, which are difficult to
predict and estimate. These items are inherently uncertain and depend on
various factors, many of which are beyond the company’s control, and as
such, any associated estimate and its impact on GAAP performance could
vary materially.

FX-Adjusted

McKesson also presents its financial results on an FX-adjusted basis,
which is the same measure formerly designated Constant Currency. The
company conducts business worldwide in local currencies, including the
Euro, British pound and Canadian dollar. As a result, the comparability
of the financial results reported in U.S. dollars can be affected by
changes in foreign currency exchange rates. FX-adjusted information is
presented to provide a framework for assessing how the company’s
business performed excluding the effect of foreign currency exchange
rate fluctuations. The supplemental FX-adjusted information of the
company’s GAAP financial results and Adjusted Earnings (Non-GAAP) is
provided in Schedule 3 of the financial statement tables included with
this release.

Free Cash Flow

McKesson also provides free cash flow, a non-GAAP measure. Free cash
flow is defined as net cash provided by operating activities less
payments for property, plant and equipment and capitalized software
expenditures, as outlined in the company’s condensed consolidated
statements of cash flows.

Cautionary Statements

Except for historical information contained in this press release,
matters discussed may constitute “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934, as amended, that involve risks and
uncertainties that could cause actual results to differ materially from
those in those statements. Forward-looking statements may be identified
by their use of terminology such as “believes”, “expects”,
“anticipates”, “may”, “will”, “should”, “seeks”, “approximately”,
“intends”, “plans”, “estimates” or the negative of these words or other
comparable terminology. The discussion of financial trends, strategy,
plans, assumptions or intentions may also include forward-looking
statements. It is not possible to predict or identify all such risks and
uncertainties. We encourage investors to read important risk factors
described in the company’s Form 10-K, Form 10-Q and Form 8-K reports
filed with the Securities and Exchange Commission. These risk factors
include, but are not limited to: changes in the U.S. healthcare industry
and regulatory environment; managing foreign expansion, including the
related operating, economic, political and regulatory risks; changes in
the Canadian healthcare industry and regulatory environment; exposure to
European economic conditions, including recent austerity measures taken
by certain European governments; changes in the European regulatory
environment with respect to privacy and data protection regulations;
fluctuations in foreign currency exchange rates; the company’s ability
to successfully identify, consummate, finance and integrate
acquisitions; the performance of the company’s investment in Change
Healthcare; the company’s ability to manage and complete divestitures;
material adverse resolution of pending legal proceedings; competition
and industry consolidation; substantial defaults in payment or a
material reduction in purchases by, or the loss of, a large customer or
group purchasing organization; the loss of government contracts as a
result of compliance or funding challenges; public health issues in the
U.S. or abroad; cyberattack, natural disaster, or malfunction of
sophisticated internal computer systems to perform as designed; the
adequacy of insurance to cover property loss or liability claims; the
company’s proprietary products and services may not be adequately
protected, and its products and solutions may be found to infringe on
the rights of others; system errors or failure of our technology
products or services to conform to specifications; disaster or other
event causing interruption of customer access to data residing in our
service centers; changes in circumstances that could impair our goodwill
or intangible assets; new or revised tax legislation or challenges to
our tax positions; general economic conditions, including changes in the
financial markets that may affect the availability and cost of credit to
the company, its customers or suppliers; changes in accounting
principles generally accepted in the United States of America;
withdrawal from participation in multiemployer pension plans or if such
plans are reported to have underfunded liabilities; inability to realize
the expected benefits from the company’s restructuring and business
process initiatives; difficulties with outsourcing and similar third
party relationships; risks associated with the company’s retail
expansion; and the company’s inability to keep existing retail store
locations or open new retail locations in desirable places. The reader
should not place undue reliance on forward-looking statements, which
speak only as of the date they are first made. Except to the extent
required by law, the company undertakes no obligation to publicly update
forward-looking statements.

About McKesson Corporation

McKesson Corporation, currently ranked 6th on the FORTUNE
500, is a global leader in healthcare supply chain management solutions,
retail pharmacy, community oncology and specialty care, and healthcare
information technology. McKesson partners with pharmaceutical
manufacturers, providers, pharmacies, governments and other
organizations in healthcare to help provide the right medicines, medical
products and healthcare services to the right patients at the right
time, safely and cost-effectively. United by our ICARE shared
principles, our employees work every day to innovate and deliver
opportunities that make our customers and partners more successful — all
for the better health of patients. McKesson has been named the “Most
Admired Company
” in the healthcare wholesaler category by FORTUNE, a
Best
Place to Work
” by the Human Rights Campaign Foundation, and a top military-friendly
company
 by Military Friendly. For more information, visit www.mckesson.com.

 
  Schedule 1
McKESSON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS – GAAP
(unaudited)
(in millions, except per share amounts)
 
  Quarter Ended March 31,     Year Ended March 31,
2019     2018   Change 2019     2018   Change
 
Revenues $ 52,429 $ 51,628 2 % $ 214,319 $ 208,357 3 %
Cost of sales (1)   (49,228 )   (48,553 ) 1   (202,565 )   (197,173 ) 3
Gross profit 3,201 3,075 4 11,754 11,184 5
Operating expenses (2) (3) (4) (2,255 ) (2,316 ) (3 ) (8,474 ) (8,226 ) 3
Goodwill impairment charges (5) (1,206 ) (1,388 ) (13 ) (1,797 ) (1,738 ) 3
Restructuring and asset impairment charges (6) (309 ) (315 ) (2 ) (597 ) (567 ) 5
Gain from sale of business (7)               109   (100 )
Total operating expenses   (3,770 )   (4,019 ) (6 )   (10,868 )   (10,422 ) 4
Operating income (loss) (569 ) (944 ) (40 ) 886 762 16
Other income, net (8) 38 28 36 182 130 40
Income (loss) from equity method investment in Change Healthcare (9) (32 ) 23 (239 ) (194 ) (248 ) (22 )
Loss on debt extinguishment (10) (122 ) (100 ) (122 ) (100 )
Interest expense   (70 )   (79 ) (11 )   (264 )   (283 ) (7 )
Income (loss) from continuing operations before income taxes (633 ) (1,094 ) (42 )

 

610 239 155
Income tax (expense) benefit (11)   (111 )   7   NM   (356 )   53   (772 )
Income (loss) from continuing operations after tax (744 ) (1,087 ) (32 ) 254 292 (13 )
Income from discontinued operations, net of tax     2   (100 )   1     5   (80 )
Net income (loss) (744 ) (1,085 ) (31 ) 255 297 (14 )
Net income attributable to noncontrolling interests   (52 )   (61 ) (15 )   (221 )   (230 ) (4 )

Net income (loss) attributable to McKesson Corporation

$ (796 ) $ (1,146 ) (31 ) % $ 34   $ 67   (49 ) %
 
 

Earnings (loss) per common share attributable to McKesson
Corporation (a)

Diluted (b)
Continuing operations $ (4.17 ) $ (5.58 ) (25 ) % $ 0.17 $ 0.30 (43 ) %
Discontinued operations               0.02   (100 )
Total $ (4.17 ) $ (5.58 ) (25 ) % $ 0.17   $ 0.32   (47 ) %
 
 
Basic
Continuing operations $ (4.17 ) $ (5.58 ) (25 ) % $ 0.17 $ 0.30 (43 ) %
Discontinued operations               0.02   (100 )
Total $ (4.17 ) $ (5.58 ) (25 ) % $ 0.17   $ 0.32   (47 ) %
 
Dividends declared per common share $ 0.39   $ 0.34   $ 1.51   $ 1.30  
 
Weighted average common shares
Diluted 191 206 (7 ) % 197 209 (6 ) %
Basic 191 206 (7 ) 196 208 (6 )
 
(a) Certain computations may reflect rounding adjustments.
(b) Diluted net loss per share for the fourth quarters of fiscal 2019
and 2018 is calculated by excluding dilutive securities from the
denominator due to their antidilutive effects.
 
NM Computation not meaningful.
 
Refer to the section entitled “Financial Statement Notes” at the end
of this release.
 
Refer to our applicable filings with the SEC for additional
disclosures including our Annual Report on Form 10-K for fiscal 2019
and 2018.
 

Contacts

Holly Weiss, 972-969-9174 (Investors and Financial Media)
Holly.Weiss@McKesson.com
Kristin
Chasen, 415-983-8974 (General and Business Media)
Kristin.Chasen@McKesson.com

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