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McKesson Profit Soars; To Buy Drug Trading, Medicine Shoppe For C$920 Mln

1/30/2012 6:20 PM ET

McKesson Corp. (MCK: Quote) Monday reported a surge in third-quarter profit as the healthcare services provider gained from a nine percent growth in revenues and lower one-time charges. Revenues for the quarter topped Street estimates. The company also reiterated its adjusted earnings outlook for 2012.

In a separate development, McKesson agreed to acquire Drug Trading Company Limited and Medicine Shoppe Canada Inc. for C$920 million from Canada's Katz Group. The acquisition is expected to be neutral to McKesson's adjusted earnings in current fiscal year, and accretive first year after closing.

McKesson reported third-quarter net income of $300 million or $1.20 per share, up from $155 million or $0.60 per share last year.

Results for the quarter include litigation-reserve related charge of $27 million for claims against McKesson regarding Average Wholesale Prices. Results for the year-ago quarter included such a charge of $189 million.

Excluding items, adjusted earnings for the quarter was $351 million or $1.40 per share, compared to $330 million or $1.28 per share last year,

On average, 17 analysts polled by Thomson Reuters expected earnings of $1.37 per share for the quarter. Analysts' estimates typically exclude special items.

McKesson posted third-quarter revenue of $30.84 billion, up 9 percent from $28.24 billion last year. Fifteen Street analysts estimated revenue of $30.08 billion.

Distribution Solutions segment revenue rose 9 percent from last year to $30 billion mainly on a 11 percent growth in U.S. pharmaceutical direct distribution and services revenues, partly reflecting the acquisition of US Oncology. Canadian revenues meanwhile declined 4 percent from the prior year.

Technology Solutions segment revenues rose 4 percent from last year to $823 million. McKesson reaffirmed its 2012 adjusted earnings outlook of $6.19 and $6.39 per share. Analysts currently expect $6.33 per share for the year.

The company also authorized an additional $650 million share repurchase program.

McKesson will use its own cash for the C$920 million acquisition of Drug Trading Company Limited, the independent banner business of Katz Group Canada Inc; and Medicine Shoppe Canada Inc., the franchise business of Katz Group.

The acquisition is set to close in the first half of this calendar year, subject to customary closing conditions.

The assets of Drug Trading consists of a marketing and purchasing arm for a network of more than 850 independently-owned pharmacies in Canada. Medicine Shoppe Canada Inc. operates the franchise business of providing services to more than 160 independent pharmacies.

After the deal closes, the banner and franchise operations will be integrated into McKesson's Canadian pharmaceutical distribution and services business.

MCK closed Monday at $78.69, down $0.62 or 0.78%, on a volume of about 1.9 million shares on the NYSE. In after-hours, the stock further lost $1.18 or 1.50%.

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by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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