Monday, healthcare services and information technology company McKesson Corp. (MCK) reported a dip in fourth quarter earnings, hurt by a non-cash charge related to equity investment. As a result of slowing economy, the company witnessed delays in technology purchasing and a modest impact on revenues in certain areas of distribution business. For fiscal 2010, the company expects moderate revenue growth, with earnings per share expected to fall short of the Street view.
Net income of San Francisco, California-based McKesson slipped to $281 million or $1.01 per share from $307 million or $1.05 per share in the prior-year period. Earnings for the recent quarter were impacted by a non-cash, pre-tax impairment charge of $63 million or approximately $0.22 per share related to equity investment in Parata Systems, LLC.
On average, 16 analysts polled by Thomson Reuters expected the company to earn $1.15 per share for the quarter. Analysts' estimates typically exclude special items.
Quarterly revenues edged down to $26.22 billion from $26.23 billion in the comparable period last year. Fourteen analysts expected the company to report revenues of $27.30 billion for the quarter.
"However, as we progressed through Fiscal 2009, we began to see other trends in our business, including continued delays in technology purchasing and a modest impact on revenues in portions of our distribution business as a result of the slowing economy. We have also experienced pressure on sell side margins in our U.S. pharmaceutical business.
Additionally, the financial market and economic environment have caused us to deploy capital at a slower pace than we have over the past few years, and to adopt a more conservative approach to our capital structure," said John Hammergren, chairman and chief executive officer.
Segment wise, total distribution revenues were $25.417 billion, slightly down from $25.425 billion a year ago. Technology solutions reported revenues of $807 million, compared to $806 million last year.
Distribution Solutions revenues were flat for the fourth quarter, while U.S. pharmaceutical direct distribution and services revenues grew 4% from last year, primarily reflecting customer growth. Warehouse revenues declined 4% due to decreased purchases by several customers.
On a constant currency basis, Canadian revenues grew 3% for the quarter due to market growth rates and new and expanded distribution agreements. Including the unfavorable currency impact of 20%, Canadian revenues decreased 17% for the quarter.
Medical-Surgical distribution and services revenues were up 4% in the quarter, but the rate of growth in sales to physician offices slowed as a result of the current economic environment.In Technology Solutions, revenues were flat for the quarter, while services revenues grew 3%. Software and software systems revenues fell 7% due to delays in software purchasing by hospital and physician office customers owing to the current economic climate.
"This quarter, we implemented additional cost control actions across the company in response to the economic environment. With these actions, operating expenses were flat for the quarter, and we are pleased with the resulting earnings growth for the quarter and for the year," said John Hammergren, chairman and chief executive officer. Operating income rose to $498 million for the quarter from $481 million in the corresponding period last year.
For fiscal 2009, McKesson posted net income of $823 million or $2.95 per share, down from $990 million or $3.32 per share in the previous year. Earnings per share for the year were impacted by a pre-tax charge in the third quarter of $311 million after-tax for the AWP litigation. Excluding this charge and the prior year securities litigation credit, McKesson's earnings per share from continuing operations was $4.07 for the year, compared to $3.31 a year ago.McKesson's full year revenues advanced to $106.632 billion from $101.703 billion a year ago.
Looking ahead, for fiscal 2010 the company has projected earnings in the range of $3.90 - $4.05 per share, while analysts currently anticipate earning of $4.09 per share. Distribution solutions revenue is expected to be up modestly, with technology solutions revenue growing at similar levels to fiscal 2009.
MCK closed Monday's trading at $39.11, up $1.18 or 3.11%, on a volume of about 4.19 million shares. But in the after hours, the shares lost $1.31 or 3.35% and traded at $37.80. For the 52-weeks period, the shares have traded in a range of $28.27 - $60.45, on an average 3-month volume of about 3.68 million shares.
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