Tuesday, healthcare services and information technology company McKesson Corp. (MCK) said its second quarter profit dropped 8% from last year, hurt by higher interest and income tax expenses. Quarterly earnings, however, breezed past Wall Street expectations, as did revenues. Looking ahead, the company raised its earnings outlook for fiscal year 2010, citing positive momentum from the first half results, and the incremental demand from the impact of the flu season.
The San Francisco, California-based company reported net income for the second quarter of $301 million or $1.11 per share, compared to $327 million or $1.17 per share in the year-ago quarter.
On average, sixteen analysts polled by Thomson Reuters expected the company to earn $1.02 per share for the quarter. Analysts' estimates typically exclude special items.
For the quarter under review, net income included the positive impact of a $12 million or $0.04 per share after-tax adjustment to the litigation reserves. Prior year results were positively impacted by $0.27 per share from a tax reserve release of $76 million and $0.05 per share from the disposition of a business.
Revenues for the quarter increased 2% to $27.13 billion from $26.57 billion in the prior-year quarter. Sixteen analysts had a revenue consensus of $26.75 billion for the quarter.
Commenting on the results, the company's chairman and chief executive officer, John Hammergren said, "McKesson delivered solid results in the second quarter, with strong execution in both Distribution Solutions and Technology Solutions driving earnings growth."
In the immediately preceding quarter, McKesson reported a 23% rise in profit from the previous year, helped by strong cost controls across the company. Revenue for the first quarter declined to $26.66 billion, due to the loss of certain customers in the U.S. pharmaceutical distribution business.
Among McKesson's rivals, Owens & Minor Inc. (OMI) posted third-quarter net income of $34.69 million or $0.83 per share, up from $25.28 million or $0.61 per share reported a year ago, reflecting year-on-year improvement in revenues. Quarterly revenue increased 13.9% to $2.035 billion from $1.787 billion last year.
Another peer, AmerisourceBergen Corp. (ABC) is due to release its financial results for the fourth quarter on November 3, with analysts forecasting earnings of $0.40 per share on revenues of $18.06 billion. The company expects to achieve the higher end of the $0.34 - $0.40 per share range guidance for the fourth quarter. For fiscal 2009, AmerisourceBergen currently expects earnings from continuing operations to be at the higher end of its previously estimated range of $1.59 - $1.65 per share, and revenue growth between 1% and 3%.
For the second quarter, McKesson's Distribution solutions revenues were up 2% at $26.34 billion. U.S. pharmaceutical distribution revenues were also up 2% to $23.35 billion for the quarter, reflecting market growth rates and the loss of certain customers in late fiscal 2009. The company said that revenues in its distribution business were impacted by the loss of two customer buying groups.
Canadian revenues for the quarter grew 9% in constant currency due to market growth rate. Including an unfavorable currency impact of 6%, Canadian revenues grew 3% for the quarter.
Second quarter medical-surgical distribution revenues were up 5%, helped by acquisitions made in late fiscal 2009.
Technology solutions revenues for the quarter were up 2% over last year. Services revenues grew 5%, reflecting the steady nature of the company's offering and the recognition of previously deferred revenues, while software revenues grew 1% and hardware revenues dropped 13%.
For the six-month period, the company's net income increased to $589 million or $2.17 per share from $562 million or $2.00 per share in the similar period last year.
Revenue for the first half of fiscal 2010 rose 1% to $53.79 billion from $53.28 billion in the prior-year period.
During the first half of the fiscal year, McKesson repurchased $299 million of common stock, leaving $531 million on the current share repurchase authorization.
Based on positive momemtum, the company raised its fiscal year 2010 earnings outlook to a range of $4.45 - $4.60 per share, from its previous guidance range of $4.15 to $4.30 per share.
Analysts currently expect the company to earn $4.29 per share for the fiscal year 2010.
Most recently, Owens & Minor said it continues to target fiscal 2009 revenue growth in the upper end of a range of 8% - 12%, and income per share from continuing operations in the range of $2.55 - $2.70, excluding the positive effect of the third quarter LIFO provision.
McKesson shares, which have traded in a range of $28.27 to $62.34 over the past year, closed Tuesday's regular trading session at $59.62, up $0.80 or 1.32%. The stock is currently gaining $0.44 or 0.74%, trading at $60.06 in after hours.
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