OREANDA-NEWS.  McKesson Corporation (NYSE:MCK) today reported that revenues for the first quarter ended June 30, 2014 were USD 44.1 billion, up 37% compared to USD 32.2 billion a year ago.  On the basis of U.S. generally accepted accounting principles (“GAAP”), first-quarter earnings per diluted share from continuing operations was USD 1.78 compared to USD 1.84 a year ago.

First-quarter Adjusted Earnings per diluted share from continuing operations was USD 2.49, up 18% compared to USD 2.11 a year ago.   

First-quarter GAAP and Adjusted Earnings reflect a pre-tax charge of USD 34 million, or 11 cents per diluted share, related to the reclassification of a portion of our International Technology business, previously reported in discontinued operations, to continuing operations.

“McKesson fiscal first quarter results represent a strong start to the year with solid execution across our business and particularly strong growth in our Distribution Solutions segment,” said John H. Hammergren, chairman and chief executive officer.  “Based on the strength of our Distribution Solutions results in the first quarter and our confidence in the full year, we are raising our previous outlook and now expect Adjusted Earnings per diluted share from continuing operations of USD 10.50 to USD 10.90 for the fiscal year ending March 31, 2015.”

For the first quarter, McKesson generated cash from operations of USD 182 million, and ended the quarter with cash and cash equivalents of USD 4.1 billion.  During the quarter, McKesson paid USD 59 million in dividends, had internal capital spending of USD 119 million, and spent USD 14 million on acquisitions.

Segment Results

Distribution Solutions revenues were USD 43.3 billion, up 38% for the quarter on a constant currency basis, mainly driven by the contribution from our acquisition of Celesio and market growth.

North America pharmaceutical distribution and services revenues, which include results from U.S. Pharmaceutical, McKesson Canada and McKesson Specialty Health, were up 15% for the quarter on a constant currency basis, primarily reflecting market growth and our mix of business.

International pharmaceutical distribution and services revenues were USD 7.6 billion, an increase of 3% on the underlying results of Celesio, as reported, on a constant currency basis.

Medical-Surgical distribution and services revenues were up 2% for the quarter, driven by market growth.

In the first quarter, Distribution Solutions GAAP operating profit was USD 748 million and GAAP operating margin was 1.73%.  First-quarter adjusted operating profit was USD 1 billion, up 44% from the prior year, driven by the acquisition of Celesio and strong results in our North America pharmaceutical distribution and services business.  Adjusted operating margin for the Distribution Solutions segment was 2.32%.

Technology Solutions revenues were down 8% in the first quarter driven by anticipated revenue softness from the Horizon clinical software platform, and the planned elimination of a product line, partially offset by growth in other technology businesses.  GAAP operating profit was USD 68 million for the first quarter and GAAP operating margin was 8.85%.  Adjusted operating profit was USD 80 million for the first quarter and adjusted operating margin was 10.42%.  Technology Solutions first quarter results reflect the reclassification of a portion of our International Technology business from discontinued operations to continuing operations, including an associated pre-tax charge of USD 34 million, or 11 cents per diluted share.

Fiscal Year 2015 Outlook

McKesson expects Adjusted Earnings per diluted share from continuing operations between USD 10.50 and USD 10.90 for the fiscal year ending March 31, 2015, based on an exchange rate of USD 1.36 per Euro, which excludes the following GAAP items:

Amortization of acquisition-related intangible assets of USD 1.32 per diluted share.
Acquisition expenses and related adjustments of 50 cents per diluted share.
LIFO inventory-related charges of 95 cents to USD 1.05 per diluted share.
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 expenses and related adjustments, certain litigation reserve adjustments, and Last-In-First-Out (“LIFO”) inventory-related adjustments.  A reconciliation of McKesson’s financial results determined in accordance with GAAP to Adjusted Earnings is provided in Schedules 2, 3 and 4 of the financial statement tables included with this release.   Recast Adjusted Earnings for Fiscal 2014 reflecting the reclassification of a portion of our International Technology business from discontinued operations to continuing operations is provided in Schedules 7, 8 and 9.

Risk Factors

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 projected, anticipated or implied.  These statements may be identified by their use of forward-looking 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 or intentions may also include forward-looking statements.  It is not possible to predict or identify all such risks and uncertainties; however, the most significant of these risks and uncertainties are described in the company’s Form 10-K, Form 10-Q and Form 8-K reports filed with the Securities and Exchange Commission and include, but are not limited to: changes in the U.S. healthcare industry and regulatory environment; changes in the Canadian healthcare industry and regulatory environment; changes in the European regulatory environment with respect to privacy and data protection regulations; managing foreign expansion, including the related operating, economic, political and regulatory risks; the company’s ability to successfully identify, consummate, finance and integrate acquisitions; material adverse resolution of pending legal proceedings; exposure to European economic conditions, including recent austerity measures taken by certain European governments; competition; 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; malfunction, failure or breach of sophisticated internal information systems to perform as designed; the adequacy of insurance to cover property loss or liability claims; the company’s failure to attract and retain customers for its software products and solutions due to integration and implementation challenges, or due to an inability to keep pace with technological advances; 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 and solutions to conform to specifications; disaster or other event causing interruption of customer access to data residing in our service centers; the delay or extension of our sales or implementation cycles for external software products; 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; and withdrawal from participation in multiemployer pension plans or if such plans are reported to have underfunded liabilities.  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 release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.