MCK
$147.93
Mckesson
($4.20)
(2.76%)
Earnings Details
1st Quarter June 2020
Monday, August 3, 2020 7:00:00 AM
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Summary

Mckesson Beats

Mckesson (MCK) reported 1st Quarter June 2020 earnings of $2.77 per share on revenue of $55.7 billion. The consensus earnings estimate was $2.35 per share on revenue of $56.0 billion. The Earnings Whisper number was $2.36 per share. Revenue fell 0.1% compared to the same quarter a year ago.

The company said it expects fiscal 2021 earnings of $14.70 to $15.50 per share. The company's previous guidance was earnings of $13.95 to $14.75 per share and the current consensus earnings estimate is $14.36 per share for the year ending March 31, 2021.

McKesson Corporation distributes pharmaceuticals, medical supplies and healthcare information technology that make healthcare safer while reducing costs.

Results
Reported Earnings
$2.77
Earnings Whisper
$2.36
Consensus Estimate
$2.35
Reported Revenue
$55.68 Bil
Revenue Estimate
$55.97 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

McKesson Reports Fiscal 2021 First-Quarter Results

First-Quarter Highlights, Year-over-Year:

  • Total revenues of $55.7 billion, flat year-over-year.
  • Earnings per diluted share increased 20% to $2.72.
  • Adjusted Earnings per diluted share decreased 16% to $2.77.
  • Board of Directors increased the quarterly dividend to 42 cents per share.

Fiscal 2021 Guidance:

  • Increased fiscal 2021 Adjusted Earnings per diluted share guidance range to $14.70 to $15.50, from the previous range of $13.95 to $14.75.
  • McKesson continues to expect Adjusted Earnings per diluted share growth in the second half of fiscal 2021.

IRVING, Texas--(BUSINESS WIRE)--McKesson Corporation (NYSE:MCK) today reported results for the first quarter ended June 30, 2020.

Fiscal 2021 First-Quarter Result Summary

 

 

First-Quarter

($ in millions, except per share amounts)

 

FY21

 

FY20

 

Change

Revenues

 

$

55,679

 

 

$

55,728

 

 

%

Income from Continuing Operations1

 

445

 

 

429

 

 

4

 

Adjusted Earnings1,2

 

453

 

 

625

 

 

(28)

 

Earnings per Diluted Share1

 

2.72

 

 

2.27

 

 

20

 

Adjusted Earnings per Diluted Share1,2

 

2.77

 

 

3.31

 

 

(16)

 

1Reflects continuing operations attributable to McKesson, net of tax

2Represents a non-GAAP financial measure; refer to the reconciliations of non-GAAP financial measures included in accompanying schedules

“I am proud of the dedication and discipline of McKesson’s employees as we navigate the complexities and uncertainties of the COVID-19 pandemic while continuing to serve our customers and our communities” said Brian Tyler, chief executive officer. “Thanks to the strong execution of our employees around the world, McKesson delivered first-quarter results ahead of our original expectations, as volumes across the business improved earlier than anticipated. Based on our first-quarter performance and current outlook for the remainder of the year, we are raising our previous guidance range for fiscal 2021 and now expect Adjusted Earnings per diluted share of $14.70 to $15.50”.

First-quarter revenues were $55.7 billion, flat year-over-year, as market growth and higher volumes from retail national account customers within the U.S Pharmaceutical and Specialty Solutions segment were largely offset by the impact of lower prescription volumes and primary care patient visits across the enterprise.

First-quarter Earnings per diluted share of $2.72 included an after-tax net gain of $97 million for insurance proceeds received in connection with the settlement of the shareholder derivative action related to McKesson’s controlled substances monitoring program.

First-quarter Adjusted Earnings per diluted share was $2.77 compared to $3.31 a year ago, a decrease of 16%, driven by the impact of lower prescription volumes and primary care patient visits and the lapping of the prior year contribution from the company’s now separated investment in Change Healthcare LLC (“Change Healthcare”), partially offset by a lower share count.

For the first quarter, McKesson used cash from operations of $1.1 billion, returned $74 million to shareholders via dividend payments, and invested $117 million internally, resulting in negative Free Cash Flow of $1.2 billion.

U.S. Pharmaceutical and Specialty Solutions Segment

  • First-quarter revenues were $45.1 billion, up 2%, driven by market growth and higher volumes from retail national account customers, partially offset by branded to generic conversions and lower prescription volumes in the quarter.
  • First-quarter Segment Operating Profit was $608 million and operating margin was 1.35%. Adjusted Segment Operating Profit was $589 million, down 2% from a year ago, driven by lower prescription volumes, partially offset by growth in the specialty provider business. Adjusted operating margin was 1.31%, down 5 basis points.

European Pharmaceutical Solutions Segment

  • First-quarter revenues were $6.2 billion, down 7% on a reported basis and down 4% on an FX-Adjusted basis, primarily driven by lower volumes in the pharmaceutical distribution business.
  • First-quarter Segment Operating Loss was ($10) million and operating margin was (0.16%), and included restructuring charges related to our business in the U.K. Adjusted Segment Operating Profit was $35 million, flat on a reported basis. On an FX-Adjusted basis, Adjusted Segment Operating Profit was $36 million, up 3%, driven by lower operating expenses, partially offset by lower volumes in the pharmaceutical distribution and retail pharmacy businesses. On both a reported and FX-Adjusted basis, adjusted operating margin was 0.56%, up 4 basis points.

Medical-Surgical Solutions Segment

  • First-quarter revenues were $1.8 billion, down 5%, driven by declines in primary care patient visits, partially offset by higher volumes of personal protective equipment.
  • First-quarter Segment Operating Profit was $89 million and operating margin was 4.94%. Adjusted Segment Operating Profit was $124 million, down 22%, driven by declines in primary care patient visits. Adjusted operating margin was 6.89%, down from 8.36% in the prior year.

Other remaining businesses

  • First-quarter revenues were $2.6 billion, down 13% on a reported basis and down 10% on an FX-Adjusted basis, driven by lower pharmaceutical volumes in the Canadian business.
  • First-quarter Segment Operating Profit was $98 million, down 30%. Adjusted Segment Operating Profit was $137 million, down 50% on both a reported and FX-Adjusted basis, driven by the lapping of the prior year contribution of $108 million from the company’s investment in Change Healthcare and the negative impact of lower prescription volume trends within the Canadian and MRxTS businesses.

Company Updates

  • On July 29, 2020, McKesson’s Board of Directors declared an increase in the regular quarterly dividend to 42 cents per share of common stock, demonstrating McKesson’s commitment to returning cash to shareholders and confidence in its outlook.
  • On July 1, 2020, McKesson announced the realignment of its reportable segments commencing in the second quarter of fiscal 2021.
  • McKesson appointed Tom Rodgers as Executive Vice President and Chief Strategy and Business Development Officer effective June 5, 2020.
  • For the fifth year in a row, McKesson was named a ‘Best Place to Work’ for Disability Inclusion. McKesson earned a top-ranking score of 100 on the 2020 Disability Equality Index® (DEI), a joint initiative of the American Association of People with Disabilities (AAPD) and Disability:IN.

Fiscal 2021 Outlook

McKesson raised fiscal 2021 Adjusted Earnings per diluted share guidance to $14.70 to $15.50 from the previous range of $13.95 to $14.75 to reflect earlier improvement in volumes relative to original expectations. McKesson continues to expect Adjusted Earnings per diluted share growth in the second half of fiscal 2021.

Conference Call Details

The company has scheduled a conference call for today, Monday, August 3rd at 8:00 AM ET to discuss the company’s financial results. A live audio webcast of the conference call will be available on McKesson’s Investor Relations website at http://investor.mckesson.com. 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:

  • Baird Global Healthcare Conference, September 9, 2020
  • Morgan Stanley 18th Annual Global Healthcare Conference, September 15, 2020

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, including details and updates, will be available on the company’s Investor Relations website.

Non-GAAP Financial Measures

GAAP refers to the U.S. generally accepted accounting principles. This press release includes GAAP financial measures as well as Non-GAAP financial measures, including Adjusted Gross Profit, Adjusted Operating Expenses, Adjusted Other Income, Adjusted Equity Income from Change Healthcare, Adjusted Income from Continuing Operations Before Income Taxes, Adjusted Income Tax Expense, Adjusted Earnings, Adjusted Earnings per Diluted Share, Adjusted Segment Operating Profit, Adjusted Corporate Expenses, Adjusted Operating Profit, FX-Adjusted results and Free Cash Flow which are financial measures not calculated in accordance with GAAP. Refer to the “Supplemental Non-GAAP Financial Information” section of the accompanying financial statement tables for the definitions and usefulness of the Company’s Non-GAAP financial measures and the attached schedules for reconciliations of the differences between the Non-GAAP financial measures and their most directly comparable GAAP financial measures.

The Company does not provide forward-looking guidance on a GAAP basis 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, impairment and related 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.

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, that involve risks and uncertainties that could cause actual results to differ materially from those in those statements. It is not possible to identify all such risks and uncertainties. The reader should not place undue reliance on forward-looking statements, such as financial performance forecasts, 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. 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. We encourage investors to read the 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: we experience costly and disruptive legal disputes, including regarding our role in distributing controlled substances such as opioids; we might experience losses not covered by insurance; we might record significant charges from impairment to goodwill, intangibles and other assets or investments; we may be unsuccessful in retail pharmacy profitability; we might be harmed by large customer purchase reductions, payment defaults or contract non-renewal; our contracts with government entities involve future funding and compliance risks; we might be harmed by changes in our relationships or contracts with suppliers; we might be adversely impacted by healthcare reform such as changes in pricing and reimbursement models; we might be adversely impacted by changes or disruptions in product supply and we have experienced and may experience difficulties in sourcing products due to the effects of the COVID-19 pandemic on supply chains; we might be adversely impacted as a result of our distribution of generic pharmaceuticals; we might be adversely impacted by an economic slowdown (including the effects we have experienced from the COVID-19 pandemic) or recession and by disruption in capital and credit markets that might impede our access credit, increase our borrowing costs and impair the financial soundness of our customers and suppliers; we might be adversely impacted by fluctuations in foreign currency exchange rates; we might be adversely impacted by events outside of our control, such as widespread public health issues (including the effects we have experienced from the COVID-19 pandemic), natural disasters, political events and other catastrophic events.

About McKesson Corporation

McKesson Corporation is a global leader in healthcare supply chain management solutions, retail pharmacy, community oncology and specialty care, and healthcare information solutions. 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)

 

 

Three Months Ended
June 30,

 

 

 

2020

 

 

2019

 

 

Change

Revenues

$

55,679

 

 

 

$

55,728

 

 

 

%

Cost of sales

(52,979

)

 

 

(52,941

)

 

 

 

Gross profit

2,700

 

 

 

2,787

 

 

 

(3

)

Operating expenses

(1,966

)

 

 

(2,130

)

 

 

(8

)

Restructuring, impairment and related charges

(56

)

 

 

(23

)

 

 

143

 

Total operating expenses

(2,022

)

 

 

(2,153

)

 

 

(6

)

Operating income

678

 

 

 

634

 

 

 

7

 

Other income, net

27

 

 

 

37

 

 

 

(27

)

Equity earnings and charges from investment in Change Healthcare Joint Venture

 

 

 

4

 

 

 

(100

)

Interest expense

(60

)

 

 

(56

)

 

 

7

 

Income from continuing operations before income taxes

645

 

 

 

619

 

 

 

4

 

Income tax expense

(150

)

 

 

(136

)

 

 

10

 

Income from continuing operations

495

 

 

 

483

 

 

 

2

 

Loss from discontinued operations, net of tax

(1

)

 

 

(6

)

 

 

(83

)

Net income

494

 

 

 

477

 

 

 

4

 

Net income attributable to noncontrolling interests

(50

)

 

 

(54

)

 

 

(7

)

Net income attributable to McKesson Corporation

$

444

 

 

 

$

423

 

 

 

5

%

 

 

 

 

 

 

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

 

 

 

 

 

Diluted

 

 

 

 

 

Continuing operations

$

2.72

 

 

 

$

2.27

 

 

 

20

%

Discontinued operations

 

 

 

(0.03

)

 

 

(100

)

Total

$

2.72

 

 

 

$

2.24

 

 

 

21

%

 

 

 

 

 

 

Basic

 

 

 

 

 

Continuing operations

$

2.74

 

 

 

$

2.28

 

 

 

20

%

Discontinued operations

 

 

 

(0.03

)

 

 

(100

)

Total

$

2.74

 

 

 

$

2.25

 

 

 

22

%

 

 

 

 

 

 

Dividends declared per common share

$

0.41

 

 

 

$

0.39

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

 

 

 

Diluted

163

 

 

 

189

 

 

 

(14

)%

Basic

162

 

 

 

188

 

 

 

(14

)

(a)

Certain computations may reflect rounding adjustments.

 

Refer to our applicable filings with the SEC for additional disclosures including our Quarterly Reports on Form 10-Q for fiscal 2021 and 2020 as well as our Annual Report on Form 10-K for fiscal 2020.

Schedule 2

McKESSON CORPORATION

RECONCILIATION OF GAAP OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)

(unaudited)

(in millions, except per share amounts)

 

 

Three Months Ended June 30, 2020

 

Change vs. Prior Quarter

 

As reported
(GAAP)

 

 

Amortization
of acquisition-
related
intangibles

 

 

Transaction-
related
expenses and
adjustments

 

LIFO
inventory-
related
adjustments

 

Gains from
antitrust
legal
settlements

 

Restructuring,
impairment
and related
charges, net

 

Other
adjustments,
net

 

As adjusted
(Non-GAAP)

 

 

 

 

 

As reported
(GAAP)

 

As adjusted
(Non-GAAP)

Gross profit

$

2,700

 

 

$

 

 

$

 

$

(52

)

$

$

1

 

$

 

$

2,649

 

 

(3

)%

(4

)%

Total operating expenses (1) (2)

$

(2,022

)

 

$

106

 

 

$

16

 

$

 

$

$

56

 

$

(125

)

$

(1,969

)

 

(6

)%

(2

)%

Other income, net

$

27

 

 

$

 

 

$

 

$

 

$

$

 

$

 

$

27

 

 

(27

)%

(51

)%

Equity earnings and charges from investment in Change Healthcare Joint Venture

$

 

 

$

 

 

$

 

$

 

$

$

 

$

 

$

 

 

(100

)%

(100

)%

Income from continuing operations before income taxes

$

645

 

 

$

106

 

 

$

16

 

$

(52

)

$

$

57

 

$

(125

)

$

647

 

 

4

%

(26

)%

Income tax expense

$

(150

)

 

$

(23

)

 

$

(4

)

$

14

 

$

$

(12

)

$

31

 

$

(144

)

 

10

%

(27

)%

Income from continuing operations, net of tax, attributable to McKesson Corporation (a)

$

445

 

 

$

83

 

 

$

12

 

$

(38

)

$

$

45

 

$

(94

)

$

453

 

 

4

%

(28

)%

Earnings per diluted common share from continuing operations, net of tax, attributable to McKesson Corporation (b)

$

2.72

 

 

$

0.51

 

 

$

0.08

 

$

(0.24

)

$

$

0.27

 

$

(0.57

)

$

2.77

 

 

(c)

 

20

%

(16

)%

Diluted weighted average common shares

 

163

 

 

163

 

 

163

 

 

163

 

 

163

 

163

 

 

163

 

 

163

 

 

(14

)%

(14

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 2019

 

 

As reported
(GAAP)

 

 

Amortization
of acquisition-
related
intangibles

 

 

Transaction-
related
expenses and
adjustments

 

LIFO
inventory-
related
adjustments

 

Gains from
antitrust legal
settlements

 

Restructuring,
impairment
and related
charges, net

 

Other
adjustments,
net

 

As adjusted
(Non-GAAP)

 

Gross profit

$

2,787

 

$

 

$

 

$

(15

)

$

$

(3

)

$

 

$

2,769

 

 

 

Total operating expenses

$

(2,153

)

$

112

 

$

17

 

$

 

$

$

23

 

$

2

 

$

(1,999

)

 

 

Other income, net (3)

$

37

 

$

 

$

 

$

 

$

$

 

$

18

 

$

55

 

 

 

Equity earnings and charges from investment in Change Healthcare Joint Venture (4)

$

4

 

$

77

 

$

27

 

$

 

$

$

 

$

 

$

108

 

 

 

Income from continuing operations before income taxes

$

619

 

$

189

 

$

44

 

$

(15

)

$

$

20

 

$

20

 

$

877

 

 

 

Income tax expense

$

(136

)

$

(45

)

$

(11

)

$

4

 

$

$

(5

)

$

(5

)

$

(198

)

 

 

Income from continuing operations, net of tax, attributable to McKesson Corporation (a)

$

429

 

$

144

 

$

33

 

$

(11

)

$

$

15

 

$

15

 

$

625

 

 

 

Earnings per diluted common share from continuing operations, net of tax, attributable to McKesson Corporation (b)

$

2.27

 

$

0.76

 

$

0.18

 

$

(0.06

)

$

$

0.08

 

$

0.08

 

$

3.31

 

 

 

Diluted weighted average common shares

 

189

 

 

189

 

 

189

 

 

189

 

 

189

 

189

 

 

189

 

 

189

 

 

 

(a)

Calculated as "Net income attributable to McKesson Corporation" less "Loss from discontinued operations, net of tax" as presented in the Condensed Consolidated Statements of Operations - GAAP.

(b)

Certain computations may reflect rounding adjustments.

(c)

Adjusted Earnings per Diluted Share on an FX-Adjusted basis for the three months ended June 30, 2020 was $2.78, which excludes the foreign currency exchange effect of $0.01.

 

Refer to the section entitled "Financial Statement Notes" of this release.

For more information relating to the Adjusted Gross Profit (Non-GAAP), Adjusted Operating Expenses (Non-GAAP), Adjusted Other Income (Non-GAAP), Adjusted Equity Income from Change Healthcare (Non-GAAP), Adjusted Income from Continuing Operations Before Income Taxes (Non-GAAP), Adjusted Income Tax Expense (Non-GAAP), Adjusted Earnings (Non-GAAP), Adjusted Earnings per Diluted Share (Non-GAAP), and FX-Adjusted (Non-GAAP) definitions, refer to the section entitled “Supplemental Non-GAAP Financial Information” of this release.

Schedule 3

 

McKESSON CORPORATION

RECONCILIATION OF GAAP SEGMENT OPERATING RESULTS TO ADJUSTED RESULTS (NON-GAAP)

(unaudited)

(in millions)

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

2019

 

As reported

 

As adjusted

 

Change

As reported
(GAAP)

 

Adjustments

 

As adjusted
(Non-
GAAP)

 

As reported
(GAAP)

 

Adjustments

 

As adjusted
(Non
GAAP)

 

Foreign
currency
effects

 

FX-
Adjusted
(Non-
GAAP)

 

Foreign
currency
effects

 

FX-
Adjusted
(Non-
GAAP)

 

As
reported
(GAAP)

 

As
adjusted
(Non-
GAAP)

 

As reported
FX-Adjusted
(Non-GAAP)

 

As adjusted
FX-Adjusted
(Non-GAAP)

REVENUES
U.S. Pharmaceutical and Specialty Solutions$

45,062

 

$

 

$

45,062

 

$

44,165

 

$

$

44,165

 

$

 

$

45,062

 

$

$

45,062

 

2

 

%

2

 

%

2

 

%

2

 

%

European Pharmaceutical Solutions

6,246

 

 

6,246

 

6,710

 

6,710

 

184

 

6,430

 

184

6,430

 

(7

)

(7

)

(4

)

(4

)

Medical-Surgical Solutions

1,801

 

 

1,801

 

1,903

 

1,903

 

 

1,801

 

1,801

 

(5

)

(5

)

(5

)

(5

)

Other (a)

2,570

 

 

2,570

 

2,950

 

2,950

 

80

 

2,650

 

80

2,650

 

(13

)

(13

)

(10

)

(10

)

Revenues$

55,679

 

$

 

$

55,679

 

$

55,728

 

$

$

55,728

 

$

264

 

$

55,943

 

$

264

$

55,943

 

%

%

%

 

%

 
OPERATING PROFIT (LOSS) (2)
U.S. Pharmaceutical and Specialty Solutions$

608

 

$

(19

)

$

589

 

$

579

 

$

21

$

600

 

$

 

$

608

 

$

$

589

 

5

%

(2

)%

5

%

(2

)%

European Pharmaceutical Solutions

(10

)

45

 

35

 

5

 

30

35

 

(1

)

(11

)

1

36

 

(300

)

 

 

(320

)

3

 

Medical-Surgical Solutions

89

 

35

 

124

 

125

 

34

159

 

 

89

 

124

 

(29

)

(22

)

(29

)

(22

)

Other (a) (4)

98

 

39

 

137

 

141

 

135

276

 

2

 

100

 

137

 

(30

)

(50

)

(29

)

(50

)

Subtotal

785

 

100

 

885

 

850

 

220

1,070

 

1

 

786

 

1

886

 

(8

)

(17

)

(8

)

(17

)

Corporate expenses, net (1) (3)

(80

)

(98

)

(178

)

(175

)

38

(137

)

(1

)

(81

)

(178

)

(54

)

30

 

(54

)

30

 

Income from continuing operations before interest expense and income taxes$

705

 

$

2

 

$

707

 

$

675

 

$

258

$

933

 

$

 

$

705

 

$

1

$

708

 

4

 

%

(24

)%

4

%

(24

)%

 
OPERATING PROFIT (LOSS) AS A % OF REVENUES
U.S. Pharmaceutical and Specialty Solutions

1.35

%

1.31

%

1.31

%

1.36

%

1.35

%

1.31

%

4

bp

(5

)

bp

4

 

bp

(5

)

bp

European Pharmaceutical Solutions

(0.16

)

0.56

 

0.07

 

0.52

 

(0.17

)

0.56

 

(23

)

4

 

(24

)

4

 

Medical-Surgical Solutions

4.94

 

6.89

 

6.57

 

8.36

 

4.94

 

6.89

 

(163

)

(147

)

(163

)

(147

)

(a)

 

Other primarily includes the results of our McKesson Canada and McKesson Prescription Technology Solutions businesses. Operating profit (loss) for Other for the three months ended June 30, 2019 also includes equity earnings and charges from investment in Change Healthcare Joint Venture. We completed the separation from our investment in Change Healthcare Joint Venture during the fourth quarter of fiscal 2020.

 

Refer to the section entitled "Financial Statement Notes" of this release.
For more information relating to the Adjusted Segment Operating Profit (Non-GAAP), Adjusted Operating Profit (Non-GAAP), Adjusted Corporate Expenses (Non-GAAP), and FX-Adjusted (Non-GAAP) definitions, refer to the section entitled “Supplemental Non-GAAP Financial Information” of this release.

Schedule 4

 

McKESSON CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in millions, except per share amounts)

 

June 30,
2020

 

March 31,
2020

ASSETS

 

 

 

Current assets

 

 

 

Cash and cash equivalents

$

2,613

 

 

$

4,015

 

Receivables, net

17,768

 

 

19,950

 

Inventories, net

16,607

 

 

16,734

 

Assets held for sale

844

 

 

906

 

Prepaid expenses and other

850

 

 

617

 

Total current assets

38,682

 

 

42,222

 

Property, plant and equipment, net

2,392

 

 

2,365

 

Operating lease right-of-use assets

1,857

 

 

1,886

 

Goodwill

9,419

 

 

9,360

 

Intangible assets, net

3,090

 

 

3,156

 

Other non-current assets

2,226

 

 

2,258

 

Total assets

$

57,666

 

 

$

61,247

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY

 

 

 

Current liabilities

 

 

 

Drafts and accounts payable

$

33,209

 

 

$

37,195

 

Current portion of long-term debt

1,053

 

 

1,052

 

Current portion of operating lease liabilities

358

 

 

354

 

Liabilities held for sale

509

 

 

683

 

Other accrued liabilities

3,471

 

 

3,340

 

Total current liabilities

38,600

 

 

42,624

 

Long-term debt

6,395

 

 

6,335

 

Long-term deferred tax liabilities

2,274

 

 

2,255

 

Long-term operating lease liabilities

1,627

 

 

1,660

 

Other non-current liabilities

1,703

 

 

1,662

 

Redeemable noncontrolling interests

1,414

 

 

1,402

 

McKesson Corporation stockholders’ equity

 

 

 

Preferred stock, $0.01 par value, 100 shares authorized, no shares issued or outstanding

 

 

 

Common stock, $0.01 par value, 800 shares authorized at June 30, 2020 and March 31, 2020, and 272 shares issued at June 30, 2020 and March 31, 2020

2

 

 

2

 

Additional paid-in capital

6,711

 

 

6,663

 

Retained earnings

13,384

 

 

13,022

 

Accumulated other comprehensive loss

(1,735)

 

 

(1,703)

 

Treasury shares, at cost, and 110 shares at June 30, 2020 and March 31, 2020

(12,916)

 

 

(12,892)

 

Total McKesson Corporation stockholders’ equity

5,446

 

 

5,092

 

Noncontrolling interests

207

 

 

217

 

Total equity

5,653

 

 

5,309

 

Total liabilities, redeemable noncontrolling interests and equity

$

57,666

 

 

$

61,247

 

Schedule 5

 

McKESSON CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)

 

Three Months Ended
June 30,

 

2020

 

2019

OPERATING ACTIVITIES

 

 

 

Net income

$

494

 

 

 

$

477

 

 

Adjustments to reconcile to net cash used in operating activities:

 

 

 

Depreciation

75

 

 

 

82

 

 

Amortization

142

 

 

 

147

 

 

Goodwill and other asset impairment charges

5

 

 

 

5

 

 

Equity earnings and charges from investment in Change Healthcare Joint Venture

 

 

 

(4

)

 

Deferred taxes

28

 

 

 

16

 

 

Credits associated with last-in, first-out inventory method

(52

)

 

 

(15

)

 

Non-cash operating lease expense

83

 

 

 

98

 

 

Loss from sales of businesses and investments

2

 

 

 

 

 

Other non-cash items

9

 

 

 

23

 

 

Changes in assets and liabilities, net of acquisitions:

 

 

 

Receivables

2,291

 

 

 

(1,061

)

 

Inventories

238

 

 

 

145

 

 

Drafts and accounts payable

(4,214

)

 

 

127

 

 

Operating lease liabilities

(89

)

 

 

(99

)

 

Taxes

76

 

 

 

82

 

 

Other

(150

)

 

 

(74

)

 

Net cash used in operating activities

(1,062

)

 

 

(51

)

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

Payments for property, plant and equipment

(72

)

 

 

(87

)

 

Capitalized software expenditures

(45

)

 

 

(24

)

 

Acquisitions, net of cash, cash equivalents and restricted cash acquired

(4

)

 

 

(46

)

 

Proceeds from sales of businesses and investments, net

7

 

 

 

1

 

 

Other

(16

)

 

 

27

 

 

Net cash used in investing activities

(130

)

 

 

(129

)

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

Proceeds from short-term borrowings

5,303

 

 

 

2,610

 

 

Repayments of short-term borrowings

(5,303

)

 

 

(2,610

)

 

Repayments of long-term debt

(2

)

 

 

(2

)

 

Common stock transactions:

 

 

 

Issuances

21

 

 

 

22

 

 

Share repurchases, including shares surrendered for tax withholding

(24

)

 

 

(701

)

 

Dividends paid

(74

)

 

 

(75

)

 

Other

140

 

 

 

(116

)

 

Net cash provided by (used in) financing activities

61

 

 

 

(872

)

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(28

)

 

 

18

 

 

Net decrease in cash, cash equivalents and restricted cash

(1,159

)

 

 

(1,034

)

 

Cash, cash equivalents and restricted cash at beginning of period

4,023

 

 

 

2,981

 

 

Cash, cash equivalents and restricted cash at end of period

2,864

 

 

 

1,947

 

 

Less: Restricted cash at end of period included in Prepaid expenses and other

(251

)

 

 

 

 

Cash and cash equivalents at end of period

$

2,613

 

 

 

$

1,947

 

 

Schedule 6

 

McKESSON CORPORATION

RECONCILIATION OF GAAP CASH FLOW TO FREE CASH FLOW (NON-GAAP)

(unaudited)

(in millions)

 

Three Months Ended
June 30,

 

 

 

2020

 

2019

 

Change

GAAP CASH FLOW CATEGORIES

 

 

 

 

 

Net cash used in operating activities

$

(1,062

)

 

 

$

(51

)

 

 

NM

 

 

Net cash used in investing activities

(130

)

 

 

(129

)

 

 

1

%

Net cash provided by (used in) financing activities

61

 

 

 

(872

)

 

 

107

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

(28

)

 

 

18

 

 

 

(256

)

 

Net decrease in cash, cash equivalents and restricted cash

$

(1,159

)

 

 

$

(1,034

)

 

 

12

 

 

 

 

 

 

 

 

FREE CASH FLOW (NON-GAAP)

 

 

 

 

 

Net cash used in operating activities

$

(1,062

)

 

 

$

(51

)

 

 

NM

 

 

Payments for property, plant and equipment

(72

)

 

 

(87

)

 

 

(17

)%

Capitalized software expenditures

(45

)

 

 

(24

)

 

 

88

 

 

Free Cash Flow (Non-GAAP)

$

(1,179

)

 

 

$

(162

)

 

 

628

 

 

NM Computation not meaningful

For more information relating to the Free Cash Flow (Non-GAAP) definition, refer to the section entitled “Supplemental Non-GAAP Financial Information” of this release.

McKESSON CORPORATION

FINANCIAL STATEMENT NOTES

 

 

(1)

Total operating expenses for the three months ended June 30, 2020 includes a pre-tax net gain of $131 million ($97 million after-tax) related to insurance proceeds received, net of attorneys' fees and expenses awarded to plaintiffs' counsel, in connection with the $175 million settlement of the shareholder derivative action related to our controlled substances monitoring program, within Corporate Expenses, Net. This gain is included under "Other Adjustments, Net" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

 

 

(2)

Total operating expenses for the three months ended June 30, 2020 includes pre-tax restructuring, impairment and related charges of $56 million ($44 million after-tax), primarily for Corporate Expenses, Net as well as our Europe and Canada businesses. The three months ended March 31, 2019 includes pre-tax restructuring, impairment and related charges of $23 million ($17 million after-tax), primarily for our Canada and the United Kingdom retail businesses as well as Corporate Expenses, Net. These charges are included in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

 

 

(3)

Other income, net for the three months ended June 30, 2019 primarily includes pre-tax charges of $17 million ($12 million after-tax) representing settlement charges related to our frozen U.S. defined benefit pension plan, within Corporate Expenses, Net. This charge is included under "Other Adjustments, Net" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

 

 

(4)

Equity earnings and charges from investment in Change Healthcare Joint Venture includes our proportionate share of loss from investment in Change Healthcare Joint Venture within Other. Such amount includes the amortization of equity investment intangibles and other acquired intangibles of $77 million for the three months ended June 30, 2019. This charge is included under "Amortization of Acquisition-Related Intangibles" in the reconciliation of McKesson's GAAP operating results to adjusted results (Non-GAAP) provided in Schedule 2 of the accompanying financial statement tables.

McKESSON CORPORATION

SUPPLEMENTAL NON-GAAP FINANCIAL INFORMATION

 

In an effort to provide investors with additional information regarding the Company's financial results as determined by generally accepted accounting principles ("GAAP"), McKesson Corporation (the "Company" or "we") also presents the following Non-GAAP measures in this press release.

 

  • Adjusted Gross Profit (Non-GAAP): We define Adjusted Gross Profit as GAAP gross profit, excluding transaction-related expenses and adjustments, last-in, first-out (“LIFO”) inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments.
  • Adjusted Operating Expenses (Non-GAAP): We define Adjusted Operating Expenses as GAAP total operating expenses, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, restructuring, impairment and related charges, and other adjustments.
  • Adjusted Other Income (Non-GAAP): We define Adjusted Other Income as GAAP other income, net, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, and other adjustments.
  • Adjusted Equity Income from Change Healthcare (Non-GAAP): We define Adjusted Equity Income from Change Healthcare as GAAP equity earnings and charges from investment in Change Healthcare Joint Venture, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, and other adjustments. We completed the separation from our investment in Change Healthcare Joint Venture during the fourth quarter of fiscal 2020.
  • Adjusted Income from Continuing Operations Before Income Taxes (Non-GAAP): We define Adjusted Income from Continuing Operations Before Income Taxes as GAAP income from continuing operations before income taxes, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments.
  • Adjusted Income Tax Expense (Non-GAAP): We define Adjusted Income Tax Expense as GAAP income tax expense, excluding the income tax effects of amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments. Income tax effects are calculated in accordance with Accounting Standards Codification ("ASC") 740, “Income Taxes,” which is the same accounting principle used by the Company when presenting its GAAP financial results.
  • Adjusted Earnings (Non-GAAP): We define Adjusted Earnings as GAAP income from continuing operations attributable to McKesson, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, other adjustments as well as the related income tax effects for each of these items, as applicable.
  • Adjusted Earnings per Diluted Share (Non-GAAP): We define Adjusted Earnings per Diluted Share as GAAP earnings per diluted common share from continuing operations attributable to McKesson, excluding per share impacts of amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, other adjustments as well as the related income tax effects for each of these items, as applicable, divided by diluted weighted-average shares outstanding. Adjusted Earnings per Diluted Share was not previously adjusted for the effect of potentially dilutive securities issued by the Change Healthcare Joint Venture.
  • Adjusted Segment Operating Profit (Non-GAAP): We define Adjusted Segment Operating Profit as GAAP segment operating profit, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments.
  • Adjusted Corporate Expenses (Non-GAAP): We define Adjusted Corporate Expenses as GAAP corporate expenses, net, excluding transaction-related expenses and adjustments, restructuring, impairment and related charges, and other adjustments.
  • Adjusted Operating Profit (Non-GAAP): We define Adjusted Operating Profit as GAAP income from continuing operations before interest expense and income taxes, excluding amortization of acquisition-related intangibles, transaction-related expenses and adjustments, LIFO inventory-related adjustments, gains from antitrust legal settlements, restructuring, impairment and related charges, and other adjustments.

    The following provides further details regarding the adjustments made to our GAAP financial results to arrive at our Non-GAAP measures as defined above:

    Amortization of acquisition-related intangibles - Amortization expenses of intangible assets directly related to business combinations and the formation of joint ventures.

    Transaction-related expenses and adjustments - Transaction, integration and other expenses that are directly related to business combinations, the formation of joint ventures, divestitures and other transaction-related costs including initial public offering costs. Examples include transaction closing costs, professional service fees, legal fees, severance charges, retention payments and employee relocation expenses, facility or other exit-related expenses, certain fair value adjustments including deferred revenues, contingent consideration and inventory, recoveries of acquisition-related expenses or post-closing expenses, bridge loan fees, and gains or losses on business combinations and divestitures of businesses that do not qualify as discontinued operations.

    LIFO inventory-related adjustments - LIFO inventory-related non-cash expense or credit adjustments

    Gains from antitrust legal settlements - Net cash proceeds representing the Company’s share of antitrust lawsuit settlements.

    Restructuring, impairment and related charges - Restructuring charges that are incurred for programs in which we change our operations, the scope of a business undertaken by our business units, or the manner in which that business is conducted as well as long-lived asset impairments. Such charges may include employee severance, retention bonuses, facility closure or consolidation costs, lease or contract termination costs, asset impairments, accelerated depreciation and amortization, and other related expenses. The restructuring programs may be implemented due to the sale or discontinuation of a product line, reorganization or management structure changes, headcount rationalization, realignment of operations or products, integration of acquired businesses, and/or company-wide cost saving initiatives. The amount and/or frequency of these restructuring charges are not part of our underlying business, which include normal levels of reinvestment in the business. Any credit adjustments due to subsequent changes in estimates are also excluded from adjusted results.

    Other adjustments - The Company evaluates the nature and significance of transactions qualitatively and quantitatively on an individual basis and may include them in the determination of our adjusted results from time to time. While not all-inclusive, other adjustments may include: adjustments to claim and litigation reserves for estimated probable losses and settlements; other asset impairments; gains or losses from debt extinguishment; and other similar substantive and/or infrequent items as deemed appropriate.

    The Company evaluates the aforementioned Non-GAAP measures on a periodic basis and updates the definitions from time to time. The evaluation considers both the quantitative and qualitative aspects of the Company’s presentation of Non-GAAP adjusted results. A reconciliation of McKesson’s GAAP financial results to Non-GAAP financial results is provided in Schedules 2 and 3 of the financial statement tables included with this release.

    Additionally, the Company's investment in Change Healthcare Joint Venture's financial results are adjusted for the above noted items, except for the effect of potentially dilutive securities issued by the joint venture on our adjusted results per diluted share.

 

  • FX-Adjusted (Non-GAAP): McKesson also presents its GAAP financial results and adjusted results (Non-GAAP) on an FX-Adjusted basis. To present our financial results on an FX-Adjusted basis, we convert current year period results of our operations in foreign countries, which are recorded in local currencies, into U.S. dollars by applying the average foreign currency exchange rates of the comparable prior year period. To present Adjusted Earnings per Diluted Share on an FX-Adjusted basis, we estimate the impact of foreign currency rate fluctuations on the Company’s noncontrolling interests and adjusted income tax expense, which may vary from quarter to quarter. The supplemental FX-Adjusted information of the Company’s GAAP financial results and adjusted results (Non-GAAP) is provided in Schedule 3 of the financial statement tables included with this release.
  • Free Cash Flow (Non-GAAP): We define free cash flow as net cash provided by (used in) operating activities less payments for property, plant and equipment and capitalized software expenditures, as disclosed in our condensed consolidated statements of cash flows. A reconciliation of McKesson’s GAAP financial results to Free Cash Flow (Non-GAAP) is provided in Schedule 6 of the financial statement tables included with this release.

 

The Company believes the presentation of Non-GAAP measures provides useful supplemental information to investors with regard to its operating performance, as well as assists with the comparison of its past financial performance to the Company’s future financial results. Moreover, the Company believes that the presentation of Non-GAAP measures assists investors’ ability to compare its financial results to those of other companies in the same industry. However, the Company's Non-GAAP measures used in the press tables may be defined and calculated differently by other companies in the same industry.

 

The Company internally uses both GAAP and Non-GAAP financial measures in connection with its own financial planning and reporting processes. Specifically, Adjusted Earnings serves as one of the measures management utilizes when allocating resources, deploying capital and assessing business performance and employee incentive compensation. The Company conducts its businesses internationally in local currencies, including Euro, British pound sterling and Canadian dollars. As a result, the comparability of our results reported in U.S. dollars can be affected by changes in foreign currency exchange rates. We present FX-Adjusted information to provide a framework for assessing how our business performed excluding the estimated effect of foreign currency exchange rate fluctuations. We believe free cash flow is important to management and useful to investors as a supplemental measure as it indicates the cash flow available for working capital needs, re-investment opportunities, strategic acquisitions, dividend payments or other strategic uses of cash. Nonetheless, Non-GAAP adjusted results and related Non-GAAP measures disclosed by the Company should not be considered a substitute for, nor superior to, financial results and measures as determined or calculated in accordance with GAAP.

 

 

Holly Weiss, 972-969-9174 (Investors)
Holly.Weiss@McKesson.com
David Matthews, 214-952-0833 (Media)
David.Matthews@McKesson.com

Source: McKesson Corporation