McKesson Reports Fiscal 2020 Fourth-Quarter and Full-Year Results

Fourth-Quarter Highlights, Year-over-Year:

• Total revenues of $58.5 billion, reflecting 12% growth.
• Earnings per diluted share increased by $9.99 to $5.82.
• Adjusted Earnings per diluted share of $4.27, an increase of 16%.

Full-Year Highlights:

• Total revenues of $231.1 billion, reflecting 8% growth.
• Earnings per diluted share increased by $4.82 to $4.99.
• Adjusted Earnings per diluted share of $14.95, an increase of 10%.
• Cash flow from operations of $4.4 billion and free cash flow of $3.9 billion.
• Returned $2.2 billion of cash to shareholders through share repurchases and dividends.

Fiscal 2021 Outlook:

• Adjusted Earnings per diluted share guidance range of $13.95 to $14.75.
• Fiscal 2021 guidance reflects impacts from the COVID-19 pandemic and investments.
• McKesson expects Adjusted Earnings per diluted share growth in the second half of fiscal 2021.
• Long-term fundamentals remain solid; continuing to execute strategic growth initiatives.

IRVING, Texas, May 20, 2020 - McKesson Corporation (NYSE:MCK) today reported results for the fourth quarter and fiscal year ended March 31, 2020.

Fiscal 2020 Fourth-Quarter and Year-to-Date Result Summary

“McKesson delivered a strong finish to fiscal 2020, reflecting continued momentum in the business and meaningful progress in our transformation towards becoming a more focused organization as we look to capture future growth opportunities,” said Brian Tyler, chief executive offer. “During fiscal 2020, we achieved adjusted operating profit growth in all three operating segments, generated $3.9 billion of free cash flow, and successfully completed the exit of our investment in Change Healthcare.”

“As we enter fiscal 2021, McKesson is leveraging our expertise, leadership and scale to play a critical role in the fight against the COVID-19 pandemic,” Mr. Tyler continued. “We continue to remain focused on supporting our people, our customers and our communities during this challenging time. I want to thank caregivers worldwide for their heroic efforts and acknowledge the entire McKesson team, particularly our frontline workers, for their extraordinary dedication. Despite the uncertainties in the near-term macro environment, we remain confident in the resiliency of our business model and committed to creating long-term shareholder value.”

Fourth-quarter revenues were $58.5 billion, up 12%, and full-year revenues were $231.1 billion, up 8%, driven by growth in the U.S. Pharmaceutical and Specialty Solutions segment, largely due to branded pharmaceutical price increases and higher volumes from retail national account customers.

Fourth-quarter earnings per diluted share of $5.82 included an after-tax gain of $414 million, recognized upon the separation of the company’s investment in Change Healthcare LLC (“Change Healthcare”). Full-year earnings per diluted share of $4.99 also included after-tax impairment and dilution charges of $1 billion related to Change Healthcare and after-tax charges of $275 million within our European Pharmaceutical Solutions segment for the remeasurement to fair value of assets and liabilities held for sale related to the expected formation of a new German wholesale joint venture with Walgreens Boots Alliance.

Fourth-quarter Adjusted Earnings per diluted share was $4.27 compared to $3.69 a year ago, an increase of 16%, primarily driven by a lower share count and growth in the European Pharmaceutical Solutions segment. Full-year Adjusted Earnings per diluted share was $14.95 compared to $13.57 a year ago, an increase of 10%, primarily driven by a lower share count and growth in the U.S. Pharmaceutical and Specialty Solutions and Medical Surgical segments, partially offset by higher corporate expenses and the lapping of a prior year pre-tax benefit of $90 million related to a reversal of a contractual liability associated with McKesson’s investment in Change Healthcare.

For the full year, McKesson returned $2.2 billion of cash to shareholders via $1.9 billion of common stock repurchases and $294 million of dividend payments. During the fiscal year, McKesson generated cash from operations of $4.4 billion, and invested $506 million internally, resulting in free cash flow of $3.9 billion.

U.S. Pharmaceutical and Specialty Solutions Segment

Fourth-Quarter:

• Revenues were $46.3 billion, up 13%, driven by branded pharmaceutical price increases and higher volumes from retail national account customers, partially offset by branded to generic conversions.
• Operating profit was $862 million and operating margin was 1.86%. Adjusted operating profit was $772 million, up 3% from a year ago, driven by continued growth in the specialty businesses. Adjusted operating margin was 1.67%, down 17 basis points.

Full-Year:

• Revenues were $183.3 billion, up 9%, driven by branded pharmaceutical price increases and higher volumes from retail national account customers, partially offset by branded to generic conversions.
• Operating profit was $2.8 billion and operating margin was 1.51%. Adjusted operating profit was $2.7 billion, up 6% from a year ago, driven by growth in the specialty businesses and the lapping of a prior year approximately $60 million pre-tax charge related to a customer bankruptcy. Adjusted operating margin was 1.46%, down 4 basis points.

European Pharmaceutical Solutions Segment

Fourth-Quarter:

• Revenues were $7.2 billion, up 6% on a reported basis and up 9% on an FX-adjusted basis, driven by growth in the pharmaceutical distribution business.
• Operating profit was $36 million and operating margin was 0.50%. Adjusted operating profit was $75 million, up 226%, and adjusted operating margin was 1.05%. On an FX-adjusted basis, adjusted operating profit was $78 million, up 239%, and adjusted operating margin was 1.06%, up 72 basis points, driven by expense rationalization and the lapping of a prior year inventory charge of approximately $20 million.

Full-Year:

• Revenues were $27.4 billion, up 1% on a reported basis and up 5% on an FX-adjusted basis, driven by growth in the pharmaceutical distribution business.
• Operating loss was ($261) million and operating margin was (0.95%), driven by after-tax charges of $275 million for the remeasurement to fair value of assets and liabilities held for sale related to the expected formation of a new German wholesale joint venture with Walgreens Boots Alliance. Adjusted operating profit was $231 million, up 5%, and adjusted operating margin was 0.84%. On an FX-adjusted basis, adjusted operating profit was $240 million, up 10%, and adjusted operating margin was 0.84%, driven by expense rationalization and the lapping of a prior year inventory charge of approximately $20 million.

Medical-Surgical Solutions Segment

Fourth-Quarter:

• Revenues were $2.2 billion, up 13%, driven by growth in the Primary Care business, due to higher pharmaceutical volumes and a stronger influenza season.
• Operating profit was $121 million and operating margin was 5.49%. Adjusted operating profit was $170 million, down 1%, driven primarily by higher operating expenses, partially offset by growth in the Primary Care business. Adjusted operating margin was 7.71%, down 109 basis points.

Full-Year:

• Revenues were $8.3 billion, up 9%, driven by growth in the Primary Care business.
• Operating profit was $499 million and operating margin was 6.01%. Adjusted operating profit was $679 million, up 12%, and adjusted operating margin was 8.18%, up 24 basis points, driven by growth in the Primary Care business.

Other remaining businesses

Fourth-Quarter:

• Revenues were $2.9 billion, up 3% on a reported basis and up 4% on an FX-adjusted basis, driven by growth in the Canadian and MRxTS businesses.
• Operating profit was $514 million, driven by an after-tax gain of $414 million, recognized upon the separation of the company’s investment in Change Healthcare. Adjusted operating profit was $242 million, down 6% on both a reported and FX-adjusted basis, driven by a lower contribution from the company’s investment in Change Healthcare, partially offset by growth in the MRxTS business.

Full-Year:

• Revenues were $12.0 billion, up 3% on a reported basis and up 4% on an FX-adjusted basis, driven by growth in the Canadian and MRxTS businesses.
• Operating loss was ($595) million, primarily driven by a previously disclosed impairment in the second quarter, in connection with McKesson’s separation of its investment in Change Healthcare. Adjusted operating profit was $953 million, down 4% on both a reported and FX-adjusted basis, driven by the lapping of the $90 million contractual liability reversal in the prior year partially offset by organic growth in the MRxTS and Canadian businesses.

Company Updates

• On March 10, 2020, McKesson completed the separation of its investment in Change Healthcare.

McKesson awarded approximately $30 million in special one-time bonus payments in the fourth-quarter to recognize frontline workers and other non-bonus eligible employees for their contributions.

McKesson invested approximately $20 million into the McKesson Foundation in the fourth-quarter, designating $5 million for deployment to McKesson’s “Taking Care of Our Own Fund” to provide support for employees impacted by the COVID-19 pandemic.

Fiscal 2021 Outlook

McKesson expects full-year fiscal 2021 Adjusted Earnings per diluted share of $13.95 to $14.75, which reflects anticipated headwinds in fiscal 2021 as a result of the COVID-19 pandemic and a continuation of disciplined, efficient capital deployment, including investments in the business. McKesson expects 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, Wednesday, May 20th 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. The conference call can also be accessed by dialing 786-815-8297. The password is ‘McKesson’. A telephonic replay of this conference call will be available for 14 calendar days. For individuals wishing to listen to the replay, the dial-in number is 404-537-3406 and the passcode is 6206708. 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:

• Jefferies Virtual Healthcare Conference, June 2, 2020
• Goldman Sachs 41^st Annual Global Healthcare Conference, June 9, 2020

Audio 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 Earnings, 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 legal disputes, government actions and adverse publicity regarding our role in distributing controlled substances such as opioids; we might experience losses not covered by insurance; we are subject to extensive, complex and challenging healthcare, controlled substance, privacy, anti-corruption and other laws; we might record significant charges from impairment to goodwill, intangibles and other assets or investments; we experience cybersecurity incidents and might experience significant computer system compromises or data breaches or other significant problems with information systems or networks, including as an effect of our employees working from remote locations due to the COVID-19 pandemic; 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 unable to successfully recruit and retain qualified employees; we might be adversely impacted by healthcare reform such as changes in pricing and reimbursement models; we might be adversely impacted by competition and industry consolidation; we might be adversely impacted by changes or disruptions in product supply and we may have difficulties in sourcing or selling products due to a variety of causes, such as 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, including as an effect of the COVID-19 pandemic, by an economic slowdown or recession and by disruption in capital and credit markets 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 tax legislation or challenges to our tax positions, and we might not realize the expected tax treatment from our split-off of Change Healthcare; we might be adversely impacted by fluctuations in foreign currency exchange rates, including volatility due to the COVID-19 pandemic; we might be adversely impacted by events outside of our control, such as widespread public health issues (including 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 technology. 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.

Tables and full-text of earnings release also available for viewing and download in PDF format: McKesson Reports Fiscal 2020 Third-Forth Results (PDF, 1.13 MB).