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MCK Stock Down on Q3 Earnings & Sales Miss, Gross Margin Contracts
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McKesson Corporation (MCK - Free Report) reported third-quarter fiscal 2025 adjusted earnings per share (EPS) of $8.03, which missed the Zacks Consensus Estimate of $8.04 by 0.1%. The bottom line, however, improved 3.7% on a year-over-year basis.
GAAP EPS was $6.95, up 57.2% from the year-ago quarter’s level.
Revenues of $95.29 billion missed the Zacks Consensus Estimate by 0.2%. The top line increased 17.8% year over year, primarily driven by the upside from continued momentum in the Pharmaceutical segment, especially for specialty products and GLP-1 medications. MCK also recorded increased prescription volumes during the quarter.
Higher contributions from the Prescription Technology Solutions and Medical-Surgical Solutions segments also aided the top line. International markets also recorded promising growth during the quarter.
Shares of MCK were down 3.3% during after-hours trading on Feb. 5, likely due to dismal top and bottom-line performances. The company’s shares have lost 4.5% year to date against the industry’s 5.2% growth. The S&P 500 Index has gained 16.6% in the same time frame.
Image Source: Zacks Investment Research
Q3 Segmental Analysis
Revenues from the U.S. Pharmaceutical segment totaled $87.1 billion, up 19% year over year. Per management, the upside was primarily driven by increased prescription volumes, including higher volumes from retail national account customers and specialty products, and growth in the oncology platform.
The U.S. Pharmaceutical and Specialty Solutions segment reported an adjusted operating profit of $944 million, up 14% from the prior-year quarter’s level. This was due to growth in the distribution of specialty products to providers and health systems.
Revenues from the International segment amounted to $3.9 billion, up 6% year over year. This was due to higher pharmaceutical distribution volumes in the Canadian business.
Adjusted operating profit at the segment totaled $124 million, up 18% from the year-ago reported figure.
Revenues from the Medical-Surgical Solutions segment totaled $2.9 billion, down 3% year over year. Sales were hurt due to lower contributions from illness season vaccines and testing in the primary care channel.
The Medical-Surgical segment reported an adjusted operating profit of $294 million, up 4% year over year. This was driven by operational efficiencies from the cost optimization initiatives, partially offset by lower contributions in the primary care channel.
Revenues from the Prescription Technology Solutions segment totaled $1.4 billion, up 14% year over year. This uptick was due to growth in the technology services business and higher contributions from the third-party logistics businesses.
The segment reported an adjusted operating profit of $235 million, up 22% year over year, driven by growth in affordability and access solutions.
Margins
Gross profit in the reported quarter was $3.34 billion, up 7% on a year-over-year basis. The figure represented 3.5% of net revenues, down nearly 40 basis points (bps) year over year.
The company reported an operating income of $1.22 billion, up 90.7% from the year-ago quarter’s figure, primarily due to higher cost of sales. Operating margin was 1.3%, up almost 50 bps year over year.
Financial Update
Cash and cash equivalents totaled $1.13 billion compared with $2.51 billion a year ago.
Cumulative net cash used in operating activities amounted to $1.66 billion against cumulative net cash provided by operating activities of $167 million in the year-earlier period.
Fiscal 2025 Guidance
McKesson updated its adjusted EPS guidance for fiscal 2025. It now expects adjusted EPS to be in the range of $32.55-$32.95 (previously $32.40-$33.00), which represents growth of 19-20% from the prior-year level. The Zacks Consensus Estimate for the same is pegged at $32.72. Revenues are expected to grow 16-18% (previously 15-17%) from the prior-year figure.
McKesson's U.S. Pharmaceutical segment is expected to achieve 18-20% revenue growth and 11-13% operating profit growth, driven by specialty product distribution, stable utilization trends, and a new strategic partnership contributing $32 billion in revenues.
Revenue growth and operating profit growth are anticipated to be 9-12% and 12-15%, respectively, in the Prescription Technology Solutions (RxTS) segment, fueled by strong demand for access and affordability solutions, including prior authorizations for GLP-1 medications.
The Medical-Surgical segment is projected to deliver flat revenue and operating profit due to a weaker flu season and lower primary care volumes. However, $100 million in cost optimization initiatives are on track to enhance efficiencies.
In the International segment, revenue growth and operating profit growth are expected to be 3-7% and 10-14%, respectively, for fiscal 2025.
Summing Up
McKesson exited the third quarter of fiscal 2025 on a dismal note, with earnings and revenues missing estimates. However, revenues continue to reflect strong momentum in the U.S. pharmaceutical segment, driven by robust demand across its offerings.
MCK is poised for a strong fiscal 2025, driven by robust growth in its U.S. Pharmaceutical, Prescription Technology Solutions (RxTS) and specialty services segments. The company has raised its adjusted EPS guidance to $32.55-$32.95, suggesting 19-20% year-over-year growth, supported by stable prescription volume trends and expansion in oncology and specialty pharmaceuticals.
A significant contributor is the U.S. Pharmaceutical segment, where McKesson benefits from increased specialty product distribution, particularly in oncology and GLP-1 medications. The addition of a $32 billion strategic partnership further strengthens its distribution network. Similarly, the RxTS segment is experiencing double-digit growth, fueled by demand for prior authorization services and affordability solutions.
McKesson’s recent acquisition of PRISM Vision highlights its strategy to expand into retina and ophthalmology, leveraging its expertise in specialty care. Meanwhile, cost optimization initiatives in the Medical-Surgical segment are expected to offset the impact of a weaker flu season and lower primary care volumes.
Meanwhile, the decline in gross margin, reflecting higher costs, is likely to continue in the next quarter.McKesson is likely to face challenges such as weaker illness season demand, lower primary care volumes and ongoing market weakness in the Medical-Surgical segment. Additionally, public policy changes, regulatory uncertainties and potential disruptions in specialty drug distribution could impact growth. Variability in GLP-1 medication trends and biosimilar adoption may also create short-term revenue fluctuations in fiscal 2025.
McKesson Corporation Price, Consensus and EPS Surprise
CAH’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 9.64%. Cardinal Health’s shares have gained 28.1% in the past six months compared with the industry’s 5.2% growth.
Masimo, carrying a Zacks Rank of 2 at present, has an estimated growth rate of 6.6% for 2025. MASI’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 17.10%.
Masimo’s shares have risen 61.3% in the past six months compared with the industry’s 6.7% growth.
Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 12%. MMSI’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 6.42%. Its shares have risen 22.1% year to date compared with the industry’s 5.2% growth.
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MCK Stock Down on Q3 Earnings & Sales Miss, Gross Margin Contracts
McKesson Corporation (MCK - Free Report) reported third-quarter fiscal 2025 adjusted earnings per share (EPS) of $8.03, which missed the Zacks Consensus Estimate of $8.04 by 0.1%. The bottom line, however, improved 3.7% on a year-over-year basis.
GAAP EPS was $6.95, up 57.2% from the year-ago quarter’s level.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
Revenue Details
Revenues of $95.29 billion missed the Zacks Consensus Estimate by 0.2%. The top line increased 17.8% year over year, primarily driven by the upside from continued momentum in the Pharmaceutical segment, especially for specialty products and GLP-1 medications. MCK also recorded increased prescription volumes during the quarter.
Higher contributions from the Prescription Technology Solutions and Medical-Surgical Solutions segments also aided the top line. International markets also recorded promising growth during the quarter.
Shares of MCK were down 3.3% during after-hours trading on Feb. 5, likely due to dismal top and bottom-line performances. The company’s shares have lost 4.5% year to date against the industry’s 5.2% growth. The S&P 500 Index has gained 16.6% in the same time frame.
Image Source: Zacks Investment Research
Q3 Segmental Analysis
Revenues from the U.S. Pharmaceutical segment totaled $87.1 billion, up 19% year over year. Per management, the upside was primarily driven by increased prescription volumes, including higher volumes from retail national account customers and specialty products, and growth in the oncology platform.
The U.S. Pharmaceutical and Specialty Solutions segment reported an adjusted operating profit of $944 million, up 14% from the prior-year quarter’s level. This was due to growth in the distribution of specialty products to providers and health systems.
Revenues from the International segment amounted to $3.9 billion, up 6% year over year. This was due to higher pharmaceutical distribution volumes in the Canadian business.
Adjusted operating profit at the segment totaled $124 million, up 18% from the year-ago reported figure.
Revenues from the Medical-Surgical Solutions segment totaled $2.9 billion, down 3% year over year. Sales were hurt due to lower contributions from illness season vaccines and testing in the primary care channel.
The Medical-Surgical segment reported an adjusted operating profit of $294 million, up 4% year over year. This was driven by operational efficiencies from the cost optimization initiatives, partially offset by lower contributions in the primary care channel.
Revenues from the Prescription Technology Solutions segment totaled $1.4 billion, up 14% year over year. This uptick was due to growth in the technology services business and higher contributions from the third-party logistics businesses.
The segment reported an adjusted operating profit of $235 million, up 22% year over year, driven by growth in affordability and access solutions.
Margins
Gross profit in the reported quarter was $3.34 billion, up 7% on a year-over-year basis. The figure represented 3.5% of net revenues, down nearly 40 basis points (bps) year over year.
The company reported an operating income of $1.22 billion, up 90.7% from the year-ago quarter’s figure, primarily due to higher cost of sales. Operating margin was 1.3%, up almost 50 bps year over year.
Financial Update
Cash and cash equivalents totaled $1.13 billion compared with $2.51 billion a year ago.
Cumulative net cash used in operating activities amounted to $1.66 billion against cumulative net cash provided by operating activities of $167 million in the year-earlier period.
Fiscal 2025 Guidance
McKesson updated its adjusted EPS guidance for fiscal 2025. It now expects adjusted EPS to be in the range of $32.55-$32.95 (previously $32.40-$33.00), which represents growth of 19-20% from the prior-year level. The Zacks Consensus Estimate for the same is pegged at $32.72. Revenues are expected to grow 16-18% (previously 15-17%) from the prior-year figure.
McKesson's U.S. Pharmaceutical segment is expected to achieve 18-20% revenue growth and 11-13% operating profit growth, driven by specialty product distribution, stable utilization trends, and a new strategic partnership contributing $32 billion in revenues.
Revenue growth and operating profit growth are anticipated to be 9-12% and 12-15%, respectively, in the Prescription Technology Solutions (RxTS) segment, fueled by strong demand for access and affordability solutions, including prior authorizations for GLP-1 medications.
The Medical-Surgical segment is projected to deliver flat revenue and operating profit due to a weaker flu season and lower primary care volumes. However, $100 million in cost optimization initiatives are on track to enhance efficiencies.
In the International segment, revenue growth and operating profit growth are expected to be 3-7% and 10-14%, respectively, for fiscal 2025.
Summing Up
McKesson exited the third quarter of fiscal 2025 on a dismal note, with earnings and revenues missing estimates. However, revenues continue to reflect strong momentum in the U.S. pharmaceutical segment, driven by robust demand across its offerings.
MCK is poised for a strong fiscal 2025, driven by robust growth in its U.S. Pharmaceutical, Prescription Technology Solutions (RxTS) and specialty services segments. The company has raised its adjusted EPS guidance to $32.55-$32.95, suggesting 19-20% year-over-year growth, supported by stable prescription volume trends and expansion in oncology and specialty pharmaceuticals.
A significant contributor is the U.S. Pharmaceutical segment, where McKesson benefits from increased specialty product distribution, particularly in oncology and GLP-1 medications. The addition of a $32 billion strategic partnership further strengthens its distribution network. Similarly, the RxTS segment is experiencing double-digit growth, fueled by demand for prior authorization services and affordability solutions.
McKesson’s recent acquisition of PRISM Vision highlights its strategy to expand into retina and ophthalmology, leveraging its expertise in specialty care. Meanwhile, cost optimization initiatives in the Medical-Surgical segment are expected to offset the impact of a weaker flu season and lower primary care volumes.
Meanwhile, the decline in gross margin, reflecting higher costs, is likely to continue in the next quarter.McKesson is likely to face challenges such as weaker illness season demand, lower primary care volumes and ongoing market weakness in the Medical-Surgical segment. Additionally, public policy changes, regulatory uncertainties and potential disruptions in specialty drug distribution could impact growth. Variability in GLP-1 medication trends and biosimilar adoption may also create short-term revenue fluctuations in fiscal 2025.
McKesson Corporation Price, Consensus and EPS Surprise
McKesson Corporation price-consensus-eps-surprise-chart | McKesson Corporation Quote
Zacks Rank and Stocks to Consider
McKesson currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the medical industry are Cardinal Health (CAH - Free Report) , Masimo (MASI - Free Report) and Merit Medical Systems (MMSI - Free Report) .
Cardinal Health, carrying a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 5.1% for fiscal 2025. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CAH’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 9.64%. Cardinal Health’s shares have gained 28.1% in the past six months compared with the industry’s 5.2% growth.
Masimo, carrying a Zacks Rank of 2 at present, has an estimated growth rate of 6.6% for 2025. MASI’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 17.10%.
Masimo’s shares have risen 61.3% in the past six months compared with the industry’s 6.7% growth.
Merit Medical, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 12%. MMSI’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 6.42%. Its shares have risen 22.1% year to date compared with the industry’s 5.2% growth.