McKesson: Co. 'Well-Positioned' On Generic Drugs
Dow Jones Newswires
By Dinah Wisenberg Brin Of DOW JONES NEWSWIRES
PHILADELPHIA -- McKesson HBOC Inc. (MCK), the country's largest distributor of drugs and health-care products, posted fiscal third-quarter results Tuesday that pleased Wall Street, despite missing analysts' consensus estimate by a penny a share.
"We have a positive momentum building in our business," Chief Executive John H. Hammergren said on a conference call with analysts.
The San Francisco company reported earnings from continuing operations, excluding charges, of $69.3 million, or 24 cents a diluted share, compared with earnings of $60.5 million, or 21 cents a share, in the same quarter the previous year.
A First Call/Thomson Financial consensus of 18 analysts had estimated earnings of 25 cents a share.
Analyst Leonard S. Yaffe of Banc of America Securities said he was pleased with the results, which slightly exceeded his own estimate.
"Overall, it was a solid quarter and we saw nothing unusual relative to our expectations," Yaffe said.
The stock had sold off in the past few weeks as investors worried McKesson might miss analysts' estimates by a wide margin, he said.
"Now that the quarter came out and it was above our estimate, a penny below consensus, I think people feel quite comfortable with the outlook of the company, and we continue to rate the stock a buy," Yaffe said. He has a 12-month price target of $38 a share.
Analyst Ray Lewis of McDonald Investments Inc. liked the trends in McKesson's two main businesses, supply management and information technology.
"Both the revenue and margin trends in those businesses were slightly better than what we had been looking for," Lewis said, though he noted that McKesson's physician software unit, iMcKesson, posted a wider loss than what he had expected.
Shares of McKesson were recently up $2.97, or 10.2%, at $31.97 a share on the New York Stock Exchange on volume of 3.1 million shares. The average daily volume is 1.7 million shares.
CEO Hammergren told analysts that McKesson should grow in the low-to-middle double-digit range next year, which is in line with this quarter's 14% operating EPS growth. Profit margins should expand in the fourth quarter and next fiscal year, but Hammergren wouldn't estimate by how much.
The company is "exceptionally well-positioned" to take advantage of the fact that $48 billion worth of brand-name pharmaceuticals are coming off patent and into the generic-drug realm over the next three years, Hammergren said, citing its 7,000 independent-pharmacy customers.
In addition, Hammergren said that in the next several weeks, McKesson will open its new comprehensive supply-management Web portal, which will allow the company to expand its marketing opportunities to 7,000 customers and reduce processing costs.
McKesson's supply-management and information-technology businesses are building positive momentum, he said.
Revenue at the company's health-care IT unit, which supplies software and networks to hospitals, fell 10.6% year-over-year to $199.8 million from $223.6 million, but rose sequentially for the first time in six quarters. The IT backlog also rose sequentially over the second quarter.
Operating profit at the health-care supply-management unit rose nearly 21% before special items to $166.5 million from $137.9 million, while revenue rose 7.4% to $7 billion from $6.5 billion. The revenue comparison was affected by heavy year-2000-related purchases that occurred in December 1999, the company said.
David Mahoney, chief executive of subsidiary iMcKesson, told analysts that the iMcKesson business is in the early stages of a turnaround, and that he was pleased with the quarter. The full impact of its new contracts, however, won't be seen until the next fiscal year, Mahoney said.
The unit posted a 2.4% rise in revenue, to $72.3 million from $70.6 million. It had a $12.5 million operating loss, compared with a $4.1 million profit in the year-ago quarter, both before special items.
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285; dinah.brin@dowjones.com |