McKesson

(MCK) - Get Report

has ended a tough fiscal year with a bang.

The big drug distributor, which has spent months caught in the middle of sweeping industry changes, blew past Wall Street expectations on Thursday. The company posted fourth-quarter profits of 85 cents a share, up 16% from a year ago, that beat the consensus estimate by a full 12 cents. Net income soared 21% to $259 million on a 15% jump in revenue.

McKesson's stock rose 2.8% to $37.80 ahead of the report.

To be sure, McKesson itself saw plenty to celebrate following its long -- and ongoing -- struggle to shift away from a business model that depends on drug price increases to one that compensates the company for its distributing services instead.

"Our performance demonstrates that, following the lack of pharmaceutical price increases in our second quarter, we rapidly developed and executed a plan to smoothly and collaboratively transition our agreements with pharmaceutical manufacturers to deliver acceptable and more predictable compensation in future years while maintaining acceptable compensation during the current year," said McKesson CEO John Hammergren. "I'm pleased that our annual EPS results were strong, despite the ongoing evolution in our pharmaceutical distribution business."

Hammergren went on to say that McKesson continues to make progress in that core division. In fact, he said, the company has already signed or seriously discussed contract changes with all of the drug manufacturers. As a result, he said, more than 80% of its compensation from manufacturers will no longer be tied to drug prices later on this year.

Meanwhile, he said, the company's various businesses have been performing very well. Profits from its large pharmaceutical solutions unit jumped 36% in the quarter. Two smaller units, provider technologies and software and software systems, posted double-digit profit growth as well.

Looking ahead to next year, however, McKesson has forecast slower growth. The company, which earned $2.19 per share in 2005, issued new full-year guidance of between $2.25 and $2.40 a share. Analysts were already looking for profits to finish near the middle of that range.