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McKesson (MCK)

Q1 2013 Earnings Call

July 26, 2012 5:00 pm ET


Erin Lampert

John H. Hammergren - Chairman, Chief Executive Officer and President

Jeffrey C. Campbell - Chief Financial Officer and Executive Vice President


Glen J. Santangelo - Crédit Suisse AG, Research Division

Lawrence C. Marsh - Barclays Capital, Research Division

Lisa C. Gill - JP Morgan Chase & Co, Research Division

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Thomas Gallucci - Lazard Capital Markets LLC, Research Division

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Ricky Goldwasser - Morgan Stanley, Research Division

Eric W. Coldwell - Robert W. Baird & Co. Incorporated, Research Division

George Hill - Citigroup Inc, Research Division

Steven Valiquette - UBS Investment Bank, Research Division



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Good afternoon, and welcome to McKesson Corporation Quarterly Earnings Call. [Operator Instructions] Today's call is being recorded. If you have any objections, you may disconnect at this time. I would now like to introduce Ms. Erin Lampert, please go ahead.

Erin Lampert

Thank you, Anthony. Good afternoon, and welcome to the McKesson's Fiscal 2013 First Quarter Earnings Call. With me today are John Hammergren, McKesson's Chairman and CEO; and Jeff Campbell, our CFO. John will first provide a business update and will then introduce Jeff, who will review the financial results for the quarter. After Jeff's comments, we will open the call for your questions. We plan to end the call promptly after 1 hour at 6:00 p.m. Eastern Time. Before we begin, I remind listeners that during the course of this call, we will make forward-looking statements within the meaning of Federal securities law. These forward-looking statements involve risks and uncertainties regarding the operations and future results of McKesson. In addition to the company's periodic, current and annual reports filed with the Securities and Exchange Commission, please refer to the text of our press release for a discussion of the risks associated with such forward-looking statements.

Finally, please note that on today's call, we will refer to certain non-GAAP financial measures, in which we exclude from our GAAP financial results, acquisition expenses and related adjustments, amortization of acquisition-related intangible assets and certain litigation reserve adjustments. We believe these non-GAAP measures will provide useful information for investors. Please refer to our press release announcing first quarter fiscal 2013 results available on our website for a reconciliation of the non-GAAP performance measures to the GAAP financial results. Thanks, and here is John Hammergren.

John H. Hammergren

Thank you, Erin. And thanks, everyone, for joining us on our call. Today, we reported a good start to fiscal 2013 with total company revenues of $30.8 billion and adjusted earnings per diluted share of $1.55. We continue to expect to achieve our adjusted earnings guidance of $7.05 to $7.35 for fiscal 2013. Turning for a moment to the broader industry environment. On June 28, the Supreme Court affirmed that the Affordable Care Act will proceed much as it was originally enacted by Congress. The act will drive many changes in health care in the coming years. But through all of this change, the issues of quality, access and cost will continue to remain at the center of all health care discussions. System-changing reform is taking place throughout health care as payers, providers, manufacturers, pharmacies prepare for the expansion in coverage under the Affordable Care Act.

As patient volumes increase, our customers will need to respond with increased efficiency. Our customers will need to continue to reduce cost and improve the quality of patient care through the use of information technology. They will be judged by adherence to evidence-based protocols and improved outcomes. And they will be experimenting with new approaches to reimbursement models, like patient-centered medical home and accountable care.

As a leader in health care services and information technology, McKesson has a great opportunity to help our customers meet these goals of reducing costs and promoting value across the health care system. Before I turn to the first quarter results for Distribution Solutions, I'll provide an update on our average wholesale price litigation.

As a reminder, McKesson had previously settled all private payer AWP claims during the third quarter of fiscal 2009. During the second quarter of fiscal 2012, we completed a settlement of local public entity claims. Most recently, we finalized a settlement of the Federal share of Medicaid claims related to AWP during the fourth quarter of fiscal 2012. Today, we reached final agreement with the Coalition of State Attorneys General to resolve the majority of state Medicaid claims related to AWP. That leaves a few outstanding state cases that we plan to vigorously defend. This settlement represents another important step in bringing resolution to claims related to AWP.

Now let me turn back to our operations. Distribution Solutions started the year with solid revenue and operating profit growth. Although it's still very early in our fiscal year, we remain confident in our full year expectations. As I highlighted in our initial guidance on April 30, fiscal 2013 represents a robust year for all generic launches. McKesson is well-positioned with our strong manufacturer relationships and customer-focused proprietary programs to continue to provide value across our extensive generic offering. We also expect that our broad range of value-added services for branded manufacturers should contribute to steady levels of compensation. We continue to renew and expand our customer footprint in our distribution and wholesale business by delivering unique value to our customers. Like all customers, they are focused on competitive prices and great service. However, in today's health care environment, that alone is not sufficient. Today, our customers have to be more productive, deliver error-free and high-quality care, and increasingly connect to others involved in the financial and care processes, including the patient. As you know, we have a large technology business that is only part of our value proposition as a company. Perhaps, more important today is our ability to use technology in combination with the blocking and tackling of distribution to help all of our customers with their business' clinical and connectivity challenges.

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