McKesson Profit Falls

It guides 2007 earnings higher.
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(MCK) - Get Report

fourth-quarter earnings fell from a year ago despite higher sales, as margin pressure in acute care and adjustments to its payment schedules with manufacturers ate into the bottom line.

McKesson earned $220 million, or 70 cents a share, in the quarter, compared with $259 million, or 85 cents a share, a year ago. The latest period had a $5 million litigation gain, before which the pharmaceutical management company earned 68 cents a share, matching the Thomson First Call consensus.

First-quarter revenue rose 12% to $23.06 billion, beating the $22.35 billion consensus.

"We were very pleased with our overall results for the year," the company said. "The improved performances of our Pharmaceutical Solutions and Provider Technologies segments combined with the evolution of our U.S. pharmaceutical distribution business model delivered exceptionally strong operating cash flow of $2.7 billion."

Within its segments, McKeeson said fourth-quarter revenue rose 13% from a year ago in pharmaceutical solutions, while gross profit was roughly unchanged. "The quarter's results reflect the agreements with manufacturers which reduce but do not eliminate seasonality of compensation, and a lower LIFO credit compared to a year ago. Operating profit decreased 10% in the fourth quarter, but for the year was up 13%."

Within medical-surgical solutions, revenue rose 5% in the quarter, while operating profit fell 68%, "impacted in part by continuing pressure on gross margins, especially in acute care."

For the year ending next March, McKesson said it expects to earn $2.55 to $2.70 a share, compared with the Thomson First Call consensus estimate of $2.58 a share.