Healthcare giant McKesson Corp. reported a jump in earnings in its second quarter, thanks to strong distribution revenue, lower-than-expected taxes and the sale of its workplace-safety supply business.
The San Francisco-based technology company and distributor of drugs and supplies reported $617 million in earnings in the quarter ended Sept. 30, up 32% from the same period last year. The sale of Zee Medical added $51 million to the company's earnings before taxes, and McKesson reported a discrete tax benefit of $25 million that curbed tax expenses.
Second-quarter revenues were $48.8 billion, up 10% from last year's second quarter. The results were driven by $11% revenue growth in the company's distribution businesses, including 16% growth in its North American market, thanks to market expansion and the company's business mix, McKesson officials said.
That growth in the North American distribution segment made up for a 13% decrease in international distribution revenues. McKesson, like many global companies, is seeing unfavorable international results because of the strong U.S. dollar.
The company's technology segment also took a hit, with revenue down 6%, compared to last year's second quarter, partly because of the company's sale of its nurse-triage call-center business during the last quarter, but also because of an anticipated decline in sales from its hospital software business. McKesson said that loss was partially offset by growth in other technology businesses.
McKesson expects adjusted earnings per diluted share to be between $12.50 and $13.00 for the fiscal year ending March 31, 2016, based on a constant currency basis. That's a step up from the $12.36 to $12.86 per diluted share guidance the company reported last quarter, primarily as the result of the Zee Medical sale, a recently-completed $500 million share repurchase program that reduced its taxes.
The updated guidance also reflects the expiration of McKesson's contract with Optum, UnitedHealth Group's clinical consulting, data analytics and drug management business, at the start of the third quarter.
McKesson CEO John Hammergren commented on the recent news that Deerfield, Ill.-based Walgreens Boots Alliance will acquire rival drugstore chain Rite Aid for $9.41 billion, noting that McKesson has a strong relationship with Rite Aid and positive ties with Walgreens' management team.
"I've seen this industry go through transformative change on a number of occasions. I think one of the strengths of McKesson is our ability to adapt to change,” Hammergren said.