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McKesson Corp. Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: May 2, 2012 04:00PM

McKesson Corp. (MCK) filed Annual Report for the period ended 2012-03-31. Mckesson Corp has a market cap of $22.46 billion; its shares were traded at around $90.14 with a P/E ratio of 15.3 and P/S ratio of 0.2. The dividend yield of Mckesson Corp stocks is 0.9%. Mckesson Corp had an annual average earning growth of 14.9% over the past 10 years. GuruFocus rated Mckesson Corp the business predictability rank of 3.5-star.

Highlight of Business Operations:

Gross profit and gross profit margin increased over each of the last two years. As a percentage of revenues, gross profit increased 2 basis points (“bp”) to 5.35% in 2012 and 11 bp to 5.33% in 2011. Gross profit margin increased in 2012 compared to 2011 primarily due to the addition of US Oncology, higher generics income in our Distribution Solutions segment and an increase in higher margin revenues in our Technology Solutions segment. These increases were partially offset by a decline in sell margin and by a $51 million benefit in 2011 associated with the receipt of our share of a settlement of an antitrust class action lawsuit brought against a drug manufacturer in our Distribution Solutions segment.

Canadian pharmaceutical distribution and services revenues increased 5% in 2012 compared to 2011. Excluding a favorable foreign currency exchange rate fluctuation of 2% during 2012, revenues increased primarily due to market growth, five additional sales days and a small acquisition in the second quarter of 2011, partially offset by government-imposed price reduction for generic pharmaceuticals in certain provinces. Canadian pharmaceutical distribution and services revenues increased 8% in 2011 compared to 2010. Excluding a favorable foreign currency exchange rate fluctuation of 7% during 2011, revenues increased 1% in 2011. Canadian revenues for 2011 increased due to market growth, offset by a government-imposed price reduction for generic pharmaceuticals in certain provinces and the impact of price deflation associated with brand to generic drug conversions.

Our last-in, first-out (“LIFO”) net inventory expense was $11 million in 2012, $3 million in 2011 and $8 million for 2010. Our Distribution Solutions segment uses the LIFO method of accounting for the majority of its inventories, which results in cost of sales that more closely reflects replacement cost than under other accounting methods. The practice in the Distribution Solutions segment’s distribution businesses is to pass on to customers published price changes from suppliers. Manufacturers generally provide us with price protection, which limits price-related inventory losses. Price declines on many generic pharmaceutical products in this segment over the last few years have moderated the effects of inflation in other product categories, which resulted in minimal overall price changes in those years. During 2012, we experienced a decline in deflationary trends in generic pharmaceuticals as a result of a reduction in generic product launches as compared to the prior year. Additional information regarding our LIFO accounting is included under the caption “Critical Accounting Policies and Estimates,” included in this Financial Review.

Interest Expense: Interest expense increased in 2012 compared to 2011 primarily due to the $1.7 billion of long-term debt issued in February 2011 in connection with our acquisition of US Oncology. Interest expense increased in 2011 compared to 2010 primarily due to $25 million of bridge loan fees related to the acquisition of US Oncology, interest expense associated with the assumed debt and the subsequent refinancing of the debt, and fees from our accounts receivable sales facility, which are recorded in interest expense commencing in 2011. These increases were partially offset by lower interest expense due to the repayment of $215 million of our long-term debt in March 2010. Refer to our discussion under the caption “Credit Resources” within this Financial Review for additional information regarding our financing activities.

Net cash flow from operating activities was $2,950 million in 2012 compared to $2,338 million in 2011 and $2,316 million in 2010. Operating activities for 2012 reflect an increase in drafts and accounts payable primarily associated with longer payment terms for certain purchases, partially offset by an increase in receivables and higher inventories primarily associated with revenue growth.

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