McKesson-MCK Stock Down on Q3 Earnings & Sales Miss, Gross Margin Contracts

Core Viewpoint - McKesson Corporation reported mixed financial results for the third quarter of fiscal 2025, with adjusted earnings per share (EPS) slightly missing estimates, while revenues showed strong year-over-year growth driven by the Pharmaceutical segment [1][2][15]. Revenue Details - Total revenues reached $95.29 billion, missing the Zacks Consensus Estimate by 0.2%, but reflecting a 17.8% increase year-over-year, primarily due to growth in the Pharmaceutical segment, especially specialty products and GLP-1 medications [2][3]. - The U.S. Pharmaceutical segment generated revenues of$ 87.1 billion, up 19% year-over-year, driven by increased prescription volumes and growth in the oncology platform [4]. - International segment revenues amounted to $3.9 billion, up 6% year-over-year, attributed to higher pharmaceutical distribution volumes in Canada [5]. Segmental Analysis - The U.S. Pharmaceutical and Specialty Solutions segment reported an adjusted operating profit of$ 944 million, up 14% from the prior year, due to growth in specialty product distribution [5]. - The Medical-Surgical Solutions segment saw revenues of $2.9 billion, down 3% year-over-year, impacted by lower contributions from illness season vaccines [6]. - The Prescription Technology Solutions segment generated revenues of$ 1.4 billion, up 14% year-over-year, driven by growth in technology services and third-party logistics [7]. Margins - Gross profit for the quarter was $3.34 billion, up 7% year-over-year, representing 3.5% of net revenues, a decline of nearly 40 basis points year-over-year [9]. - Operating income was reported at$ 1.22 billion, up 90.7% from the previous year, with an operating margin of 1.3%, an increase of almost 50 basis points year-over-year [9]. Financial Update - Cash and cash equivalents totaled $1.13 billion, down from$ 2.51 billion a year ago, with cumulative net cash used in operating activities amounting to $1.66 billion compared to a net cash provided of$ 167 million in the prior year [10]. Fiscal 2025 Guidance - McKesson updated its adjusted EPS guidance for fiscal 2025 to a range of $32.55-$ 32.95, indicating a growth of 19-20% from the prior year, with revenues expected to grow 16-18% [11][12]. - The U.S. Pharmaceutical segment is projected to achieve 18-20% revenue growth, supported by specialty product distribution and a new strategic partnership contributing $32 billion in revenues [12][17]. Strategic Initiatives - The recent acquisition of PRISM Vision is part of McKesson's strategy to expand into retina and ophthalmology, leveraging expertise in specialty care [18]. - Cost optimization initiatives in the Medical-Surgical segment are expected to enhance efficiencies despite challenges from a weaker flu season [18]. Market Performance - McKesson's shares declined by 3.3% in after-hours trading following the earnings report, with a year-to-date loss of 4.5%, compared to the industry growth of 5.2% and the S&P 500 Index gain of 16.6% [3].