With positive Q3 in the books, McKesson bullish on sourcing

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With positive Q3 in the books, McKesson bullish on sourcing

By Michael Johnsen - 02/01/2018
McKesson on Thursday reported revenues of $53.6 billion for the third quarter ended Dec. 31, up 7% compared to the year-ago period. Third-quarter results were driven by organic growth across multiple business units, including the company’s strategic sourcing benefits through ClarusONE, incremental profit contribution from acquisitions and a lower tax rate, which included discrete tax benefits unrelated to the Tax Cuts and Jobs Act of 2017.

"I'm extremely pleased with the progress of ClarusONE [McKesson's joint sourcing entity with Walmart] and its strong contribution to our results this year," John Hammergren, McKesson chairman and CEO, told investors. "We have contracted a diverse range of manufacturers delivering benefits to our partner Walmart and more broadly, with all of our customers who purchase generics through us, helping them to be more successful in a competitive and dynamic market."

"We believe that we've really got a great foundation in place," added Britt Vitalone, McKesson executive vice president and CFO who had helped create ClarusONE. "We've been able to partner with a number of manufacturers and really develop a beachhead around generics in the U.S., and we think we have tremendous foundation to take that further, whether that be, again, additional geographies or additional product categories. So we are quite excited about the potential that we have there, and we'll continue to explore that over the coming quarters."

In addition to its sourcing agreements with Walmart, Rite Aid remains a significant customer, and not one McKesson expects to lose anytime soon. “We’re working closely with Rite Aid to ensure the successful transition of the allotted stores to Walgreens," Hammergren said. "We continue to deliver exception value to Rite Aid every day and we remain comfortable that our sourcing scale and capability has not been, nor will be, impacted by this transition.”

Rite Aid is currently contracted to purchase generics from McKesson through March 2019, but as part of its asset sale to Walgreens Boots Alliance, the company will have access to Walgreens' generic sourcing heft following the expiration of that McKesson contract.

Rite Aid's January quarterly conference call may have been a confidence booster for McKesson. "We're under no commitment to switch from McKesson and will ultimately align with a purchasing partner that we think will offer us the best overall economics," Kermit Crawford, Rite Aid president and COO, said. Rite Aid is currently looking into renegotiating its generic purchasing agreements in an effort to realize greater savings across its network before March 2019, Rite Aid executives shared with investors in January.

On a per-share basis, the San Francisco-based company reported net income of $4.33. Earnings, adjusted for one-time gains and costs, were $3.41 per share. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of $2.92 per share, according to reports.

Distribution Solutions revenues totaled $53.6 billion for the quarter, up 8% on a reported basis and 7% on a constant currency basis. North America pharmaceutical distribution and services revenues of $44.9 billion for the quarter were up 8% on a reported basis and 7% on a constant currency basis, primarily reflecting market growth and acquisitions.

Other notable events in the quarter include McKesson's acquisition of RxCrossroads; that transaction was closed approximately one month ago.