McKesson Corp. :MCK-US: Earnings Analysis: Q3, 2017 By the Numbers : January 27, 2017

McKesson Corp. reports financial results for the quarter ended December 31, 2016.


  • Summary numbers: Revenues of USD 50130 million, Net Earnings of USD 636 million.
  • Gross margins narrowed from 6.00% to 5.61% compared to the same period last year, operating (EBITDA) margins now 1.66% from 2.48%.
  • Change in operating cash flow of 155.62% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 50130 49957 49733 46678 47899
Revenue Growth (%YOY) 4.66 2.45 4.6 3.9 1.9
Earnings (mil) 636 308 655 452 629
Earnings Growth (%YOY) 1.11 -50.56 11.77 13.28 32.7
Net Margin (%) 1.27 0.62 1.32 0.97 1.31
EPS 2.85 1.35 2.87 1.88 2.73
Return on Equity (%) 25.28 11.31 24.66 17.42 24.4
Return on Assets (%) 4.38 2.12 4.58 3.24 4.54

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, MCK-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if MCK-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 0.35% and earnings by 106.49% compared to the previous period.

Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 5.61% to 6.00% for the same period last year, while operating margins (EBITDA margins) went from 1.66% to 2.48% over the same time frame.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

MCK-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 4.88 days from 7.37 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Cash Versus Earnings – Sustainable Performance?

MCK-US‘s year-on-year change in operating cash flow of 155.62% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.


Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin History
PreTax Margin History

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Company Profile

McKesson Corp. is a health services and information technology company, which provides medicines, pharmaceutical and care management products. It operates through the McKesson Distribution Solutions and McKesson Technology Solutions segments. The McKesson Distribution Solutions segment distributes ethical and proprietary drugs, medical-surgical supplies and equipment and health and beauty care products throughout North America. This segment also provides specialty pharmaceutical solutions for biotech and pharmaceutical manufacturers, sells financial, operational and clinical solutions for pharmacies. The McKesson Technology Solutions segment provides software, automation, business services and consulting to hospitals, physician offices, imaging centers and home healthcare. It also provides interactive connectivity services that streamline clinical, financial and administrative communication between patients, providers, payers, pharmacies and financial institutions agencies and payers. The company was founded by John McKesson and Charles Olcott in 1833 and is headquartered in Wilmington, DE.

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