OREANDA-NEWS. McKesson Corporation (NYSE:MCK) today announced an update to its outlook for Adjusted Earnings per diluted share for the fiscal year ending March 31, 2016, from the previous range of $12.50 to $13.00 to a new range of $12.60 to $12.90.

The updated outlook for Fiscal 2016 reflects McKesson’s expectation that operating profit derived as a result of generic pharmaceutical pricing trends will be weaker in the second half of the fiscal year compared to previous expectations.

This trend is partially offset by a reduction in the company’s expected full year adjusted tax rate to 29.5%, resulting in a benefit of approximately 28 cents per diluted share compared to prior expectations. The reduction in the full-year adjusted tax rate is primarily driven by a change in the expected mix of income and also includes certain favorable discrete tax items totaling 7 cents per diluted share recognized in the third quarter. Also, the company repurchased approximately $350 million of its outstanding shares in the third quarter and expects to continue to make progress against the current outstanding share repurchase authorization in the fourth quarter. Full-year weighted average diluted shares outstanding are now expected to be approximately 233 million shares, resulting in an Adjusted Earnings benefit of approximately 5 cents per diluted share compared to prior expectations.

Finally, McKesson is performing a review of its administrative cost structure in the fourth quarter. The updated Fiscal 2016 guidance range of $12.60 to $12.90 Adjusted Earnings per diluted share does not include the impact of any potential restructuring charges that may result from this review.

“While we continue to drive growth across our broad and diverse businesses, we now expect the operating performance in our U.S. Pharmaceutical distribution business in the second half of Fiscal 2016 will be below our previous expectations,” said John H. Hammergren, chairman and chief executive officer.

Hammergren continued, “Despite our revised assumptions related to generic pharmaceutical pricing trends and the impact of recent customer consolidation, our company is performing well, both domestically and internationally, and we continue to focus on our customers’ success in this dynamic environment. In fact, I am pleased to report that in late December, we signed a new agreement with CVS Health to serve as the distribution partner for their recently acquired Target in-store pharmacies. We also continue to prepare for the implementation of our new sourcing and distribution agreement with Albertsons, which begins on April 1, 2016. While our company has not been immune from the impact of consolidation within the healthcare supply chain, our customers continue to expand their relationships with us, driven by our ability to provide exceptional service and value.”

McKesson expects weaker generic pharmaceutical pricing trends, specific to the company’s mix of business, and recent customer consolidation to impact the company’s outlook for Fiscal 2017. McKesson is in the early phase of its budget development process and has a preliminary target of 7% to 12% growth in Adjusted Earnings per diluted share for Fiscal 2017. The preliminary Fiscal 2017 outlook assumes 7% to 12% growth when compared to the Fiscal 2016 outlook of $12.60 to $12.90 in Adjusted Earnings per diluted share, less 48 cents per diluted share related to gains on business dispositions and favorable discrete tax items in Fiscal 2016.

“While we expect certain challenges in the near term, I am very confident in the strength, scale and global competitive position of McKesson,” said Hammergren. “With our deep culture of operational excellence, you should expect us to continue our relentless focus on efficiency and innovation. And we will continue to deploy capital using our disciplined, portfolio approach, to create long-term value for our shareholders,” concluded Hammergren.

Preliminary Key Assumptions for Fiscal 2017

  • In Fiscal 2017, the company anticipates an Adjusted Earnings headwind of approximately 85 cents per diluted share year-over-year, driven by continued weakness in generic pharmaceutical pricing trends for the company’s mix of business, the expiration of its contract with Optum, and the transition of its contracts with Omnicare and Target.
  • Pricing for brand pharmaceuticals for the company’s mix of business will be modestly below the level experienced during Fiscal 2016.
  • McKesson’s existing sourcing and distribution relationship with Rite Aid will continue through the end of Fiscal 2017 contributing revenues of approximately $13 billion to the Distribution Solutions segment.
  • Adjusted tax rate of approximately 30% to 32%.
  • Capital deployment will drive 3% to 4% of Adjusted Earnings per diluted share growth year-over-year.
  • Proceeds from anticipated antitrust litigation settlements are projected at approximately $140 million, pre-tax, for Fiscal 2017.
  • No material impact from foreign currency exchange rates year-over-year.

McKesson will provide updated detailed financial guidance for Fiscal 2017 in its Fiscal 2016 fourth quarter earnings release expected in May 2016.

The company has scheduled a conference call for 11:00 AM ET today, Monday, January 11th, to discuss this press release. The dial-in number for individuals wishing to participate on the call is 719-234-7317. Erin Lampert, senior vice president, Investor Relations, is the leader of the call, and the password to join the call is ‘McKesson’. A replay of this conference call will be available for five calendar days. The dial-in number for individuals wishing to listen to the replay is 719-457-0820 and the pass code is 536480. A webcast of the conference call will also be available live and archived on the company’s Investor Relations website at http://investor.mckesson.com.