McKesson rises 6% but International sales are flat

McKesson rises 6% but International sales are flat

5 February 2021 - Deborah Wilkes

McKesson’s worldwide sales increased by 6% to USD62.6 billion in the three months ended 31 December 2020 but the company’s International segment, which includes Lloydspharmacy, fared less well.

The US-based drug distributor recorded a loss from continuing operations of USD6.23 billion in the quarter.

The loss was due to a pre-tax charge of USD8.1 billion related to opioid litigation, said McKesson, noting that it had also recorded a pre-tax long-lived asset impairment charge of USD115 million primarily related to its retail pharmacy businesses in Canada and Europe.

McKesson said the sales growth of 6% had been driven by its US Pharmaceutical segment, which reported sales up by 7% to USD49.5 billion.

Performance of International segment

Sales by McKesson’s International segment – which houses its Canadian and European businesses including Lloydspharmacy – fell by 10% on a currency-adjusted basis. Sales as reported were USD9.27 billion, representing a drop of 6% compared to the same period a year earlier.

McKesson said the fall was primarily due to the transfer of its German wholesale business to a joint venture with Walgreens Boots Alliance (WBA).

The two companies announced in December 2019 that they planned to form the joint venture (click here to read the News story). Completion was announced on 2 November 2020 (click here to read the News story).

WBA holds a controlling 70% stake in the joint venture, with McKesson owning the remaining 30%.

The joint venture combines WBA’s Alliance Healthcare Deutschland business with McKesson’s GEHE Pharma Handel. It does not affect any other WBA or McKesson businesses outside of the German wholesale activities.

Excluding the impact of the German move, sales by the International segment were flat on a currency-adjusted basis and up by 4% as reported.

In addition to the German move, McKesson said there had been lower volumes in the Canadian pharmaceutical distribution business due to the exit of an unprofitable customer at the start of the financial year.

Following the impairment charge of USD115 million, the International segment reported an operating loss of USD71 million.

Adjusted operating profit for the segment was up by 9% as reported to USD158 million, giving an adjusted operating margin of 1.70%.

McKesson’s Medical-Surgical Solutions segment reported sales up by 43% to USD3.05 billion, primarily driven by demand for COVID-19 tests.

The company’s Prescription Technology Solutions segment recorded sales up by 9% to USD777 million.

Guidance for the full year

Giving guidance for the financial year ending 31 March 2021, McKesson said it expected to achieve sales growth of between 2% and 4%. The International segment is expected to see a decline of between 5% and 9%.

Assumptions about COVID-19

McKesson said it was “not assuming that a new wave of COVID-19 returns, leading to national lockdowns and shelter-at-home scenarios precluding patient consumption of healthcare services, supplies and pharmaceutical products”.

Furthermore, the company assumes that a full recovery of pharmaceutical prescription volumes and patient visits will not occur in the financial year ending 31 March 2021.

McKesson expects that a recovery from the effects of the COVID-19 pandemic will extend into the next financial year and will not be in a straight line.

The company is “not assuming any systemic customer insolvency events”.

McKesson is assuming that unemployment peaked in the three months ended 30 June 2020 and will gradually improve.

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