McKesson reported an increase in revenues, but took a hit in net income due to a litigation charge, for its financial results for its fiscal third quarter of 2009, which ended Dec. 31, 2008.
For the quarter, the company saw a slight increase in revenues, booking $27.1 billion compared to $26.5 billion a year ago. However, the McKesson posted a net loss of $20 million, including a previously announced pre-tax average wholesale price (AWP) litigation charge of $493 million ($311 million after-tax).
In the fiscal third quarter of 2009, the company said that it reached an agreement “to settle all private party claims” relating to First DataBank’s published drug reimbursement benchmarks for $350 million. “The settlement terms, which are subject to final court approval, include an express denial of liability of any kind. We also recorded in the third quarter of 2009 a reserve for pending and expected AWP-related claims by public entities, which is currently estimated to be $143 million,” according to McKesson’s Form 10-Q SEC filing.
Excluding the charge, the company reported a net income of $291 million, compared to $201 million in the year-ago period. The earnings improvement was driven by “solid growth across all businesses in distribution solutions and a sharp increase in earnings from technology solutions,” according to John H. Hammergren, chairman and CEO.
In its 2009 fiscal third quarter, distribution solutions gross profit of $988 million improved 15 percent compared to the third quarter a year ago, according to McKesson. The increase in gross profit was due primarily to an improved mix of higher-margin products, including sales of OneStop Generics, which were up 45 percent in the quarter, the timing of compensation from branded pharmaceutical manufacturers, and increased sales volume, the company said.
The AWP litigation charge of $493 million resulted in an operating loss of $54 million in distribution solutions for the third quarter. Excluding the AWP litigation charge, McKesson reported that operating profit was $439 million for the quarter.
Technology solutions operating profit in the third quarter was $91 million compared to $49 million for the third quarter a year ago.
“Based on positive year-to-date results, the momentum in our business, and an anticipated tax reserve release of $22 million, we expect that McKesson should earn between $4.15 and $4.30 per diluted share excluding the AWP litigation charge for the fiscal year ending March 31, 2009,” Hammergren concluded.