Drug wholesaler McKesson Corporation (NYSE:MCK) shed nearly a fourth of its value on Friday after it declared an earnings and revenue miss and lowered its guidance citing “pricing challenges.”
The stock was pounded down 22.67% and closed Friday at $124.11, with a huge 28.16 million shares traded, over 18X the average volume of 1.57 million.
The panic selling spread over into McKesson’s peers. Cardinal Health Inc (NYSE:CAH) fell 9.76% and AmerisourceBergen Corp. (NYSE:ABC) tripped by 13.02%. The three companies together control over 90% of the US drug distribution market.
McKesson Corporation (NYSE:MCK)’s problematic FQ2
For the fiscal second quarter McKesson reported EPS of $2.94, which missed estimates by $0.11 and revenue of $49.96 billion, which missed by a sizable $1.25 billion.
In the earnings call John H. Hammergren, chairman and chief executive officer attributed the performance to heightened competitive pricing that was “more aggressive and across several areas of our US pharmaceutical business.”
“When a competitor significantly undercuts our existing pricing, we are compelled to respond,” he said. “We expect that with our focus on the value we deliver our margins will recover over time.”
Hammergren also revealed a growing trend of drug manufacturers slowing down on price increases (“fewer products with price increases and those price increases are at lower rates than both prior year results and our expectations for the current fiscal year.”) This trend has impacted both turnover and margins.
McKesson Corporation (NYSE:MCK) marks down guidance
McKesson slashed its fiscal year earnings forecast by 8% (mid-point to mid-point) to a range of $12.35 to $12.85 per share, from its prior guidance of $13.43 to $13.93 per share.
“Our updated outlook for Fiscal 2017 reflects McKesson’s expectation of a lower profit contribution resulting from recent customer pricing activities and lower operating profit as a result of further moderating branded pharmaceutical pricing trends compared to previous expectations,” said Hammergren in a statement.
McKesson Corporation (NYSE:MCK): Downgrades flow thick and fast
Analysts at the following firms downgraded the stock: Robert W. Baird (Outperform to Neutral); Leerink Partners (Outperform to Market Perform) and Deutsche Bank (Buy to Hold).