McKesson Corporation (NYSE:MCK) Q4 2018 Earnings Conference Call - Final Transcript

May 24, 2018 • 08:00 am ET

Previous

McKesson Corporation (NYSE:MCK) Q4 2018 Earnings Conference Call - Final Transcript

Share
Close

Loading Event

Loading Transcript

Q & A
Operator
operator

(Operator Instructions) Steven Valiquette, Barclays.

Analyst
Steven Valiquette

I guess just drilling in a little bit deeper on the US pharma segment, with the operating profit expected to be flat to down a little bit in fiscal 2019. You mentioned Rite Aid as a key factor. I'm curious -- just two other quick questions around that. First, are there any material customer contract renewals also baked into that assumption. And also, is there any quantification of the acquisition contribution into that U.S. pharma segment EBIT expectation as well?

Executive
John Hammergren

Thanks for the question, Steve. This is John. I -- our assumption around customer contract renewals is pretty consistent with what we've experienced in the past. So as you know, we typically renew our customer contracts when they come up, and we do a pretty good job of making sure that value is delivered to our customers and that we continue to drive efficiency in our organization. So I think the times that we've really come up on the negative end of customer contract renewals has been related primarily to consolidations, where sometimes we can't predict which way a customer might land or, certainly, the acquiring company might weigh more heavily in those decisions.

So I think our forecast clearly would expect us to continue to renew our contracts and have the normal kind of cadence of those renewals. Britt, perhaps you could help with the second question.

Executive
Britt Vitalone

Yes. Thanks for that. As it relates to M&A and the impact that we expect it to have, as you know, last year, we completed a number of acquisitions in the fourth quarter, including the acquisition of RxCrossroads. And I would remind you that we provided you a -- an accretion estimate by the end of year three of about $0.25. So we completed a number of acquisitions that we're excited about. We think that they're going to add to the overall segment, and RxCrossroads is a good example of that.

Analyst
Steven Valiquette

As far as future acquisitions though, is there any assumption for that in there? Or is that not in there?

Executive
Britt Vitalone

No, we've outlined for you the acquisition of MSD, which we announced in our April call.

Executive
John Hammergren

Which is in the medical segment.

Operator
operator

Lisa Gill, JPMorgan.

Analyst
Lisa Gill

John, I just want to go back to your comment, though, about renewals on existing customers. Can you just remind us, are contracts generally renewed exactly at the date that they expire? Or is the anticipation that perhaps you give up some pricing prior to that expiration date because that's an important relationship?

Executive
John Hammergren

That's a good question, Lisa. I would say our history is that we maintain these relationships for very long times. The contracts might have a duration of, let's say, on average, three years, but many of the relationships go decades. And our typical pattern is to renew those relationships or extend those contracts in a form that's very similar to what it's been in the past. I'd say most of them don't renew exactly on the expiration date. They