Robert Baird Growth Stock Conference Presentations

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Robert Baird Growth Stock Conference Presentations

  1. 1. Robert W. Baird Conference May 10, 2006
  2. 2. Jeff Campbell Executive Vice President Chief Financial Officer 2
  3. 3. Safe Harbor Clause Some of the information in this presentation may constitute forward-looking statements that are subject to various uncertainties. These uncertainties could cause actual results to differ materially from those projected or implied. The risk factors associated with those uncertainties are described in the Company’s reports and exhibits filed with the Securities and Exchange Commission. Financial information is presented here in summary form. Full details are provided in the Company’s most recent 10-Q report. All of this information is available at www.mckesson.com. The Company assumes no obligation to update or revise any such statements, whether as a result of new information or otherwise. 3
  4. 4. McKesson Overview 4
  5. 5. McKesson Facts FY06 REVENUES Medical-Surgical $3.1 B $88 billion in revenues in FY06 Pharma FY06 EPS $2.44 (excluding Solutions Provider $83.4 B Securities Litigation charge and Technologies $1.5 B Discontinued Ops) Over 27,000 employees FY06 OPERATING PROFIT 304 million shares outstanding Medical-Surgical $70 M $15 billion market cap Pharma Founded 1833, headquartered Solutions Provider $1,211 M Technologies in San Francisco $143 M 144% Return to Shareholders since April 1, 2000 5
  6. 6. Delivering Value from the Center of Healthcare Solutions for medication safety Pharmaceutical & medical- surgical distribution to all sites Information solutions for hospitals, payors, home care, and physicians Inpatient automation Specialty Retail pharmacy pharmaceuticals automation Disease Pharmacy outsourcing management Pharmaceutical and consulting repackaging 6
  7. 7. Market Leading Positions in Healthcare Services McKesson McKesson McKesson Pharmaceutical Medical- Medical-Surgical Provider Technologies #1 in U.S., Canada, and #1 in primary care 63% of health systems Mexico 51% of hospitals with #1 in extended care Large Rx repackaging 200+ beds Private label Leading generics provider Leader in clinical, product offerings revenue cycle, Specialty distribution & and resource Rapid growth in patient services for management solutions physician office manufacturers pharmaceuticals More “Best in KLAS” #1 in medical management and equipment products than any software and services for other vendor payors #1 in robotic hospital #1 in disease management pharmacy dispensing for Medicaid agencies #1 in bedside scanning 7
  8. 8. Leader in Growing Areas Canadian Pharmaceutical $12 B US 5-7% projected growth (1) U.S. Medical-Surgical $80 B U.S. Pharmaceutical 6-8% projected growth (2) $234 B 5-8% projected growth (1) HIT – Hospital, Alternate Site and Automation $28 B 6-7% projected growth (3) Payor – Outsourced and Software $8 B (1) IMS 20-25% projected growth (4) (2) Medical Devices & Supplies M arket Update (3) Datamonitor, 2005 (4) Includes medical management s oftware/c ontent, diseas e management, coding, compliance ser vices Well positioned in all growing healthcare areas 8
  9. 9. Long-term Relationships with Market Leaders Vanderbilt University Medical Center 9
  10. 10. McKesson’s Strategy To bring together clinical knowledge, process expertise, technology, and the resources of a Fortune 16 company to fundamentally change the cost and quality of healthcare. Create long-term Introduce relationships based Sell McKesson’s innovations that on custom solutions comprehensive address emerging that deliver offering healthcare ROI & quality challenges 10
  11. 11. Healthcare Trends 11
  12. 12. Healthcare Trends Drive McKesson Strategy and Growth Focus on McKesson provides health managing McKesson handles over 30% management solutions chronic of the nation’s drug needs Demographics across spectrum diseases drive drug Increased involvement by consumption consumers in their own healthcare McKesson solutions provide supply chain integrity and Focus on reduce medication errors – patient safety bar-code mandate for hospitals McKesson solutions deliver Technology best practice information at point of care improves healthcare Pressure to McKesson delivers Demand by payors and quality control solutions to manage the employers for improved healthcare outcomes complex handoffs in a fragmented industry costs 12
  13. 13. Medicare Modernization Act Provides Opportunities Across McKesson Automation Pharmaceutical Medicare Distribution Volume Patient safety Volume Modernization Generics Netw ork administration Act Health Provider Solutions Technologies Disease management Electronic Prescribing Medication management Quality incentives for hospitals 13
  14. 14. Financial Performance 14
  15. 15. Six Years of Strong Growth $Billions Warehouse Sales Direct Revenues s) $88.1 sale ota l R (t $80.1 CAG 6% 1 $69.2 $57.1 $50.0 $42.0 $36.7 0 1 2 3 4 5 6 Y0 Y0 Y0 Y0 Y0 Y0 Y0 F F F F F F F 15
  16. 16. Diluted EPS (continuing operations)* A GR C 25 % $2.44 $2.18 $2.18 $1.89 $1.43 $0.65 ($0.15) 00 01 02 03 04 05 06 FY FY FY FY FY FY FY 16 Note: EPS from continuing operations, excluding securities litigation charges.
  17. 17. FY06 Consolidated Q4 and Full Year Financial Results ($ and shares in millions, Q4 Full Year except EPS) FY05 FY06 FY05 FY06 Revenues $ 20,507 $ 23,057 $ 80,120 $ 88,050 12% 10% Net Income -- As reported 259 220 (157) 751 -15% NM -- Continuing ops, excluding 258 215 650 767 Securities Litigation charge** -17% 18% Diluted EPS -- As reported $ 0.85 $ 0.70 $ (0.53) $ 2.38 -18% NM -- Continuing ops, excluding $ 0.85 $ 0.68 $ 2.18 $ 2.44 Securities Litigation charge** -20% 12% 17
  18. 18. Pharmaceutical Solutions Financials • Outstanding full year results in our Pharmaceutical Solutions segment Q4 Full Year FY05 FY06 FY05 FY 06 Var. Var. ($ in millions) Revenues Operating Revenue $13,511 $15,192 $52,168 $57,947 12% 11% Warehouse Sales 5,891 6,662 23,755 25,462 13% 7% Total $19,402 $21,854 $75,923 $83,409 13% 10% Operating Profit $389 $351 $1,071 $1,211 -10% 13% 18
  19. 19. McKesson U.S. Pharmaceutical Supply Chain Safety Leadership Benefits for Supply Chain: Product integrity 19 19 20 19 19 20 90 98 02 99 93 Product visibility 06 s Availability Accuracy First use Only Six Flawless of Bar Sigma execution: Verified pedigree Codes in Distributor Best-in- DCs class Rapid delivery Award First mobile Leader in computing: service Winning RFID Acumax® Closed technology in all DCs Loop DistributionSM tool 19
  20. 20. McKesson Value-Added U.S. Pharmaceutical Distribution Industry-leading service levels Next day deliveries with 99% fill rates 99.74% invoice pricing integrity vs. 99.3% industry average Aggregation of delivery RDC reduces shipping and delivery costs for 500+ manufacturers Centralized ServiceFirst Call Center 7 million calls annually, #1 in industry by Purdue Benchmark Research Investments in customer offering Automation for retail, hospital and mail order Central Fill Pharmacy information systems Continuous process improvement Six Sigma since 1998 for McKesson and our customers 20
  21. 21. … With 4 Levers for Operating Margin Expansion … + - Goal of Sell Sell Generics Generics Margin Pharma Margin Operating Margin: 150 to 200 bp Mfr. Operating Mfr. Operating Comp.* Expenses Comp.* Expenses *Mfr. Comp. = 80% non-continge nt (FFS) 21
  22. 22. Patent Expirations Driving Increased Generics Sales Annual Patent Expirations Est. U.S. Generics Industry $ Billions $ Billions $31 $20 $28 $26 $16 $23 $15 $14 $20 $17 $11 $9 03 04 05 06 07 08 03 04 05 06 07 08 20 20 20 20 20 20 20 20 20 20 20 20 CAGR 2003-2008 : 12.8%; Merrill Lynch; IMS; McKesson analysis 22
  23. 23. Medical-Surgical Financials • Clearly disappointing results driven by our acute care segment Q4 Full Year FY05 FY06 FY05 FY 06 Var. Var. ($ in millions) Revenues $738 $772 $2,895 $3,099 5% 7% Operating Profit $31 $10 $102 $70 -68% -31% 23
  24. 24. Provider Technologies Financials • Excellent full year results in our Provider Technology Segment Q4 Full Year FY05 FY06 FY05 FY 06 Var. Var. ($ in millions) Revenues $367 $431 $1,302 $1,542 17% 18% Operating Profit $46 $48 $107 $143 4% 34% 24
  25. 25. MPT Market Positioning Transforming Healthcare 25
  26. 26. Increasingly Strong Products Relative to Competitors Products in Top 3 of KLAS Year End Rankings Number 18 15 8 7 4 3 3 1 McKesson Cerner EPIC Eclipsys 2004 2005 Source: KLAS 26
  27. 27. Strong, Flexible Balance Sheet March 31, ($ in m illions) FY05 FY06 Cash and Cash Equivalents $ 1,800 $ 2,142 Operating Cash Flow $ 1,538 $ 2,744 Debt to Capital 18.7% 14.4% Net Debt to Net Capital Employed -12.6% -24.2% 27
  28. 28. FY07 EPS Guidance For the Fiscal Year ending March 31, 2007, McKesson expects to earn between $2.55 and $2.70 per fully diluted share 28 See Press Release dated May 4, 2006 for key assumptions underlying EPS guidance
  29. 29. Financial Flexibility to Continue to Create Shareholder Value Improving Management Strong Business Track Balance Performance Record Sheet and Cash Flow EARNINGS GROWTH AND STRATEGIC OPTIONS TO CREATE ADDITIONAL VALUE 29
  30. 30. What McKesson Represents • Management with strong track record of financial performance • Core pharmaceutical business positioned for growth • Stable of higher margin businesses poised to take advantage of the evolution of healthcare • Strong cash flow and balance sheet, providing flexibility to increase shareholder value • Commitment to financial transparency and communication Create Value for Suppliers, Customers and Shareholders 30
  31. 31. Diluted EPS Reconciliation ($ and shares in millions, except EPS) FY04 FY05 FY06 Net income (loss), continuing ops $ 643 $ (160) $ 737 - as reported Exclude: - 1,200 45 Securities Litigation charges, net - (390) (15) Estimated income tax benefit - 810 30 Net income, continuing ops, excluding $ 643 $ 650 $ 767 Securities Litigation charges Diluted earnings per common share, continuing ops, excluding Securities $ 2.18 $ 2.18 $ 2.44 (1) (2) Litigation charges Shares on which diluted earnings per common 299 301 316 (2) share were based (1) Certain computations m ay r eflect rounding adjustments. (2) For the year s ended Mar ch 31, 2006, 2005 and 2004, inter est exp ense, net of r elat ed incom e taxes, of $1 m illion, $6 million and $6 million has been add ed to net incom e, excluding the Secur ities Litigation charges, for purposes of calculating diluted earning s per sh are. This calculation also includ es the impact of dilutive secur ities (stock options, convertible junior subordinat ed debentures and restricted stock). 32
  32. 32. Diluted EPS Reconciliation ($ and shares in millions, except EPS) Q4 Full Year FY05 FY06 FY05 FY06 Net income, (loss) continuing ops - as reported $ 258 $ 220 $ (160) $ 737 Exclude: Securities Litigation charges (credits), net - (8) 1,200 45 Estimated income tax benefit - 3 (390) (15) - (5) 810 30 Net income, continuing ops, $ 258 $ 215 $ 650 $ 767 excluding Securities Litigation charges Diluted earnings per common share, continuing ops, (1) (2) $ 0.85 $ 0.68 $ 2.18 $ 2.44 excluding Secuities Litigation charges Shares on which diluted earnings per common share were based (2) 305 314 301 316 (1) Certain computations m ay r eflect rounding adjustments. (2) For the year s ended Mar ch 31, 2006, 2005 and 2004, inter est exp ense, net of r elat ed incom e taxes, of $1 m illion, $6 million and $6 million has been add ed to net incom e, excluding the Secur ities Litigation charges, for purposes of calculating diluted earning s per sh are. This calculation also includ es the impact of dilutive secur ities (stock options, convertible junior subordinat ed debentures and restricted stock). 33

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