Earnings Preview: McKesson

OVERVIEW: McKesson shares have declined this year, pressured in part by concerns that economic weakness will result in weaker sales of prescription drugs. Compared with 2007, 2008 is also a relatively weak year in terms of the value of branded drugs losing patent protection.

Generic drugs are more profitable for McKesson because they can be substituted for more expensive branded drugs and sold at in greater amounts and at higher profit margins.

McKesson bought regional distributor McQueary Brothers Drug Co. for about $190 million on April 8 to expand its reach in the Midwest. McKesson made several other small acquisitions during the quarter, and sold its pharmacy management system to privately held Comprehensive Pharmacy Services.

BY THE NUMBERS: On average, analysts polled by Thomson Financial expect McKesson to report a profit of 80 cents per share on $26.03 billion in revenue.

ANALYST TAKE: Lehman Brothers analyst Lawrence Marsh thinks McKesson will top Wall Street's expectations due to "reasonable" drug prices during the quarter. He thinks McKesson will report drug distribution revenue growth of almost 8 percent, to $25.03 billion, but expects thinner profit margins from the health care information technology business.

Leerink Swann analyst Bret Jones said the health care IT unit is well-positioned despite lower capital spending from U.S. hospitals, because it has a broad range of products and a strong presence overseas.

WHAT'S AHEAD: McKesson expects to earn between $3.75 and $3.90 in fiscal 2009, which ends March 31.

STOCK PERFORMANCE: The stock rose 6.8 percent during the quarter, closing at $55.91. Shares traded between $51.27 and $59.12. Shares finished at $54.56 Monday.