McKesson Corp. absorbed a hit to its latest quarterly earnings to settle allegations that the prescription drug distributor conspired to drive up the Medicaid reimbursements covered by local government agencies.
Investors, though, discounted that one-time cost and snapped up McKesson's stock after the results came out late Tuesday. The shares surged $3.12, or 4 percent, to $79.25 in extended trading.
The company earned $296 million, or $1.18 per share, during its fiscal second quarter. That was down from net income of $327 million, or $1.25 per share, at the same time last year.
If not for it legal expenses and other items unrelated to its ongoing business, McKesson said it would have earned $1.63 per share. That figure exceeded the average estimate of $1.39 per share among analysts surveyed by FactSet.
Revenue for the July-September period increased 10 percent from last year to $30.2 billion -- about $700 million ahead of analyst estimates.
The strong performance emboldened management to brighten its outlook. McKesson now expects adjusted earnings per share for the fiscal year ending in March to range from $6.19 to $$6.39, up from $6.09 to $6.29 previously. The average analyst projection is $6.23 per share.
Setting the Medicaid allegations cost McKesson $82 million during the quarter. Various city and county agencies had accused McKesson and First Databank Inc., a publisher of pharmaceutical pricing information, of running a scam to make money off the government. The claims alleged the conduct inflated the wholesale prices of hundreds of drugs.
McKesson denied any liability as it agreed to the settlement.
The company, which is based in San Francisco, still faces similar price manipulation allegations in other lawsuits. To cover the potential bills, McKesson added another $118 million to its legal reserves during the most recent quarter. As of Sept 30, McKesson had accumulated $442 million in the fund earmarked for the legal problems.