With positive Q3 in the books, McKesson bullish on sourcing
McKesson on Thursday reported revenues of $53.6 billion for the third quarter ended Dec. 31, up 7% compared to the year-ago period. Third-quarter results were driven by organic growth across multiple business units, including the company’s strategic sourcing benefits through ClarusONE, incremental profit contribution from acquisitions and a lower tax rate, which included discrete tax benefits unrelated to the Tax Cuts and Jobs Act of 2017.
“I’m extremely pleased with the progress of ClarusONE [McKesson’s joint sourcing entity with Walmart] and its strong contribution to our results this year,” John Hammergren, McKesson chairman and CEO, told investors. “We have contracted a diverse range of manufacturers delivering benefits to our partner Walmart and more broadly, with all of our customers who purchase generics through us, helping them to be more successful in a competitive and dynamic market.”
“We believe that we’ve really got a great foundation in place,” added Britt Vitalone, McKesson executive vice president and CFO who had helped create ClarusONE. “We’ve been able to partner with a number of manufacturers and really develop a beachhead around generics in the U.S., and we think we have tremendous foundation to take that further, whether that be, again, additional geographies or additional product categories. So we are quite excited about the potential that we have there, and we’ll continue to explore that over the coming quarters.”
In addition to its sourcing agreements with Walmart, Rite Aid remains a significant customer, and not one McKesson expects to lose anytime soon. “We’re working closely with Rite Aid to ensure the successful transition of the allotted stores to Walgreens,” Hammergren said. “We continue to deliver exception value to Rite Aid every day and we remain comfortable that our sourcing scale and capability has not been, nor will be, impacted by this transition.”
Rite Aid is currently contracted to purchase generics from McKesson through March 2019, but as part of its asset sale to Walgreens Boots Alliance, the company will have access to Walgreens’ generic sourcing heft following the expiration of that McKesson contract.
Rite Aid’s January quarterly conference call may have been a confidence booster for McKesson. “We’re under no commitment to switch from McKesson and will ultimately align with a purchasing partner that we think will offer us the best overall economics,” Kermit Crawford, Rite Aid president and COO, said. Rite Aid is currently looking into renegotiating its generic purchasing agreements in an effort to realize greater savings across its network before March 2019, Rite Aid executives shared with investors in January.
On a per-share basis, the San Francisco-based company reported net income of $4.33. Earnings, adjusted for one-time gains and costs, were $3.41 per share. The average estimate of eight analysts surveyed by Zacks Investment Research was for earnings of $2.92 per share, according to reports.
Distribution Solutions revenues totaled $53.6 billion for the quarter, up 8% on a reported basis and 7% on a constant currency basis. North America pharmaceutical distribution and services revenues of $44.9 billion for the quarter were up 8% on a reported basis and 7% on a constant currency basis, primarily reflecting market growth and acquisitions.
Other notable events in the quarter include McKesson’s acquisition of RxCrossroads; that transaction was closed approximately one month ago.
Topco elevates new pharmacy chief and center store exec
Topco Associates on Wednesday announced the promotion of two executives, effective immediately. Tom Frey was elevated to executive vice president and CFO from his prior role as senior vice president and CFO and Christine Heffernan was promoted to senior vice president, center store. Heffernan was previously vice president, center store.
“These two well-deserved promotions will allow Topco to further drive our strategic business objectives as we continue to expand our platform to provide products and services to help our member-owners thrive in the changing grocery industry. With Tom and Christine’s extensive experience and combined industry knowledge, we are well positioned to partner for growth and deliver further savings across Topco programs,” Randy Skoda, Topco president and CEO, said. “In addition, both individuals have taken on initiatives that have been instrumental in advancing our strategic priorities to the membership. I am confident, that under Tom’s and Christine’s leadership, these additional responsibilities will continue to build stronger collaboration and alignment across our business, advancing our mission to bring additional value to Topco’s membership.”
Frey will expand his responsibilities to include oversight of Topco’s pharmacy program, health and wellness initiatives and Avantis Technology Partners, a joint venture with the Audit Technology Group that combines ATG’s transaction data aggregation analytics platform with Topco’s category management expertise.
Prior to joining Topco in 2008, Frey served as the vice president and CFO of Dominick’s Finer Foods. Previously, he held a variety of positions with increasing responsibility with McCain Foods, USA; Deluxe Video Services; The Quaker Oats Company; and Ernst & Young. Frey received a Bachelor of Science degree in commerce from DePaul University, an MBA from the J.L. Kellogg Graduate School of Management at Northwestern University, and is a certified public accountant.
Meanwhile, Heffernan has made an impact on the center store business, including building a new sourcing and category model for the center store team and the successful launch of one of Topco’s strategic brands, Simply Done. In addition to these accomplishments, Heffernan’s role has expanded to managing Topco’s member services department, warehouse operations, logistics and shopper insights.
Heffernan joined Topco in 2002 as part of the merger with Shurfine International. She was named program director in 2008, business unit lead, center store in 2014 and vice president, center store in 2016. Prior to joining Topco, Heffernan held several leadership positions at Shurfine International including director, member services. Heffernan holds a bachelor’s degree in Food Industry Management from Cornell University.
Kroger’s Scan, Bag, Go to hit 400 new doors
Kroger on Thursday introduced its Scan, Bag, Go shopping technology in 18 operating divisions, making the service available this year to customers at 400 stores.
“With every new product, service and technology integration, Kroger is redefining the customer experience and reimagining the store of the future,” Chris Hjelm, Kroger executive vice president and chief information officer, said. “After testing Scan, Bag, Go in several locations, we are bringing this transformative technology to new stores across the country through Restock Kroger.”
Kroger’s in-house research and development team invented and built the Scan, Bag, Go shopping technology, which has been piloted in the Cincinnati area for the past several years. The offering allows customers to use a wireless handheld scanner or the Scan, Bag, Go app on their personal device to scan and bag products as they shop for a quicker, seamless checkout experience.
Scan, Bag, Go helps to create a personalized experience for customers throughout their shopping trip, allowing them to view and download digital coupons, keep a running total of their order, and view the current week’s sales ad.
Scan, Bag, Go customers currently visit a store’s self-checkout area to provide payment. Customers will soon have the ability to provide payment directly through the app, allowing shoppers to exit the store even quicker.
“Many of our customers have adopted this convenient new technology and responded favorably to the seamless checkout experience,” Hjelm said. “Scan, Bag, Go is one more choice, like ClickList, that Kroger provides so customers can choose when and how they want to shop with us.”
By the end of the year, the service will be available at select locations in the following divisions: Atlanta; Central; Cincinnati; Columbus; Dallas; Delta; Dillons; Fred Meyer; Fry’s; Houston; King Soopers; Louisville; Michigan; Mid-Atlantic; Nashville; Ralphs; Smith’s; and QFC.
“The installation of Scan, Bag, Go is a collaboration between the Kroger operations and tech teams that allows us to accelerate the adoption of new technologies in our stores,” said Mary Ellen Adcock, Kroger group vice president of retail operations. “We are always excited to execute innovative ideas that benefit our customers’ shopping experiences.”