McKesson’s profit increases 26%

McKesson Corp. reported Thursday that its fiscal third-quarter profit surged 26%, beating analyst expectations.

The San Francisco-based prescription drug distributor said it earned $243 million, or 80 cents a share, during 2006’s final three months. That compared with net income of $193 million, or 61 cents, during the same period in 2005.

Excluding its discontinued operations, McKesson earned 79 cents a share, blowing past the average estimate of 68 cents a share among analysts surveyed by Thomson Financial.

Revenue climbed 4% to $23.1 billion, about $400 million less than the average analyst estimate. But McKesson more than made up for the revenue shortfall by fattening the profit margins on its prescription drug sales, particularly on generic medicine.

As the patents have been expiring on a large number of branded drugs during the last year, McKesson has been filling more orders with generic alternatives that are usually more lucrative for their distributors.

Generic drug sales also are being fueled by the nation’s largest retailer, Wal-Mart Stores Inc., which is stocking more of the non-branded medicine as part of a sales promotion launched last year.

Wal-Mart renewed its supplier contract with McKesson late last year, extending a relationship that began in 1988.

McKesson released its results after the company’s shares hit a 52-week high of $52.66, then retreated to close at $55.37, up 20 cents.