McKesson finds more sales inaccuracies in HBOC books

It again reduces earnings numbers

shares fall 12%

Drug wholesalers

May 26, 1999|By BLOOMBERG NEWS

SAN FRANCISCO -- McKesson HBOC Inc., the largest U.S. drug wholesaler, said yesterday that it found more inaccurate sales figures on the books of a software business purchased in January, forcing it for the second time in a month to reduce previously reported profits.

McKesson shares fell 12 percent after the company said it will reduce earnings by an undisclosed amount for the four quarters through March 31.

"This has clearly raised the question about whether any number can be trusted at HBOC," said Richard Vietor, a Merrill Lynch analyst. "It's the uncertainty that the market is dealing with."

The shares have fallen 49 percent since April 27, the day before McKesson first reported the accounting problem and reduced fiscal 1999 profit by 4.4 percent. The shares fell $4.6875 yesterday to $33.50 in trading of 12.4 million shares, more than triple the three-month daily average.

When the $13.9 billion purchase of HBO & Co. was announced in October, McKesson stock tumbled as investors questioned the logic of combining a drug wholesaler with a software company.

McKesson President and Chief Executive Officer Mark Pulido had to work hard then to overcome investor resistance to the purchase, which came after an earlier attempt to combine the two companies failed.

McKesson is continuing to investigate HBO sales that were booked before they were completed, spokesman Larry Kurtz said. The sales were subject to conditions, such as approval by a customer's board, meaning the contracts could still be canceled, he said. McKesson expects most of the contracts to be completed.

McKesson said it will send final results of the investigation to shareholders with its proxy statement, which it wants to mail next month, Kurtz said.

McKesson said it's possible that prior years' results will require restatement.

Analysts said they were concerned because McKesson didn't give an indication of how much earnings would need to be restated, causing investors to fear the worst.

"We can't put a boundary on it, but we thought that the fact that there will be an additional restatement would be of interest to the financial community," Kurtz said.

The drop in share price caused by the April 28 announcement sliced more than $8.6 billion off McKesson's market value. McKesson said $26.2 million of its fourth-quarter software sales and $16 million in the previous three quarters would need to be restated.

In April, McKesson lowered its fourth quarter per-share earnings to 56 cents a share and fiscal 1999 earnings to $1.97. The company had reported profit from operations of $177.2 million, or 62 cents, for the fourth quarter and $2.06 for the year.

It also revised per-share earnings goal for 2000 to $2.50 as a result of the revisions after originally estimating it would earn $3 a share in fiscal 2000.

After the revisions were announced, dozens of shareholder lawsuits were filed against McKesson, alleging securities fraud in the way the sales were recorded, saying HBOC's true performance was hidden behind false filings.

The second restatement of earnings comes amid weakness in the health-care software industry.

Pub Date: 5/26/99

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