UPDATE 3-McKesson profit rises, outlook shines

* Q4 net EPS $1.26

* Revenue up 1.5 pct to $26.6 billion

* Sees fiscal 2011 EPS $4.72 to $4.92

* Shares rise 4 pct (Adds company comment from conference call, analyst comment)

By Bill Berkrot

NEW YORK, May 3 (Reuters) - Pharmaceutical wholesaler McKesson Corp MCK.N on Monday issued an earnings forecast for fiscal 2011 that exceeds Wall Street estimates, helped by an expected increase in the use of more profitable generic drugs and a favorable anti-trust settlement.

Its shares, which were up about 11 percent over the past three months, rose 4 percent in after-hours trading.

The company also reported that profit for its fiscal fourth quarter rose 24 percent.

McKesson said it expects to earn between $4.72 and $4.92 per share for its fiscal year ending March 31, 2011, including an estimated 12 cents from an anti-trust settlement.

Analysts on average are estimating $4.70 for the year.

“The fiscal ‘11 outlook definitely surprised on the positive side,” said Helene Wolk, an analyst with Sanford Bernstein.

Wolk said the quarterly earnings were a bit less than she expected but added, “this is a pretty good outlook without using a lot of their cash. They still have a lot of excess cash floating around.”

The San Francisco-based company posted a net profit of $348 million, or $1.26 cents per share, for its fiscal fourth quarter ended March 31, compared with a profit of $281 million, or $1.01 per share, a year ago.

The company declined to break down its 2011 forecast by quarters, but Chief Financial Officer Jeff Campbell told analysts on a conference call that “the fourth quarter will be our strongest.”

McKesson noted that the outlook assumes that all the profit it earned from distributing H1N1 flu vaccine in fiscal 2010 -- about 37 cents a share -- “goes away” in the upcoming year. It will continue to deliver H1N1 vaccine at significantly reduced levels through July as it winds down that operation.

Revenue for the quarter rose 1.5 percent to $26.6 billion, shy of Wall Street estimates of $27.31 billion.

But investors were clearly cheered by the full-year forecast. The company also announced that its board authorized an additional $1 billion share repurchase program.

“Our increased share repurchase authorization maximizes our flexibility to begin deploying our significant cash balances, and we also will continue to pursue acquisition opportunities,” Chief Executive John Hammergren said in a statement.

McKesson ended the year with a cash balance of $3.7 billion.

“Considering the economic environment, there’s really nothing to complain about,” Morningstar analyst Matthew Coffina said.

“Where the company came up short this year and going forward is they’re really not using their cash very well,” he said.

“They’re sitting on $3.7 billion on the balance sheet. If I was an investor I’d be concerned that they’re maybe preparing for a major acquisition,” Coffina said.

Distribution Solutions revenue was up 2 percent for the fourth quarter despite U.S. pharmaceutical distribution being flat in the period. The results in the segment were helped by increases in medical-surgical distribution and services revenue.

Technology Solutions also saw revenue edge 2 percent higher for the quarter.

“In Distribution Solutions, generics will be a strong driver for our business,” Hammergren said. “We are headed into a year with a robust (generics) launch calendar.”

Cheap generic drugs have a higher profit margin than more expensive branded medicines and several of the world’s top-selling branded drugs will begin to see generic competition over the next few years.

Hammergren also said the company will benefit from new U.S. healthcare reform laws that will eventually add millions of people to insurance roles.

“We expect healthcare reform will help sustain our momentum,” he said.

McKesson shares rose to $67.50 in extended trading from their New York Stock Exchange close at $64.87. (Reporting by Bill Berkrot; Editing by Bernard Orr)