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G500-2023-McKesson

The drug distributor reported an 11% increase in revenue, driven by strong growth in its U.S. pharmaceutical segment. 
<ul> 
 	<li>McKesson shareholders reaped a 52% return, including dividends, in 2022. That gain was owed in part to shareholders’ growing confidence in the company’s outlook in the wake of a February 2022 legal settlement that resolved several lawsuits against McKesson for its alleged role in facilitating the overprescription of opioids. The company said it continued to dispute those allegations.</li> 
 	<li>In March 2023, McKesson announced a five-year medical equipment and supply contract with the U.S. Department of Veterans Affairs.</li> 
</ul>

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F500-2023-McKesson

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G500-2022-16-McKesson

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F500 2022 McKesson Corp

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G500-2021-012-McKesson

America’s largest drug distributor—whose fiscal year ended early in the pandemic in March 2020—recorded a 7.8% revenue increase last year, owing to greater volumes and higher prices of the drugs it delivers. As with its two main competitors, Texas-headquartered McKesson continues to battle legal challenges over its role in the nation’s opioid epidemic. In 2020, the company was selected by the U.S. government as the main distributor for the nation’s COVID vaccines.

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F500 2021-07-McKesson

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G500-Featured Image-Logo-2020

With new CEO and McKesson veteran Brian Tyler at the helm, the largest U.S. drug distributor recorded 7.8% revenue growth, fueled largely by more sales volume and higher drug prices, as well as by acquisitions. That growth offset the loss of some customers and the price declines of branded drugs going off-patent. The company, which delivers a third of the nation’s drugs and counts Walmart as a customer, saw profits drop due to a variety of impairment charges and costs associated with opioid-related litigation. Along with other drug distributors, McKesson is the subject of a federal criminal investigation and is fighting thousands of lawsuits over its alleged role in the nation’s opioid epidemic. In February, 21 states rejected a proposed $18 billion settlement with McKesson and the U.S.’s two other largest drug wholesalers.

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F500-2020-007-McKesson

With new CEO and McKesson veteran Brian Tyler at the helm, the nation’s largest drug distributor recorded 2.9% revenue growth, fueled largely by more sales and higher drug prices, as well as acquisitions. That growth offset the loss of some customers and the price declines of branded drugs going off-patent. The company, which delivers a third of the nation’s drugs and counts Walmart as a customer, saw profits drop due to a variety of impairment charges and costs associated with opioid-related litigation. Along with other drug distributors, McKesson is the subject of a federal criminal investigation and is fighting thousands of lawsuits over its alleged role in the nation’s opioid epidemic. In February, 21 states rejected a proposed $18 billion settlement with McKesson and the U.S.’s two other largest drug wholesalers.

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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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McKesson provides health care services in the United States and internationally, operating a number of different businesses including distributing over-the-counter pharmaceutical drugs and other health-care-related products. Its prescription technology services business, meanwhile, serves biopharma and life sciences partners and works with patients to address medication challenges. Its medical-surgical solutions business offers various services to health care providers, including physician offices, surgery centers, nursing homes, hospital reference labs, and home health care agencies, although the company announced plans in 2025 to separate that business.

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Q3 2025

McKesson (MCK): Company Profile, Stock Price, News, Rankings

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McKesson

mckesson

Welcome to McKesson's Third Quarter Fiscal twenty twenty five Earnings Conference Call. Please be advised that today's conference is being recorded. At this time, I'd like to turn the call over to Rachel Rodriguez, VP of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and welcome everyone to Macassan's third quarter fiscal twenty twenty five earnings call. Today, I'm joined by Brian Tyler, our Chief Executive Officer and Britt Bittelone, our Chief Financial Officer. Brian will lead off followed by Britt and then

question and answer session. Today's discussion will include forward looking statements such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's earnings release and presentation slides available on our website at investor.mckesson.com and to the risk factors section of our most recent annual report and other SEC filings for additional information concerning risk factors that could cause our actual results to differ from those in our forward looking statements. Information about non GAAP financial measures that we will discuss during this webcast, including reconciliation of those measures to GAAP results, can be found in today's earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and updated guidance.

Thank you, Rachel. And good afternoon, everybody. Thanks for joining the call. Earlier today, McKesson reported strong third quarter results, delivering another quarter of double digit growth in operating profit. Our team executed against our company priorities with focus and unwavering dedication.

Thanks to their commitment, we are expanding our differentiated capabilities, driving operational efficiencies and creating real value for our partners and shareholders. Yesterday, we were excited to announce the signing to acquire a controlling interest in PIVEN Vision, which is a provider of general ophthalmology and retina management services. This marks an important step as we continue to enhance our specialty services platform and capabilities. I'll share additional details about the transaction a little later in my comments. Let's move on to the third quarter results.

During the quarter, revenue grew 18% to $95,300,000,000 and adjusted operating profit grew 16% to $1,500,000,000 Adjusted operating profit grew across all segments led by strong double digit growth in U. S. Pharmaceutical and Prescription Technology Solutions segments. In the Medical Surgical, growth was lower than anticipated, primarily driven by the late start of a softer illness season. The strength of the enterprise and the scale of our assets gave us the confidence to increase and narrow our full year guidance for adjusted earnings per diluted share from $32.4 to $33 to a new range of $32.55 to $32.95 which represents 19% to 20% year over year adjusted EPS growth.

Today, I'm excited to share with you the great progress we've made in the past quarter, which is key to the financial results we delivered today and more importantly to the long run growth of the business. Then I'll turn it over to Britt for more details in the financial review. I want to start with our focus on talent and culture, which is foundational to our company's strategy and everything we do here at McKesson. We value the breadth of backgrounds, experiences and skills of our team members. And that includes our Board of Directors.

Earlier this week, our Board of Directors elected two new members to our Board, Lynn Doty and Doctor. Julie Gerberding. Ms. Doty brings accounting and finance expertise from the board from her experience as the former chair and chief executive officer of KPMG. Doctor.

Gerberding brings extensive executive experience in the healthcare industry and public policy arena. She was formerly the chief executive officer or is currently the chief executive officer at the Foundation for National Institutes of Health and formerly the executive vice president and chief patent officer at Merck and a former director of the CDC. Ms. Dodie will serve on our Audit Committee and Finance Committee and Doctor. Gerberding will serve on our Compliance Committee and the Compensation and Talent Committee.

These additions are yet another example of our best talent philosophy at work. We look forward to their leadership as we work together to continue to drive the growth of the company. Let's move on to our second priority at strengthening the distribution capabilities and performance in North America. Within The U. S.

Pharmaceutical segment, the utilization trends remain stable, leading to solid volume growth in the underlying business. The strong performance in the quarter is underpinned by our scaled distribution capabilities across multiple therapeutic areas and our ability to provide exceptional services to our customers. One of the channels we serve is community pharmacies, which play a critical role in bringing accessible care to patients. Recently, we launched a strategic initiative to help protect critical pharmacy services and to elevate the pharmacy profession. We will provide funding support to eligible community pharmacy associations across all 50 states to help meet their advocacy goals and strengthen their voice in the community, and the role of the community pharmacy industry.

Within the medical surgical segment, we've strategically positioned this business to be focused on the alternate site markets. One of the market dynamics that impact this segment is the annual illness, flu or respiratory season. Each illness season is unique, including its onset, its severity and how long it lasts. During the quarter, we observed lower than anticipated volumes related to the illness season, which impacted the third quarter results. Market data shows that the number of flu like illness cases was lower than the average of the last five non COVID years and below the prior season.

The softer illness season impacted the band of seasonal vaccines, illness, testing and foot traffic in primary care sites. This development coupled with the general market weakness in the primary care channel we've called out for the prior, two previous quarters, posed a challenging market backdrop for the segment. Despite the impact of the market trends, we remain confident in our strategy in the alternate site market and the strength of the underlying business. We continue to take immediate and effective actions to better align our service model and capabilities with our customer needs and the market demand. In the past quarter, we made important progress in the business rationalization initiatives that were previously announced.

Thanks to the focus from our team, we're on track to complete the rationalization plan by the first half of fiscal twenty twenty six and deliver meaningful savings as expected. Moving on to our two strategic growth pillars, oncology and biopharma services platforms. Over the years, we've continually invested and expanded our oncology assets in alignment with our stated strategy. The oncology market continues to be the largest growing therapeutic category and is one reason we continue to invest in this area. We have built a portfolio of assets that include distribution of oncology drugs and value added services that improve the cancer care journey.

Through the US Oncology Network, we empower the delivery of advanced and integrated cancer care in the community setting, which is often closer to home and more cost effective for the patient. We're pleased to see the continued expansion growing to over twenty seven fifty providers across six forty sites of care in 31 different states. We provide resources and support to these community oncology practices to empower their growth and ultimately improve the patient experience and outcomes of cancer care. We also provide clinical trial services to community based practices through the Sarah Cannon Research Institute joint venture, which we often refer to as SCRI. Last year, the patient accruals through clinical trials increased 25% within SCRI.

It participated in the development of 33 of the 47 therapies approved by the FDA. We're excited to bring more innovative and life changing therapies to community based practices and their patients. As we continue to advance our strategy on oncology and other specialties, we've also been evaluating opportunities in other therapeutic areas. Last year, we acquired certain assets from US Retina and launched a new GPO program called Onmark Vision. We also have Retina OS, a clinical workflow and inventory management technology that streamlines inventory revenue and payments management.

All of these assets are building blocks for the acquisition that we announced yesterday. We're excited to sign an agreement to acquire a controlling interest in Prism Vision. Its affiliated practices include 180 providers, 91 office locations and seven ambulatory surgery centers. Similar to our strategy on oncology, we see an exciting opportunity in retina and ophthalmology given its attractive drug pipeline, the speed of innovation and practitioners' needs for additional support and services. We have a great track record of building and growing the oncology platform over the past several years.

We're taking a similar approach to the expansion in retina. We are strategic and thoughtful in building these platforms and creating a portfolio of assets that complement each other and reinforce each other. The transaction is subject to customary closing conditions, including necessary regulatory clearances. We look forward to advancing retina and ophthalmology patient care through a meaningful platform of distribution and other value added services. On to our biopharma services platform.

We offer a portfolio of solutions that connect biopharma companies, providers, pharmacies and payers to improve the access, affordability and adherence of medications. In the third quarter, the prescription technology solutions segment delivered strong performance in line with our expectations. Growth accelerated in the quarter reflecting strong demand across our product solutions. One of our value add solutions is prior authorizations, which automate the process and give patients access to their prescriptions faster. But in addition to prior authorizations, we're seeing continued growth from many other solutions.

In the fiscal third quarter, we added access and affordability support for pharma brands that span across 30 indications and more than 12 therapeutic areas. We're pleased to support a diversified portfolio of brands with their unique needs and ultimately make these medications more accessible and affordable to providers and patients. Biopharma services is a strategic growth pillar for us and we continue to invest strategically to support its growth. In the past few quarters, we've updated the user interface of our key customer systems, enhanced the core technical infrastructures and improve the overall user experience. These updates help us support customers and a more efficient manager as we ramp up the annual verification program in our fiscal fourth quarter.

Looking across our business segments, we've built a large and a diversified portfolio of assets. It is part of our continuous practice to assess this portfolio for strategic alignment. In December, we completed the divestiture of the Rexall and Well.ca businesses. This allows us to focus and prioritize investments in other strategic areas. As Canada's largest pharmaceutical distributor, we continue to invest and modernize our distribution network, introducing automation and technology to improve efficiency.

We're also growing a set of biopharma solutions that include third party logistics, patient care services and data insights. So let me try to sum up the quarter. McKesson delivered strong quarterly results in fiscal twenty twenty five. Three of our four business segments grew adjusted operating profit at double digit rates in the quarter. That represents over 80% of our business growing AOP in double digits and highlights the strong momentum across the enterprise.

The fundamentals of our business remain strong and we're taking strategic actions to enhance our differentiated portfolio to drive operational efficiencies and to modernize the enterprise. We're confident in our market positions and pleased with the momentum we're building across the business. Looking ahead, we're focused on delivering a strong finish to fiscal twenty twenty five and driving sustainable long term growth in the years ahead. With that, I'll hand it over to Britt for some additional insights and comments.

Thank you, Brian, and good afternoon. My comments today will refer to our adjusted results. We'll start with consolidated results, followed by a review at the segment level and conclude with an update on our full year fiscal twenty twenty five outlook. We reported another strong quarter with notable momentum across the enterprise. We're pleased to report record quarterly revenue and operating profit, including year over year operating profit growth in each segment.

These results demonstrate the remarkable breadth of McKesson's products and services and reflect the focus and execution against our company priorities. Consolidated revenues increased 18% to $95,300,000,000 led by growth in The U. S. Pharmaceuticals segment due to increased prescription volumes from retail national account customers and growth in the distribution of specialty products, including higher volumes in oncology and specialty provider settings. Gross profit was $3,300,000,000 an increase of 7%, primarily a result of specialty distribution and provider growth within The U.

S. Pharmaceutical segment and growth in the prescription technology solutions segment driven by our access and affordability solutions. Operating expenses increased 2% to $1,900,000,000 driven by higher expenses to support growth in The U. S. Pharmaceutical segment.

We're pleased with the focus in driving a lower operating cost structure, implementing efficiencies through automation and data capabilities and delivering insights to improve our operations, products and service offerings. This is reflected in the operating expense to gross profit ratio, which improved over two fifty basis points as compared to the prior year. Operating profit was $1,500,000,000 an increase of 16%. Year over year results benefited from growth across all segments. Interest expense was $62,000,000 an increase over the prior year, resulting from higher average balances of our loan portfolio during the quarter.

The effective tax rate was 23.9% compared to 10.6% in the prior year. This rate was in line with the guidance provided at recent investor industry conferences. Third quarter diluted weighted average shares outstanding was $126,600,000 a decrease of 5%. In third quarter, earnings per diluted share increased 4% to $8.03 Year over year growth was driven by strong operational performance and a lower share count, partially offset by a higher tax rate resulting from discrete items in the quarter. Turning to third quarter segment results, which can be found on slides eight through 12 and starting with our U.

S. Pharmaceuticals segment. Revenues were $87,100,000,000 an increase of 19%. Revenue growth was led by higher volumes from retail national account customers, growth from specialty product distribution, including higher volumes from oncology and specialty provider settings and partially offset by the anticipated decline of certain brand volumes due to formulary changes by a retail national account customer beginning in our fiscal twenty twenty five first quarter. Revenues from GLP-one medications were $10,900,000,000 in the quarter, an increase of approximately $3,400,000,000 or 45% when compared to the prior year.

We anticipate continued GLP-one medication growth year over year, however, with variability from quarter to quarter. Operating profit increased 14% to $944,000,000 driven by growth in the distribution of specialty products to health systems and specialty providers, the onboarding of a new strategic customer and growth in our differentiated oncology platform, partially offset by expected lower distribution volumes of COVID-nineteen vaccines as compared to the prior year. In the prescription technology solutions segment, organic and new program growth across our access and affordability solutions led to strong growth compared to the prior year. Revenues increased 14% to $1,400,000,000 and operating profit increased 22% to $235,000,000 Third quarter results reflect increased prescription transaction volumes, which drove higher demand for our access solutions, including prior authorization services for GLP-one medications and growth in our third party logistics business. Year over year growth was also supported by increased sales to new customers and programs across our access and affordability solutions.

Turning to medical surgical solutions. As Brian mentioned earlier in his remarks, we observed lower than anticipated volumes due to less demand for illness season products. As we've previously discussed, each illness season is unique and the timing and severity level of each illness season can drive variability from quarter to quarter. Through the fiscal third quarter, this illness season had lower severity levels compared to prior years and lower than our expectations, impacting foot traffic in the primary care settings that we serve. As measured by IQVIA data, illness severity was approximately sixty two percent of the average of the previous five non COVID illness seasons.

In the third quarter, revenues decreased 3% to $2,900,000,000 The decline in revenues can be attributable to the lower levels of seasonal vaccines, illness testing and related medical surgical supplies in the primary care channel. Operating profit increased 4% to $294,000,000 driven by operational efficiencies from the cost optimization initiatives that we announced in Q1 and growth in the extended care business. These are partially offset by lower contributions in the primary care channel as compared to the prior year. As we previously guided, we anticipate the cost optimization initiatives will deliver $100,000,000 of cost savings in the second half of fiscal twenty twenty five, with a higher proportion coming in the fourth quarter. We're pleased with the execution to date and we remain confident in achieving these savings.

Next, let me address our international results. Revenues were $3,900,000,000 an increase of 6% and operating profit was $124,000,000 an increase of 18% driven by higher pharmaceutical distribution volumes in the Canadian business. Operating profit included $19,000,000 or $0.11 of earnings accretion resulting from the held for sale accounting related to the sale of our Canada based Rexall and well.ca businesses, which was completed on December thirtieth of twenty twenty four. Wrapping up our segment review with corporate. Corporate expenses were $134,000,000 which included a pretax gain of $6,000,000 or $0.04 per share related to equity investments within the McKesson Ventures portfolio compared to pre tax losses of $8,000,000 or $0.05 per share in the third quarter of fiscal twenty twenty four.

Let me turn to cash and capital deployment, which can be found on Slide 13. We ended the quarter with $1,100,000,000 in cash and cash equivalents. During the quarter, we had negative free cash flow of $2,600,000,000 Timing, including the day of the week that the quarter ended on, led to approximately $2,000,000,000 of cash shifting from our fiscal third quarter to our fiscal fourth quarter. This does not impact our full year free cash flow guidance. Additionally, free cash flow included $196,000,000 of capital expenditures, primarily related to investments in new and existing distribution centers as well as investments in technology, data and analytics to support our growth priorities.

In the third quarter, we returned $919,000,000 of cash to shareholders, which included $827,000,000 of share repurchases at an average price of $537 per share. And we made $92,000,000 in dividend payments. Now, let me discuss our updated fiscal twenty twenty five outlook. As a result of our third quarter performance and the confidence that we have in the outlook for the remainder of the year, we're raising and narrowing our guidance range for fiscal twenty twenty five adjusted earnings per diluted share to $32.55 to $32.95 Our strategy continues to yield exceptional results, led by the growing and differentiated oncology and biopharma services platforms supported by a foundation centered on the strong core of distribution assets. In The U.

S. Pharmaceutical segment, our core pharmaceutical distribution operations continue to demonstrate a diversified and strong value proposition to customers. We anticipate revenues to increase 18% to 20% and operating profit to increase 11% to 13%. This updated segment outlook incorporates strong third quarter performance as well as continued momentum in the core distribution business, including stable utilization trends, performance of our sourcing program and continued growth in specialty pharmaceuticals. We continue to be pleased with the strategic partner we announced and onboarded in July.

This partnership is a testament to our leading distribution and sourcing capabilities and our strong customer value proposition. We anticipate the strategic partnership will contribute approximately $32,000,000,000 of incremental revenue in full year fiscal twenty twenty five and it's incorporated in the full year outlook. Our oncology platform is delivering across a range of capabilities, including distribution, practice management, data and analytics and clinical research. More than 2,750 providers in The U. S.

Oncology network continue to experience solid growth with same site visits increasing 6% in the quarter. And yesterday, we announced the signing of a definitive agreement to acquire a controlling interest in Prism Vision Holdings, a premier provider of general ophthalmology and retina management services. This transaction advances McKesson's specialty position in our commitment to improve and expand patient access to quality community care. We intend to develop a leading platform for retinal care, delivering differentiated solutions and value across providers, biopharma partners and patients. McKesson's long track record of leading practice management and clinical research outcomes with our differentiated oncology platform will allow us to expand our suite of solutions and continue to pursue our purpose of advancing health outcomes for all.

Wachesen will purchase an 80% ownership interest for approximately $850,000,000 We anticipate financing the transaction with a mixture of cash and debt. Following completion of the transaction, Prism Vision will be part of McKesson's broad set of specialty solutions. The financial results will be consolidated within McKesson's U. S. Pharmaceutical segment.

Upon closing, Prism is anticipated to be approximately 0.2 to $0.3 accretive to McKesson's adjusted earnings per diluted share in the first twelve months post closing and $0.65 to $0.7 accretive $0.65 to $0.75 accretive by the end of the third year following the close of the transaction. The transaction is subject to customary closing conditions, including necessary regulatory clearances and we've not included any financial results from this transaction in our updated fiscal twenty twenty five outlook. In the prescription technology solutions segment, we anticipate revenues to increase 9% to 12% and operating profit to increase 12% to 15%. The updated outlook incorporates the strong third quarter performance and affirms our confidence in achieving operating profit growth at or above the long term growth rate targets in fiscal twenty twenty five. As we've previously communicated, we anticipate revenue and operating profit growth will not be linear and will vary from quarter to quarter, driven by several factors including the timing and trajectory of new product drug launches, utilization trends, the evolution of a product's program support requirements as it matures, which could result in the shift to other services or program termination, product delays and supply shortages, payer requirements including utilization management and formulary strategies, the annual verification programs that we provide for our customers that occur in our fiscal fourth quarter, and the size and timing of investments to support and expand our product portfolio.

Moving to Medical Surgical Solutions. During the third quarter, we observed lower than anticipated illness season volumes, including vaccines and testing and lower volumes in primary care channel, which negatively impacted third quarter results more than originally anticipated. As a result of third quarter performance and our revised outlook for the remainder of the fiscal year, we now anticipate revenues and operating profit to be roughly flat to the prior year, a result of the weaker than anticipated illness season. Despite these macro challenges, we've made progress toward our previously announced cost optimization initiatives, which have already begun to drive anticipated operational efficiencies in this segment. We continue to anticipate these initiatives will deliver approximately $100,000,000 in cost savings in fiscal twenty twenty five as previously outlined and will be more heavily weighted towards the fourth quarter.

In the International segment, we anticipate revenues to increase 3% to 7% and operating profits to increase 10% to 14%. As I mentioned at the beginning of my remarks, we completed the sale of our Canada based Rexall and well.ca businesses at the end of the third quarter. This transaction closed earlier than we had previously anticipated, negatively impacting operating profit guidance and is the main driver behind the change in guidance for the segment. We also remain committed to exit and fully divest our European business. As a reminder, Norway remains the only operating country in Europe that we've not entered into an agreement to sell.

And contributions related to operations in Norway are included in the fiscal twenty twenty five outlook for this segment. We intend to exit Norway as part of the completion of our European exit. Finally, in the corporate segment, we anticipate expenses to be in the range of $480,000,000 to $520,000,000 which incorporates the impact of $6,000,000 of pretax gains related to equity investments within the McKesson Ventures portfolio in the third quarter. As a reminder, McKesson Ventures' impact on consolidated financials can be influenced by the performance of each individual investment quarter to quarter, which may result in gains and losses, the timing and magnitude of which can vary for each investment. Moving below the line, we anticipate interest expense to be approximately $255,000,000 to $265,000,000 reflecting higher than anticipated interest expense in the third quarter and anticipated additional borrowing activities driven by the timing of working capital in the fourth quarter.

We anticipate income attributable to non controlling interest to be in the range of $185,000,000 to $195,000,000 owing to the success of ClearusOne's generic sourcing operations. We anticipate the full year effective tax rate will be in the range of approximately 17% to 19%. And turning to cash flow and capital deployment, we remain focused on shareholder value creation and our disciplined capital deployment approach remains unchanged. It starts with stable and growing free cash flow. For fiscal twenty twenty five, we anticipate free cash flow of approximately $4,800,000,000 to $5,200,000,000 Next, we'll continue to deploy capital to grow the business on strategy.

The acquisition of Prism Vision is a good example of this. Secondly, we'll return capital to our shareholders through a growing dividend and value creating share repurchases. Our guidance includes plans to repurchase approximately $3,200,000,000 of shares in fiscal twenty twenty five. As a result of the share repurchase activity, we estimate weighted average diluted shares outstanding to be approximately 128,000,000. And finally, we'll maintain a strong balance sheet with stable credit ratings.

Wrapping up fiscal twenty twenty five guidance, we anticipate revenue growth of 16% to 18% and operating profit growth of 13% to 15% compared to the prior year. For fiscal twenty twenty five, we anticipate earnings per diluted share of $32.55 to $32.95 which represents approximately 19% to 20% growth as compared to fiscal twenty twenty four. Before I close, I'd like to share some initial thoughts on fiscal twenty twenty six. We anticipate our operating momentum to persist. As Brian mentioned earlier, approximately 80% of the operating profit of the company is growing at double digit growth rates in fiscal twenty twenty five.

As a result, we maintain confidence in the long term adjusted EPS target of 12% to 14% growth. In U. S. Pharmaceutical, there's several positive items that we anticipate will continue to support growth in fiscal twenty twenty six. These include the scale and efficiency of our pharmaceutical distribution operations, our leading position in specialty, including the breadth of our oncology platform, the U.

S. Oncology Network, GPO Services, ONTADA and the Sarah Cannon Research Institute the growth of other specialties in areas like retina and ophthalmology, which include the recently announced acquisition of Prism Vision and our leading generics offerings, including the strength of ClarusONE. We anticipate that the strength we're seeing across the prescription technology solutions segment will continue to benefit from our leading products and capabilities, supported by several factors, which would include stable utilization trends, differentiated access and affordability programs, unmatched connectivity as our solutions are in the workflow of over 950,000 providers and more than 50,000 pharmacies and innovative products and services supported by ongoing investments. Our Medical Surgical Solutions segment is well positioned as care continues to move across the alternate site settings. We're confident that the cost optimization actions we've taken will better align our business to the markets and customers that we serve.

We'll continue to evaluate the environment as the illness season progresses, as primary care markets continue to stabilize and the overall impacts from our early cost optimization efforts materialize. Finally, we'll continue to invest in adding capabilities to our North American distribution footprint. These investments include increased capacity automation and regulatory excellence capabilities. We are modernizing the enterprise and we're investing in data and analytics, including the acceleration of several investments in cloud, networking and infrastructure. We're also accelerating the use of AI to unlock the potential to deliver customer and foundational enhancements.

We're using AI to improve the customer experience and improve productivity, including supply chain disruption predictions, forecast accuracy algorithms and fraud detection. In closing, our third quarter results represent another strong performance with operating profit growth across all segments, demonstrating remarkable execution against our strategic growth pillars. Through the durability of our business models, the scale and differentiation across our solutions and services and the investments we're making to modernize and accelerate the enterprise, we're committed to delivering value creation. We're confident in McKesson's bright future. We have leading positions across distribution and biopharma services, driven by our execution and innovative solutions.

Before turning to Q and A, I'd like to take a moment to thank Rachel Rodriguez. Rachel is taking a new role on our corporate FP and A team. I'd like to thank Rachel for her positive impact leading Investor Relations for the past three point five years and the partnership with both Brian and me. And I'd like to welcome Jenny Dominguez, who will now be leading the Investor Relations team. Jenny has a long track record in several leadership positions across our finance teams at McKesson.

And with that, let's move to the Q and A session.

Thank you. Eric Persher from Nephron Research. I appreciate the detail on '25 and early view of '26. Brian and Britt, can I ask you, it sounds like you expect the utilization levels you've seen driving pharma and specialty continue? And the growth rate elevation, how much of that do you attribute to the macro trends versus what is unique about your specialty business?

And any areas where we should have concern about the ability to carry on into next year? And then the final piece I'd ask is, is there any area where IRA is impacting your business today?

Eric, and thanks for the question. I mean, I think we've seen pretty stable and consistent overall prescription volume in the pharma segment. The last several quarters, obviously, specialty and oncology in particular has been strong. We've been benefiting from the growth in GLP-1s. But I think as we scan the environment today, other than some quarter to quarter volatility in GLP-1s, which could be hard to predict.

We think the environment will continue to be sort of pretty steady and as has been. Obviously FY twenty twenty five is playing out very consistent with our expectations. The growth in The U. S. Oncology Network has been solid and is clearly a driver and our set of differentiated assets there is helping us.

We've had 6% same store patient growth. And then obviously we augment that over the course of the last several years with practice, new practice members joining the US Oncology Network. So I think that has been a position of strength and will continue to be for us.

And the next question will come from Kevin Caliendo with UBS.

Hi. Thanks for taking my question. I guess I just wanted, I'm a little confused on the commentary that you had for fiscal twenty twenty six. Are you actually sort of blessing that we should take the guidance from 2025 and given the variables that you described for the segments, be comfortable with that you're comfortable with an earnings growth rate of 12% to 14%? And if so, is that inclusive of the deals that you've announced already that haven't closed yet?

Kevin, thanks for the question. Let me clarify that. What we wanted to try to do was give you some of the qualitative factors that we see supporting the business this year that we would expect qualitatively will be a part of the algorithm next year. We are giving you the long term EPS growth rate. We're affirming that at 12% to 14%.

We feel comfortable with that. Obviously, as we get to our fourth quarter earnings, we'll give you a more detailed breakdown by each segment. I think qualitatively, a lot of factors that we see driving the business should be in place next year. We think that will support the long term adjusted EPS growth rate of 12% to 14%. In terms of the acquisitions, I would just remind you that they're subject to customary regulatory closing conditions and review.

We did give you the first twelve months accretion when those deals do close. But obviously, they haven't closed. They're still going through the customary regulatory review process. But we feel comfortable in at least providing you the accretion for the first twelve months and then after that.

And the next question will come from Alan Lutz with Bank of America.

Good afternoon and thanks for taking the questions. One for Brett. Two percent operating expense growth in the quarter that's really strong. As we look at the different segments, there does seem to be some variability by segment. I think you're investing in RxTS and there's some cost cuts in med surge.

Can you talk about the big drivers and some of the variability within segments to get to that 2% OpEx growth? And how to think about what's embedded in 4Q and maybe exiting 4Q? How you're thinking about operating expense growth? Thanks.

Yes. Thanks for that question, Alan. I think we've talked about this back in November when we had our sell side update. One of the things that we've really focused on for the last several years is driving operating leverage into the business. And we've seen our ability for us to do that over the last several years getting operating efficiency in our North American distribution businesses and clearly focusing on investments to drive better data and analytics, better sourcing, better capabilities from our operations.

So, we are getting more efficient. We are driving more leverage and more throughput through the organization. But at the same time investing back in key areas, key areas like RxTS where we're putting investments to play to support, additional products and services and capabilities and you should expect us to continue to do that. So, generally speaking, driving great operating leverage through getting efficiencies, automations, data and analytics capabilities, but we will continue to invest against our growth strategies, RxTS being one of those.

And our next question will come from Elizabeth Anderson with Evercore ISI.

Again, Ms. Anderson, your line is open. Perhaps you're on mute. Again, Ms. Anderson, perhaps you're on mute.

Our next question will come from Brian Tanquilut with Jefferies.

Hi, good afternoon. Good morning. Maybe just a quick two parter yes,

just a quick two parter. Brian, as I think about the medical side of the business, how are we I guess the seasonality factor that has impacted that, but

how are you thinking about market share in that segment or

in that industry? And then maybe, Britt, really quickly on Prism, who is the distributor for Prism currently? Is that incremental business coming in for you guys? Thanks.

So, I mean, in terms of the medical business, just to remind everybody that years ago, we shifted the strategy of this business to be focused on the alternate site locations physician office, specialty clinics, long term care, urgent care clinics, retail care clinics. And so that's when you talk about market share, it's really hard to get definitive market share in the alternate site markets, but it's clear we have the leading positions in those marketplaces. We're probably a lot less focused on market share than just growing customer base, expanding share of wallet. And part of the strategy in this business over the years has been to evolve from just commodity medical products to more sophisticated medical products, to labs, to pharmaceuticals, kind of all things that these Allstate site locations need to support the practice of medicine that they're providing there. So we're quite confident in our capabilities, the breadth of those capabilities, including our private label programs and we think that that's what supported our great share position in those markets.

And to quickly answer your question on Prism, we are not the distributor today. We would pick that business up and it's included in the accretion numbers that we provided you.

And the next question will come from Charles Wright with TD

Hi. This is Lucas on for Charles. Wanted to ask about hi. Can you hear me?

Hello? Okay, great. This is Lucas with Charles. Wanted to ask about the MedSurg segment and kind of the outlook for 2026. The midpoint of your implied guide for 4Q implies an exit rate growth rate of about 13% to 14%.

I guess, one, how much this strong growth rate incorporates an uptick in the respiratory illness,

cases to start the year? And then for fiscal twenty six, just thinking about the growth rate and the moving pieces there, are we obviously expecting $100,000,000 worth of costs lapping in cost optimization benefit in '26? But also too, when you guys initiated your guidance last May, you kind of highlighted investments made in the Med Surge segment driving around two percentage points worth of growth. So maybe confirm that that's still an ongoing process and that we could potentially lap that in '26? Thanks.

Thanks for your question. I'll make a couple of comments here. We've not provided specific guidance for any of our segments at this point for FY 2026. We have seen a softer flu season and less demand for illness season in general and for those illness season products. We're not making any prediction on the remainder certainly on next year's illness season.

We are pleased with our efforts thus far in the cost optimization initiatives and we do anticipate that we'll get those $100,000,000 of savings this year and anticipate that we'll get those $100,000,000 of savings this year. And clearly, we're continuing to work on the business and get it aligned correctly with our customer base in the markets that we serve. That's something that we'll just continue to focus on. We have seen softer volumes in the primary care channels and settings that we serve, and we'll continue to evaluate that. As I mentioned in my comments, we're going to evaluate the markets and the how the illness season plays out for the rest of this year and continue to evaluate our cost optimization efforts as they materialize through the end of the year.

So, what I can tell you is that you know, clearly we are seeing a soft illness season that's impacting other components of our volumes in primary care channel settings. But we're pleased with the efforts on the cost optimization initiatives this year.

McKesson (MCK) Q3 2025 Earnings Call Transcript

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