Cencora, Inc. (COR) Earnings

Management highlights

- Strategic Direction: The company is executing a long-term pharmaceutical-centric, specialty-focused growth strategy built on its core pharmaceutical distribution business, deep provider/manufacturer relationships, and expanded end-to-end specialty care services. Management emphasizes that Part B biosimilars remain a strong long-term growth opportunity that reduces healthcare system costs and improves patient access. - M&A and Integration Progress: The February 2026 acquisition of One Oncology has performed ahead of expectations, with stronger-than-anticipated operating results and physician recruitment to the MSO platform. Integration of One Oncology into Cencora is progressing well, following the same successful integration playbook used for prior MSO acquisition RCA, with full year results expected to be neutral to adjusted EPS net of financing. - Digital Transformation: The company is applying AI and process improvement to modernize operations, with AI-powered demand forecasting improving network planning, product availability, and service reliability. Digital tools reduce manual work for employees, allowing them to focus on high-value client support and problem-solving. - Leadership Updates: New CFO Eva Boratto and new CHRO Sam Hammock joined the executive team this quarter, following the retirement of prior CFO Jim Cleary and CHRO Silvana Battaglia, who will remain advisors through the end of the calendar year. Management maintains a focus on talent development, clear career paths, and building organizational capacity to execute the company's strategy. - Capital Deployment: The company completed $1 billion in opportunistic share repurchases in Q3 at an average price of $268 per share, reducing diluted share count by 0.7% year-over-year. The company also fully repaid its $800 million RCA financing-related term loan, with $400 million repaid in Q3 and an additional $400 million repaid in July. - MSO Value Creation Roadmap: The company's MSO platform follows a three-phase value creation plan: (1) integrate acquired MSOs into Cencora's broader ecosystem (on track for One Oncology, complete for RCA), (2) cross-share capabilities across platforms (early days for One Oncology, with clinical trial expansion as a key priority), and (3) develop new services for physicians and manufacturers. Management expects ongoing organic growth from new physician additions to both platforms and tuck-in acquisitions.

Guidance

- Fiscal 2026 adjusted EPS guidance was raised to a range of $17.75 to $17.95, up from the prior range of $17.70 to $17.90, driven by strong Q3 performance and opportunistic share repurchases. - Full-year consolidated and U.S. Healthcare Solutions revenue guidance ranges remain unchanged, with U.S. revenue expected to land in the lower half of the prior 4% to 6% growth range. - International Healthcare Solutions revenue growth is now expected to be approximately 8% (at the low end of the prior guidance range) as-reported, or approximately 7% on a constant currency basis, due to U.S. dollar strength in the second half of the year. - Consolidated adjusted operating income growth guidance was revised to a range of 13% to 14%, with the lower bound raised from prior guidance. U.S. Healthcare Solutions operating income growth is now expected to be 14.5% to 15.5%, reflecting full lap of the lost oncology customer, ongoing benefits from the One Oncology acquisition, and easier year-over-year expense comparisons in Q4. International operating income growth is expected to be approximately 9%, and Other segment operating income growth is expected to be approximately 10% on strong MWI Animal Health performance. - Full-year net interest expense is expected to be approximately $490 million, up $5 million from prior guidance, due to lower interest income following Q3 share repurchases. Full-year diluted share count is now expected to be approximately 194 million shares. Full-year adjusted free cash flow guidance of approximately $3 billion remains unchanged. - For modeling purposes, if the MWI Animal Health merger with Covetrus closes at the midpoint of fiscal 2027, it would create a $150 million operating income headwind in the Other segment, with a net EPS headwind of approximately $0.35 after partial offsets from the transaction structure. No updated timing is available for the I-South Retina Carve-Out Acquisition, and management advises against including it in 2027 models at this time. Full fiscal 2027 guidance will be provided on the November 2026 earnings call.

Segment performance

1. U.S. Healthcare Solutions: Revenue was $74.9 billion, an increase of 5% year-over-year, accounting for 88.3% of total consolidated revenue. Operating income increased 16% year-over-year to $966 million. Revenue growth was driven by strength in specialty care across health systems and physician practices, and a $2.3 billion year-over-year increase in GLP-1 sales. This growth was partially offset by $2.4 billion in headwind from manufacturer list price reductions, the 2025 loss of an oncology customer, and expected lower sales to a large mail order customer. Operating income growth was led by strong performance across MSOs (including One Oncology and RCA, which both outperformed expectations), health systems, and community provider businesses, with double-digit organic operating income growth when excluding the One Oncology contribution and the lost oncology customer. 2. International Healthcare Solutions: Revenue was $7.7 billion, up 6% year-over-year (as-reported and constant currency), accounting for 9.1% of total consolidated revenue. Operating income was $166 million, up 21% year-over-year as-reported and 23% on a constant currency basis, with double-digit operating income growth across global specialty logistics and European 3PL businesses. Growth was driven by strength in European distribution, World Courier specialty logistics, and European 3PL, partially supported by shifted timing of manufacturer price adjustments. 3. Other (businesses being pursued for strategic alternatives): Revenue was $2.3 billion, up 7% year-over-year, accounting for 2.7% of total consolidated revenue. Operating income was $109 million, up 25% year-over-year, driven by growth at MWI Animal Health, which also benefited from held-for-sale accounting treatment.

Risks & headwinds

- Policy and regulatory changes, including proposed updates to 340B drug pricing program rules and ASP (Average Sales Price) reimbursement for Part B therapies under the Inflation Reduction Act, carry potential uncertainty. The company is still assessing the impact of new 340B guidance, and is advocating for policies that preserve patient access and community physician reimbursement, though any negative changes to reimbursement could reduce demand for the company's MSO and distribution services. - Increased competition in the global specialty logistics and 3PL market, with multiple large players building out healthcare-focused capabilities, could pressure market share and margins over time. - Biosimilar adoption in the Part D drug market creates revenue headwinds, as the company provides fewer wraparound services in this segment and may see insourcing of volume by large customers, though the profit impact is minimal. - Ongoing drug list price changes and manufacturer price adjustments create revenue headwinds for the company's distribution businesses, even as the company's value proposition remains strong. - Closing of the MWI Animal Health merger with Covetrus and the I-South Retina Carve-Out Acquisition is subject to regulatory approval and timing uncertainty, creating variability for 2027 financial results.

Analyst Q&A

• Q: An analyst asks for color on Q3 U.S. pharma business acceleration, and whether current Street estimates of 14% 2027 operating income growth are within the company's expected range. /

  A: CFO Eva Boratto notes the outperformance was driven by strength in MSOs and core specialty trends across health systems and physician providers, with One Oncology exceeding recruitment and performance expectations. Excluding the lost oncology customer and One Oncology's contribution, organic operating income growth accelerated to double digits from 7% last quarter. Management provided preliminary modeling guidance for 2027 that accounts for the pending MWI merger, and confirmed confidence in the long-term strategy aligned with Street expectations.

• Q: An analyst asks for differentiation between Part B and Part D biosimilar opportunities, and color on the drivers of Q3 MSO acceleration. /

  A: CEO Bob Mauch explains biosimilars are broadly positive for Cencora, but the profit opportunity is much larger for Part B biosimilars. This is because the company provides extensive wraparound distribution, GPO, and MSO services to community physicians in the Part B buy-and-bill space, while it plays a smaller service role in Part D, where biosimilar switches can lead to revenue headwinds from insourcing. CFO Eva Boratto adds that Q3 saw a sequential rebound in specialty utilization from weather-disrupted Q2, with both oncology and retina MSOs contributing to the improvement.

• Q: An analyst asks about the stage of One Oncology integration, and the sustainability of its above-average growth. /

  A: CEO Bob Mauch outlines three phases of MSO value creation: integration into Cencora (well underway for One Oncology, complete for RCA), cross-platform capability sharing (early days for One Oncology, with clinical trial expansion as a key priority), and new service development (still in the future). Growth is supported by ongoing additions of new physicians to the platform via tuck-ins and individual recruitment. CFO Eva Boratto adds One Oncology operating income is modestly above initial expectations, and the acquisition remains on track to be neutral to full-year adjusted EPS net of financing.

• Q: An analyst asks what is driving the sequential Q3 growth acceleration beyond the Q2 weather disruption, and what impact 340B policy changes have on the business. /

  A: CFO Eva Boratto notes underlying specialty utilization trends are the core driver of acceleration, and Q4 guidance implies continued strong double-digit growth, with the U.S. set to see its strongest organic growth of the year after fully lapping the lost oncology customer. CEO Bob Mauch adds the company is still assessing new 340B guidance, is actively engaging with regulators on potential unintended consequences for patient access, and will continue to monitor developments closely.

• Q: An analyst asks about how proposed ASP rule changes could impact the company's MSO and GPO businesses. /

  A: CEO Bob Mauch explains that current policy proposals are structured to avoid impacting community physician reimbursement, with any manufacturer discounts paid directly to the government rather than flowing through to ASP adjustments. The company is advocating for policies that preserve community physician reimbursement to protect patient access, and is confident that policymakers recognize the importance of this dynamic as rules are finalized for 2028 IRA implementation.