Cencora, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Fiscal 2025 was a pivotal year with adjusted operating income and adjusted diluted EPS growth of 16%, driven by strategic positioning in Specialty and pharmaceutical utilization trends.
• Raised long-term guidance: Adjusted operating income growth to 6%-9% and adjusted EPS growth to 9%-13%.
• Strategic priorities: Leading with market leaders, enhancing patient access to pharmaceuticals, and strengthening position in specialty; strategic drivers include growth-oriented investments, improving customer experience via data analytics, driving best-in-class talent experience, and identifying process improvements.
• Investment in specialty: Acquisition of Retina Consultants of America (RCA) reflects commitment to strengthening leadership in specialty; since acquisition, RCA has demonstrated value, and plans to augment its proposition.
• Portfolio review: Evaluating strategic alternatives for businesses in U.S. and International Healthcare Solutions segments, grouping them as 'other' for transparency, including MWI Animal Health, Profarma equity, legacy U.S. hub services, and components of PharmaLex.

Segment Performance

• U.S. Healthcare Solutions segment: Revenue was $75.8 billion in the fourth quarter, up approximately 6% versus the prior year quarter. Operating income increased by 25% to $872 million due to growth across distribution businesses and the contribution from Retina Consultants of America (RCA). Sales of GLP-1 products increased $876 million, or 10% year over year, representing a 50 basis point contribution to segment revenue growth.
• International Healthcare Solutions segment: In the quarter, revenue was $7.9 billion, an increase of 8% on an as-reported basis and 6% on a constant currency basis, primarily driven by revenue growth in the European distribution business. Operating income was $151 million, a 2% decrease on an as-reported basis and a 6% decrease on a constant currency basis, primarily driven by continued pressure in global consulting services businesses, partially offset by growth in other business units.
• Other segment: Includes businesses like MWI Animal Health, equity stake in Profarma, legacy U.S. Consulting hub services, and components of PharmaLex. These are being evaluated for strategic alternatives, with MWI Animal Health representing nearly 70% of 'other's' revenue in fiscal 2025, and Profarma making up about 1/4 of revenue in 'other'.

Guidance

• Fiscal 2026: Adjusted diluted EPS expected to be in the range of $17.45 to $17.75 (9%-11% growth). Consolidated revenue growth expected 5%-7%, operating income growth 8%-10%. Interest expense expected $315 million to $335 million. Effective tax rate 20%-21%. Full-year average share count ~194 million. Capital expenditures ~$900 million. Adjusted free cash flow ~$3 billion.
• Long-term: Raised adjusted operating income growth to 6%-9% and adjusted EPS growth to 9%-13%, driven by increased expectations for U.S. Healthcare Solutions segment and continued investment in specialty.

Risks

• Forward-looking statements subject to uncertainty and change. Risks discussed in SEC filings, including impact of loss of oncology customer, debt from RCA acquisition affecting net interest expense, and uncertainties related to strategic alternatives for businesses in the 'other' segment.

Question and Answer Q: Lisa Gill of JPMorgan asked about strategic priorities and potential acquisitions in MSO business.

A: Robert Mauch responded that the company is focused on strategic execution, dedicating resources to segments aligned with strategy, and investing in MSO platforms like RCA and OneOncology to make care easier for patients and physicians.

Q: Elizabeth Anderson of Evercore ISI asked about evolution of the MSO platform.

A: Robert Mauch said there are opportunities to leverage capabilities like clinical trial expertise and back-office activities across MSO platforms, and James Cleary added on financial benefits like clinical trial site strength at RCA.

Q: Michael Cherny of Leerink Partners asked about durability of U.S. AOI growth.

A: James Cleary said ex-RCA, U.S. segment had 13% growth despite COVID and oncology customer loss, and guidance reflects confidence in business execution.

Q: Erin Wright of Morgan Stanley asked about overlap with core business in 'other' segment.

A: James Cleary said businesses in 'other' are good but do not provide competitive advantage to core, and Robert Mauch mentioned examples like World Courier and NMR as core businesses.