McKesson Corporation Q1 FY2026 earnings call

Management Statement and Operational Highlights

• People and Culture: Emphasized the dedication of 45,000 employees, support through initiatives like McKesson Foundation's taking care of our own, and commitment to employee growth and well-being.
• Strategy Pillars: Focus on oncology and biopharma services. In oncology, expanded through acquisitions like Core Ventures, growing the U.S. Oncology Network. In biopharma, Prescription Technology Solutions saw double-digit revenue and operating profit growth with a robust network connecting providers, pharmacists, and insurers.
• Pharmaceutical Distribution: Highlighted growth in specialty pharmaceuticals, investments in automation and cold chain capabilities, and support for community pharmacies through events like IdeAShare.
• Portfolio Actions: Announced intent to separate Medical-Surgical segment into an independent company, and entered into an agreement to sell retail and distribution businesses in Norway, completing divestiture of European businesses.
• Automation: Investments in automation across distribution networks to improve productivity, quality, and safety, driving operating leverage.

Segment Performance

• U.S. Pharmaceutical: Revenues were $90 billion, an increase of 25%, driven by increased prescription volumes from retail national account customers and growth in oncology and specialty product distribution. Segment operating profit increased 17% to $950 million, fueled by core distribution growth and acquisitions like PRISM Vision and Core Ventures.
• Prescription Technology Solutions: Revenues increased 16% to $1.4 billion, driven by higher third-party logistics volumes and demand for access solutions. Segment operating profit rose 21% to $269 million, boosted by prior authorization services.
• Medical-Surgical Solutions: Revenues were $2.7 billion, up 2%, driven by higher specialty pharmaceutical volumes. Segment operating profit increased 22% to $244 million due to cost optimization efficiencies.
• International: Revenues were $3.7 billion, up 1%, with higher pharmaceutical distribution volumes in Canada offset by divestitures. Excluding divested businesses, revenues increased 5% and operating profit was flat.

Guidance

• Raised full-year earnings per diluted share guidance to $37.10 to $37.90 from $36.90 to $37.70.
• U.S. Pharmaceutical: Anticipates revenue growth 12%-16% and operating profit growth at the high end of 12%-16% due to core distribution growth and acquisitions.
• Prescription Technology Solutions: Anticipates revenues 8%-12% growth and operating profit 9%-13% growth, driven by third-party logistics volumes and access solutions.
• Medical-Surgical Solutions: Anticipates revenues and operating profit 2%-6% growth, supported by cost optimization.
• International: Anticipates revenues -2% to +2% growth and operating profit 3%-7% growth, with continued growth in Canadian distribution offset by divestiture impact.
• Interest expense expected to be $260 million to $290 million, effective tax rate 17%-19%.

Risks

• Prescription Technology Solutions: Factors affecting performance include utilization trends, drug launch timing, payer requirements, and product program maturation.
• External Factors: Uncertainties around tariffs, potential changes in pharmaceutical market dynamics (brand pricing, generic pricing), and impact of external policies on the business.

Question and Answer

Q: Impressive patience on Norway, but that's not where my question is going to be. I want to ask on RxTS. I understand the discussion of upside this quarter and factors that may be temporary in nature and how difficult it is to predict. Is this now a segment where we should look at the full year guidance and expect that it's really going to be difficult to find upside to that number to see upward revisions until we get into the back half of the year? And what is it -- what elements of the business, do you believe this year could drive you towards the upper end of the range ultimately.

A: Thanks for the question. We're pleased with the consistency of operating performance in this segment. Factors like utilization, drug program maturity, and new product launches will drive performance. Our investments in access and affordability solutions position us for long-term growth.

Q: Congratulations on another good quarter. Can we talk about Core Pharma for a minute. If I just look at the strong results, can you maybe talk about the cadence, Britt, I appreciate you calling out Rite Aid and what was excluded. But are you seeing any impact from the store closings or anything else from a negative perspective on Rite Aid? And then lastly, if you can just maybe walk us through how to think about maybe some of the cadence. I know that with the acquisitions and the operating profit growth that you talked about, is there anything we should think about as we go through the quarters?

A: Thanks for the question. Impact of Rite Aid second bankruptcy on operations is immaterial. U.S. Pharma benefits from stable utilization, growth in specialty/oncology, acquisitions, and onboarding of new customers, driving momentum.

Q: Maybe if I can ask a question on RxTS. Obviously, a strong performance in the quarter. You raised the revenue guide. The -- but if I look like, I think the outlook for the rest of the year in terms of operating income growth remained the same. Anything that we should think about as we think through the rest of the quarters here? Maybe any change in your expectations related to GLP-1s? And if you could just remind us have any of these recent prior authorization initiatives undertaken by insurers had any impact on the segment?

A: Thanks for the question. Performance in the quarter was driven by prior authorization programs, including for GLP-1s. Revenue from 3PL was strong. Factors like utilization and drug program maturation impact performance, but our solutions are well-positioned for growth.

Q: There's been several potential changes to the pharmaceutical market brand price increases in July maybe coming in a little bit higher than expectations. Then you have potential changes just to manufacturers, distributors, pharmacies around tariffs and concerns around tariffs and then generic pricing around cost plus models. Is anything going on around those items that are different from your expectations? Or is there anything to comment specifically about those things as we move into the back half of the year?

A: Thanks for the question. Brand pricing is in line with expectations. Generics pricing is stable. Tariffs' impact is represented in guidance, and pharmaceutical supply chains tend to handle such challenges.

Q: Congrats on another strong quarter here. I was hoping you could touch on biosimilar adoption and any acceleration in benefits that you're getting from that the bottom line particularly in the Part B channel and specifically within retina with PRISM closing. And on the Part D channel, we've obviously seen a rapid adoption of STELARA biosims. I'm curious how that is impacting your bottom line at all? And how the in-sourcing by PBMs by Caremark specifically impacts you guys?

A: Thanks for the question. Biosimilar launches in Part D (HUMIRA, STELARA) have minimal bottom-line impact. PRISM acquisition is recent, with long-term potential. In-sourcing by PBMs is a trend, but biosimilars are a steady contributor to segment growth.

Q: Maybe, Britt, as I think about OpEx down year-over-year, obviously, some moving pieces there with the Norway sale and coming acquisitions. But is there any way you can talk about the trajectory there or to quantify how some of the tech and automation initiatives could impact OpEx in the coming years?

A: Thanks for the question. We've been focusing on cost discipline and automation for years. Automation in distribution centers drives operating expense leverage, with continued efficiency improvements from technology and process enhancements.

Q: I know it's early days in terms of FCS and PRISM. But can you talk about whether you've had sort of the time to dig in and think about the broader, like longer-term strategy, like obviously, they consolidate within their own ologies, if you will. But are there broader platform things that you can sort of across -- that can run across both of those or across other ologies that you're in and kind of have a broader? Is that sort of -- if you could just talk a little bit more about that broader long-term strategy there on the MSO side, that would be great.

A: Sure. We have a mature MSO offering in U.S. oncology. PRISM acquisition is a platform in retina ophthalmology. Strategy is to expand value-add in each specialty, with potential for future knowledge transfer via AI and technology, but current focus is on fit-for-purpose solutions in each area.

Q: So I wanted to circle back on MSN, and I know you've talked about this before, but just any changes to how you're thinking about that, the impact across kind of U.S. Oncology as well as other businesses and just your competitor talked about kind of an active effort in D.C. and recognizing sort of the overall impact of what could happen on that front. But any change in terms of how you're thinking about how that could play out.

A: No significant change. Community setting is optimal for care. We're engaged with policymakers, advocating for maintaining community care's vibrancy. Impact will play out over time, with no immediate resolution.

Q: It looks like there could be some upward pressure on the uninsured rate going into 2026 coming from the individual market and the Medicaid end market. I was wondering if you could speak to how impactful you think those changes may or may not be on demand and maybe how the company is budgeted for them in the back half of the year, particularly for the U.S. pharma segment.

A: The impact of uninsured rate changes is expected to be minimal. Historical data shows people still access care despite coverage changes, and our budgeting accounts for general market dynamics.

Q: I wonder if we can pull kind of the guide apart a little bit more because you've got the 20% -- the $0.20 guidance increase which seems like a lot of that is tied to the Norway sale and you're at the high end of the AOI range for U.S. Pharmaceutical. Should the implication be that, I guess, either PTS or medical might come in at the low end of the guidance ranges that you guys are thinking about given that I would have thought the rate would have been a little bit higher, and I recognize that there's a little bit of an interest offset. So I guess I just kind of -- I'd be interested to hear you talk about like how you're thinking about the other 2 segments and if there's anything else we should consider or if there's any other onetime items to be expected in the balance of the year?

A: Thanks for the question. The $0.20 guidance increase is specifically from the Norway sale and held-for-sale accounting. Segment guidance for Medical-Surgical and Prescription Technology Solutions remains unchanged, with confidence in their performance aligning with provided ranges.