McKesson : Q2 2026 McKesson Corporation Earnings Conference Call Transcript

About this update from Mckesson Corporation

05-Nov-2025 McKesson Corp. (MCK) Q2 2026 Earnings Call CORPORATE PARTICIPANTS Jeni Dominguez Vice President-Investor Relations, McKesson Corp. Brian Scott Tyler Chief Executive Officer & Director, McKesson Corp. Britt J. Vitalone Executive Vice President & Chief Financial Officer, McKesson Corp. ..................................................................................................................................................................................................................................................................... OTHER PARTICIPANTS Lisa C. Gill Analyst, JPMorgan Securities LLC Brian Tanquilut Analyst, Jefferies LLC Elizabeth Anderson Analyst, Evercore ISI Charles Rhyee Analyst, TD Cowen Eric Percher Analyst, Nephron Research LLC Kevin Caliendo Analyst, UBS Securities LLC Daniel Grosslight Analyst, Citigroup Global Markets, Inc. Allen Lutz Analyst, BofA Securities, Inc. Erin Wilson Wright Analyst, Morgan Stanley & Co. LLC Stephen Baxter Analyst, Wells Fargo Securities LLC George Hill Analyst, Deutsche Bank Securities, Inc. Michael Cherny Analyst, Leerink Partners LLC Steven Valiquette Analyst, Mizuho Securities USA LLC MANAGEMENT DISCUSSION SECTION Operator : Welcome to McKesson's Second Quarter Fiscal 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. At this time, I would like to turn the conference over to Jeni Dominguez, VP of Investor Relations. Please go ahead. ..................................................................................................................................................................................................................................................................... Jeni Dominguez Vice President-Investor Relations, McKesson Corp. Thank you, operator. Good afternoon, and welcome everyone to McKesson's second quarter fiscal 2026 earnings call. Today, I'm joined by Brian Tyler, our Chief Executive Officer; and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we'll move on to a question-and-answer session. Today's discussion will include forward-looking statements such as forecast 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 and periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. Information about non-GAAP financial measures that we will discuss during this webcast, including a 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 guidance assumptions. With that, let me turn it over to Brian. ..................................................................................................................................................................................................................................................................... Brian Scott Tyler Chief Executive Officer & Director, McKesson Corp. Thank you, Jeni. Good afternoon everyone. Thank you for joining our call today. Earlier today, we reported strong second quarter results, which reflect sustained momentum in our business and the strength of our diversified portfolio. Consolidated revenues in the quarter increased 10% year-over-year to $103 billion and adjusted earnings per diluted share increased 39% to $9.86. These results demonstrate the impact of focused execution across the enterprise with notably three of our segments delivering double-digit adjusted operating profit growth as we continue to deliver against our strategic priorities. Given our first half performance and our confidence in the outlook for the year, we are raising our guidance on adjusted earnings per diluted share to $38.35 to $38.85. This builds on the $0.80 increase announced at our Investor Day in September. At the event, we also affirmed our company priorities and highlighted the differentiated capabilities that underpin McKesson's long-term growth. I'll walk you through our continued progress we achieved in the second quarter. At that conference, we also introduced our new reporting structure that sharpens our strategic alignment and provides enhanced transparency into the growth areas of our business. The newly formed Oncology & Multispecialty segment will focus on accelerating our strategy in the higher growth, higher-margin segments. And we established a North American Pharmaceutical segment, bringing together our pharmaceutical distribution capabilities in the US and Canada. This quarter marks our first set of results under this structure and I'm pleased with how our teams have come together to deliver consistent financial performance. We are confident that the new reporting structure will optimize our portfolio management and drive sustainable long-term value creation for shareholders. Britt will share more about the quarterly results in his remarks. But let me start by talking a minute about our people and culture. Team McKesson is the driving force for the continued innovation and excellence. It's the foundation of everything that we accomplish. Our best talent strategy continues to raise the bar across McKesson and is evident in the way our teams and our Board approach service, integrity, teamwork and performance. That commitment is exemplified by our Chairman of the Board, Don Knauss, who was recently honored with the B. Kenneth West Lifetime Achievement Award from the National Association of Corporate Directors. This is a well-earned recognition of his leadership, and I am grateful for his many, many contributions to McKesson. We believe that a strong culture is an integral part of our talent strategy, and it's reflected in how we support our communities and our people. In September, McKesson team members came together to participate in our annual Community Impact Days. We supported more than 60 organizations nationwide, giving back to our communities and reinforcing the values that drive our everyday work. We support and care for our people through extensive resources and programs. And in October, employees across McKesson took part in our Annual Wellness Day, we refer to it as Your Day, Your Way. It's now in its fifth year and it underscores our continuing commitment to our team's well-being. Let's move on to our two strategic growth pillars; oncology and multispecialty and our biopharma services. Our differentiated specialty platform remains a central pillar of our growth strategy and is now reported within the newly established Oncology & Multispecialty segment. Our differentiated capabilities have us well-positioned to advance cancer care and expand into other therapeutic areas through scale, connectivity and innovation. Foundational to our Oncology & Multispecialty business is our unparalleled distribution breadth. Specialty is a growing market with many unique medications and distribution requirements. We have market-leading capabilities and scale through our strong presence in the community provider setting, serving more than 14,000 providers across a wide range of specialties. Complementary to the core distribution capabilities are our group purchasing organization, specialty pharmacy offerings and infusion management services. Our diverse capabilities enable us to support a wide range of customers with varying needs and accessing specialty meds, including innovative therapies that are transforming care. This includes the launch and commercialization of cell and gene therapies. In August, we launched InspiroCare, a patient hub designed to simplify the complex journey of cell and gene therapies and provide personalized compassionate support for patients. In September, we opened a world-class cold chain facility dedicated to cell and gene therapy distribution. This 12,000 foot facility is equipped with ultra-frozen and cryogenic storage technology, specifically designed for the unique requirements of these medications, ensuring proper storage and the highest standards of compliance and care. Our best-in-class oncology platform provides support to community providers through a comprehensive suite of services, including practice management, clinical trial access and industry-leading technology solutions that empower them to deliver world-class care. The US oncology network has been leading the cancer care transformation for more than 15 years and is now supporting over 3,300 providers across more than 700 sites across the country. In October, the US Oncology Network formed a collaboration with Blood Cancer United around a shared goal of strengthening cancer care and access to clinical trials close to home. The collaboration will provide personalized clinical trial education as well as clinical trial matching through the Sarah Cannon Research Institute. It will also offer patient navigation services to facilitate participation in clinical trials for patients with all types of blood cancer. During the second quarter, progress continued with the integration of Florida Cancer Specialists and PRISM Vision, bringing both practice groups onto our distribution and GPO agreements to unlock the full value of our broader services and take advantage of the expanded relationships. PRISM Vision recently expanded its footprint with the addition of Spokane Eye Clinic located in Spokane, Washington, extending its reach now beyond the Mid-Atlantic region. Spokane Eye Clinic has a growing team of 27 eye care specialists in four clinic locations. It marked an important milestone for PRISM in building a comprehensive national eye care platform and continuing to enhance patient experiences. Let's move on to our biopharma services platform with our Prescription Technology Services segment. Our leading technology platform is designed to make medicine more accessible and more affordable for everyone. What differentiates McKesson is the breadth and depth of our capabilities to address the most pressing challenges of access and affordability. Our network spans approximately 1 million providers and more than 50,000 pharmacies processing approximately 23 billion transactions annually. This connectivity and scale is the foundation that enables us to streamline access to lifesaving therapies, reduce friction across the healthcare continuum, and deliver measurable impact for our customers and patients. Our platforms combine tech-driven patient support services, automated prior authorization, co-pay and voucher programs, all designed to help patients start, stay on and afford their therapies. We complement these offerings with best-in-class third-party logistics, advanced analytics and AI-enabled solutions that optimize efficiency and unlock value for our biopharma partners. This integrated approach positions McKesson as a trusted leader not only solving today's challenges, but continuing to invest in the future, expanding our solutions for specialty therapies, modernizing technology and leveraging innovation to advance health outcomes for all. Let me touch on our pharmaceutical distribution business in North America. This is a foundational business that continues to deliver strong growth, underpinned by operational discipline and a differentiated value proposition. The sustained momentum of the business, driven by leading scale, strong operating leverage and robust cash flow generation, enables us to continue to reinvest in the business to advance all of our enterprise priorities. We have made focused and significant investments in automation to support the growing complexity in the supply chain management. These investments improve operating efficiency, enhance customer experience, and unlock productivity in our workforce. An example of the advanced automation technologies we have implemented is the order storage retrieval system, which has been introduced in facilities across North America. The most recent application being in our US National Redistribution Center serving as the core of our hub-and-spoke distribution model. This sophisticated system improves our service levels and accuracy, streamlines processes and expands our storage capacity to better serve our customers. As an example, what would have normally taken eight physical human touches to complete a pick, pack and ship process now only takes two human touches. We are committed to investing in technology and automation, which will continue to position us for long-term growth in the future. In August, our US Pharmaceutical business achieved a major milestone in the implementation of The Drug Supply Chain Security Act. We are now actively exchanging serialized transaction data with supply chain participants in compliance with these new FDA requirements. Behind this achievement was the extraordinary collaboration across the enterprise from technology and operations to regulatory affairs and customer support. Throughout this very complex implementation, we maintained exceptional service-level accuracy with almost no disruption to our customers. We're proud to lead in this initiative that will enhance the safety, transparency and integrity of the pharmaceutical supply chain. Now, let me provide a brief update on our portfolio actions. Our teams continue to actively execute on multiple work streams to separate the Medical-Surgical business, positioning it to become an independent, well-capitalized operating company. As shared at Investor Day, we're targeting to exit the Medical-Surgical Solutions business through an initial public offering. Following a customary lockup period, we intend to exit our remaining interest through a spin-off or split-off transaction or possibly a combination of both. We anticipate that this separation could be completed by the second half of calendar 2027, subject, of course, to market conditions and customary regulatory approvals. In summary, McKesson delivered another strong quarter of performance. Our strategy and execution are driving outstanding results, and this momentum continues to build across the enterprise. We operate in a dynamic market and policy backdrop, and we're highly engaged in that process across the organization. Importantly, we're executing from a position of strength and credibility. We remain committed to collaborating closely with policymakers and stakeholders to advocate for changes that align with the values of our company and are good for healthcare. We're confident that our differentiated capabilities will continue to deliver value to customers and patients, and be an important part of addressing healthcare's most pressing challenges. Lastly, I want to thank my fellow McKesson team members for their dedication and their contribution to advancing our mission. Together, we are advancing health outcomes for all, and we are excited about the opportunities that lie ahead. And with that, I'll hand it over to Britt for some additional financial details. ..................................................................................................................................................................................................................................................................... Britt J. Vitalone Executive Vice President & Chief Financial Officer, McKesson Corp. Thank you, Brian, and good afternoon. We're pleased to report another quarter of strong execution and financial performance exceeding our expectations, reflecting the strength of our diversified healthcare platform. My comments today will refer to our adjusted results. I'll begin with our second quarter fiscal 2026 performance, followed by an update on our fiscal 2026 outlook. As previewed at our Investor Day in September, we implemented a new reporting structure beginning in the second quarter to enhance transparency and sharpen visibility into our growth platforms. This framework highlights the differentiated capabilities within our oncology and multispecialty and biopharma services platform, verticals where McKesson is best positioned to deliver sustainable long-term growth. This realignment reinforces our commitment to disciplined execution, strengthens our strategic focus and accelerates long-term value creation for all stakeholders. Turning now to results for our second quarter. McKesson delivered another strong quarter, achieving record quarterly revenues of $103 billion, an increase of 10% compared to the prior year, driven by robust performance across our portfolio of businesses. Growth was led by the North American Pharmaceutical segment, reflecting increased prescription volumes from retail national account customers and by the Oncology & Multispecialty segment, supported by expanded distribution of oncology and multispecialty products and contributions from recent acquisitions. Gross profit increased 9% to $3.5 billion, primarily due to strong specialty distribution and provider growth within the Oncology & Multispecialty segment. Operating expenses decreased 1% to $2 billion, reflecting divestitures in our Canadian business and disciplined cost optimization initiatives in the Medical-Surgical Solutions segment. These reductions were partially offset by continued investment in the Oncology & Multispecialty segment, including acquisitions completed in the first quarter of fiscal 2026. Our unrelenting focus on cost discipline and operational efficiency powered by a technology-first mindset and AI-driven modernization continues to create value for all stakeholders. This progress is evident again in the second quarter. Operating expenses as a percentage of gross profit declined 570 basis points, delivering significant operating leverage as we accelerate and modernize our operations. Operating profit reached a quarterly record of $1.6 billion, an increase of 26% year-over-year, reflecting growth across all operating segments. This strong performance was driven by increased specialty distribution volumes in both the Oncology & Multispecialty and North America Pharmaceutical segments, increased demand for access solutions in our Prescription Technology Solutions segment, and continued benefits from cost optimization initiatives in the Medical-Surgical Solutions segment. The acquisitions of PRISM and Core Ventures in the Oncology & Multispecialty segment contributed approximately 6% to year-over-year growth. Additionally, the sale of an equity investment and market decisions within the US Oncology Network contributed approximately 4%. Excluding these two items, organic growth was approximately 16% in the quarter, underscoring the strength and momentum of our core business. Interest expense declined 6% to $68 million, resulting from effective cash and portfolio management, including our derivative portfolio. The effective tax rate was 17.5% compared to 21% in prior year. In the second quarter of fiscal 2026, we recognized net discrete tax benefits of $96 million, primarily related to the release of a valuation allowance compared to net discrete tax benefits of $44 million in the second quarter of fiscal 2025. Second quarter diluted weighted average shares outstanding was 124.4 million, a decrease of 4%. Second quarter earnings per diluted share increased 39% to $9.86 driven by several key factors; robust core operational performance, contributions from the first quarter acquisitions of PRISM and Core Ventures in our Oncology & Multispecialty segment, approximately $0.30 or 4% from net gains related to the sale of an equity investment and market decisions within the US Oncology Network in our Oncology & Multispecialty segment, and a lower effective tax rate. Turning to second quarter segment results, which can be found on slides 8 through 12 and starting with North American Pharmaceuticals. Revenues were $86.5 billion, an increase of 8%. This growth reflects a continuation of solid pharmaceutical utilization, including higher volumes from retail national account customers and specialty products. Our ongoing focus on operational excellence also delivered operating expense leverage during the quarter. Revenues from GLP-1 medications were $13.2 billion in the quarter, an increase of approximately $2.6 billion or 24% when compared to the prior year. On a sequential basis, GLP-1 revenue increased 6%. Segment operating profit increased 13% to $851 million, driven by growth in the distribution of specialty products to health systems, the impact of new product launches, and continued operating expense efficiencies. In the Oncology & Multispecialty segment, revenues increased 32% to $12 billion, driven by strong provider and specialty distribution growth, including contributions from acquisitions completed in the first quarter of fiscal 2026. The acquisitions of PRISM and Core Ventures contributed approximately 12% of the second quarter segment revenue growth. Operating profit increased 71% to $397 million driven by increased provider and specialty distribution volumes and contributions from the acquisitions of PRISM and Core Ventures. These acquisitions contributed approximately half of the segment operating profit growth in the quarter. Second quarter operating profit results also included non-recurring net gains of $51 million from the sale of an equity investment and market decisions within the US Oncology Network. Excluding the impact from the acquisitions of PRISM and Core Ventures and non-recurring net gains, segment organic operating profit increased 13%, highlighting the strength and momentum of the core business. In the Prescription Technology Solutions segment, revenues increased 9% to $1.4 billion, driven by increased prescription volumes across our third-party logistics and technology services businesses. Operating profit rose 20% to $261 million, reflecting increased demand for access solutions, including prior authorization services for GLP-1 medications. Turning to Medical-Surgical Solutions. During the second quarter, we observed softer illness season product demand compared to the prior year including vaccines and testing and lower volumes across ambulatory and extended care settings. Revenues were $2.9 billion, flat compared to the prior year. Higher volumes of specialty pharmaceuticals were offset by lower contributions from illness season products and testing across the ambulatory and extended care settings. Compared to the prior year, revenues from seasonal vaccines and testing volumes represented an approximate 4% headwind. Operating profit increased 2% to $249 million, driven by operational efficiencies and cost optimization initiatives. This was partially offset by the headwind from lower contributions related to illness season products and testing. Wrapping up our review with Corporate. Corporate expenses were $151 million in the quarter. As a reminder, in the second quarter of fiscal 2025, we recorded pre-tax losses of $15 million or $0.09 per share related to equity investments within the McKesson Ventures portfolio compared to gains of $3 million or $0.02 per share in the second quarter of fiscal 2026. Excluding these impacts, corporate expenses were flat compared to the prior year. Let me turn to cash and capital deployment for the second quarter as shown on Slide 13. We ended the quarter with $4 billion in cash and cash equivalents, underscoring the strength of our strong liquidity position and capacity to deploy capital in a value-creating manner. Second quarter free cash flow was $2.2 billion, which included $196 million in capital expenditures. This robust cash flow performance reflects disciplined working capital management and continued operating execution strength. During the quarter, we returned $907 million of cash to shareholders, which included $818 million of share repurchases and $89 million in dividend payments. These actions underscore our commitment to balance capital deployment and long-term shareholder value creation. Before reviewing our updated fiscal 2026 outlook, I'd like to provide two portfolio updates. At Investor Day in September, we reaffirmed McKesson's long track record of consistent financial performance, driven by strategic clarity, consistency and disciplined execution. Our new segmentation reflects the portfolio evolution, leading to sharper strategic focus, enhanced transparency and increased long-term financial targets. Our strategic clarity and execution has positioned the company to deliver sustained value across multiple environments and different cycles of healthcare, leading to sustained value creation. Let me start with Norway. Our fiscal 2026 outlook contemplates contributions from operations in Norway for the full fiscal year. Beginning in the second quarter of fiscal 2026, we discontinued recording depreciation and amortization on the assets involved in the transaction due to held-for-sale accounting treatment. This resulted in an accretive impact of $0.03 in the second quarter. For the full year, we now anticipate approximately $0.13 of adjusted earnings accretion due to held-for-sale accounting in fiscal 2026, which compares to our prior guidance of $0.20. Next, we're committed to executing the separation of our Medical-Surgical Solutions business in a tax-free transaction, maximizing shareholder value. Since it was announced in May, we've made significant progress towards establishing the Medical-Surgical business as an independent operating company. As I mentioned at Investor Day, we anticipate exiting the business by way of an initial public offering. Following a customary lockup period, McKesson intends to exit its remaining interest with spin-off or a split-off transaction or potentially a combination of both. We currently anticipate that this separation could be completed by the second half of calendar 2027, subject to market conditions and customary regulatory approvals. Our fiscal 2026 outlook assumes 100% ownership of the Medical segment. Our portfolio transformation has delivered consistently outstanding financial results, growth, and returns to shareholders. Now, moving to our fiscal 2026 outlook. Our strategy continues to deliver outstanding results propelled by the growth and differentiation of our oncology and multispecialty and biopharma services platforms. These platforms are supported by a durable foundation of distribution assets and capabilities, positioning McKesson for sustained success. At our Investor Day, we raised our earnings per diluted share outlook by $0.80 to a range of $38.05 to $38.55, which was a testament to the clarity of our strategy, strength of our portfolio, and disciplined execution. Building on our strong second quarter performance and continued confidence in our outlook over the remainder of the year, we're further increasing our fiscal 2026 earnings per diluted share outlook by $0.30 to a new range of $38.35 to $38.85, which represents 16% to 18% growth over the prior year. This update builds on the $0.80 increase announced at Investor Day in September. For fiscal 2026, we anticipate revenue growth of 11% to 15%, reflecting growth across all core businesses and operating profit growth of 12% to 16%, driven by continued momentum in execution. Let me start with a review of our segments. In the North American Pharmaceutical segment, our core pharmaceutical distribution operations continued to demonstrate a strong and diversified value proposition to customers. We anticipate revenue to increase 10% to 14%, and we're increasing our guidance for operating profit to 5% to 9% growth. The increased operating profit outlook is driven by solid utilization trends, volume growth, and continued strong specialty distribution expansion. In the core distribution business, we also anticipate continued growth of GLP-1 medication. We anticipate this growth may vary from quarter to quarter. And as a reminder, prior year results include the impact of the divestiture of our Canada-based Rexall and Well.ca businesses at the end of the third quarter of fiscal 2025. In the Oncology & Multispecialty segment, we anticipate revenue growth of 27% to 31% and operating profit growth of 49% to 53%. The guidance includes the acquisitions of PRISM Vision and Core Ventures completed in the first quarter of fiscal 2026. We're pleased with the performance of these acquisitions. We anticipate that they'll contribute approximately 30% to 34% to the fiscal 2026 operating profit growth in the segment. Our full year outlook reflects the impact of these acquisitions and strong organic specialty distribution volume growth. Our oncology and multispecialty platform continued to deliver across distribution, practice management, data and analytics, and clinical research. In the Prescription Technology Solutions segment, we anticipate revenues to increase by 9% to 13%, and we are increasing the operating profit outlook to 13% to 17% growth. The improved operating profit outlook reflects strong organic volume growth and momentum across our access and affordability solutions, particularly higher contribution from prior authorization services, including those related to GLP-1 medication. As I've previously discussed, the revenue and operating profit trajectory in this segment is not linear. It may vary from quarter-to-quarter, driven by several factors, including utilization trends, the timing and trajectory of new product drug launches, the evolution of a product program support requirements as it matures, which could result in a shift to other services or a program termination, product delays and supply shortages, payer requirements, including utilization management and formulary strategies, annual verification programs that we provide for our customers that occur in our fiscal fourth quarter, and the size and timing of investment to support and expand our products portfolio. Moving to the Medical-Surgical Solutions segment. Due to the lower-than-anticipated illness season product volumes compared to the prior year, including vaccines and testing, and lower volumes across ambulatory and extended care settings, we anticipate revenue and operating profit at the low end of 2% to 6% growth. Illness season variability remains a key factor and the timing and severity level of each illness season can drive variability from quarter-to-quarter and year-to-year.

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