McKesson Corporation (MCK) Earnings

Management highlights

- Leadership Transition * Kenny Chung joined as new Chief Financial Officer in May 2027, bringing extensive finance and operations experience aligned with McKesson's operating model and focus on long-term value creation. * Chung's priorities include close business alignment, disciplined execution, maintaining a strong

Guidance

- Full-year fiscal 2027 adjusted diluted earnings per share guidance was raised to $44.20-$45, up from the prior range of $43.80-$44.60, implying 13-15% adjusted EPS growth (15-17% excluding one-time fiscal 2026 items). - Total company revenue growth guidance is maintained at 5-9%, with operating profit growth guidance of 9-13%. - North American Pharmaceuticals: Revenue growth guidance of 4-8% (maintained), operating profit growth guidance updated to the high end of the prior 5.5-9.5% range, incorporating accelerated second-half business investments. Continued GLP-1 growth is expected with quarter-to-quarter variability. - Oncology and Multispecialty: Guidance maintained at 14.5-18.5% revenue growth and 13.5-17.5% operating profit growth. - Prescription Technology Solutions: Guidance maintained at 2.5-6.5% revenue growth and 11-15% operating profit growth, supported by ongoing demand for access solutions across GLP-1 and other therapeutic categories. - Medical Surgical Solutions: Guidance maintained at 1-6% revenue growth and 0-4% operating profit growth. - Full-year interest expense is expected to be $380-$420 million, the effective tax rate is expected to be 18-19% (a slight upward revision from prior guidance), and free cash flow is projected to be $4.5-$4.9 billion. - $5 billion in total share repurchases are planned for fiscal 2027, with $2.5 billion completed in the first quarter.

Segment performance

1. North American Pharmaceuticals: Revenues of $86.8 billion, up 5% year-over-year (YoY), representing 82.4% of total company revenue. Operating profit increased 19% YoY to $894 million. Revenue growth was driven by higher prescription volumes, including specialty products, partially offset by lower branded pricing from January 2026 WAC decreases and branded-to-generic conversions. GLP-1 medication revenues were $15 billion in the quarter, up 24% YoY. 2. Oncology and Multispecialty: Revenues of $14.2 billion, up 33% YoY, representing 13.5% of total company revenue. Operating profit increased 41% YoY to $405 million. Excluding the Core Ventures acquisition (closed June 2025), revenues grew 24% and operating profit grew ~15% YoY. Growth was driven by higher specialty distribution volumes and organic/new business growth in provider solutions. 3. Prescription Technology Solutions: Revenues of $1.6 billion, up 9% YoY, representing 1.5% of total company revenue. Operating profit increased 13% YoY to $303 million. Growth was driven by higher prescription volumes and increased demand for access solutions including prior authorization services, particularly for GLP-1 medications. 4. Medical Surgical Solutions: Revenues of $2.8 billion, up 4% YoY, representing 2.6% of total company revenue. Operating profit decreased 20% YoY to $195 million, driven by product mix shifts and one-time administrative expenses, partially offset by growth in the extended care channel. Apollo Funds now holds a 13% minority stake in the business, which McKesson continues to consolidate. 5. Corporate: Corporate expenses were $144 million, up 4% YoY, primarily due to technology infrastructure investments.

Risks & headwinds

- Policy changes, including proposed 340B program reforms and IRA Part B pricing changes, create uncertainty; while it is too early to estimate financial impact, management notes the changes could create both opportunities and challenges for the business and the stakeholders McKesson serves. - Quarterly performance can vary due to seasonal factors, timing of new product launches, investment pacing, and the lapping of prior year one-time gains, leading to non-linear results across segments. - Proposed policy changes to wholesale acquisition cost (WAC) pricing could impact top-line revenue, though management notes gross profit and operating profit have historically been far less sensitive to these changes given the company's fee-for-service contract structure for most branded pharmaceuticals.

Analyst Q&A

• Q: What drove the strong organic operating profit growth and margin expansion in the North American Pharmaceutical segment in Q1, and are there any one-time factors contributing to this outperformance? /

  A: 5% top-line growth was driven by higher prescription and specialty product volumes, partially offset by lower branded pricing and branded-to-generic conversions, with no meaningful impact of pricing declines on operating profit. 19% operating profit growth came from increased specialty product distribution to health systems and favorable timing of new product launches (both new branded drugs and new generic conversions). The margin expansion reflects a favorable shift in customer, product, and channel mix, and management expects this momentum to continue through the rest of the year.

• Q: The full-year guidance increase is primarily driven by Q1 outperformance; is the outperformance timing-related, and is management taking a conservative stance on the remainder of the year? /

  A: While North American Pharmaceutical was the main driver of the guidance upgrade, all three core operating segments delivered double-digit operating profit growth in Q1, showing broad-based momentum. The guidance reflects a balanced view of the full year, not a best-case scenario, and management is confident in ongoing momentum after a very strong end to Q1 (June was the strongest month of the quarter). Management remains focused on disciplined execution, risk mitigation, and capturing emerging opportunities.

• Q: What is driving the strong growth in the Oncology and Multispecialty segment, and how has the Florida Cancer Specialists integration performed relative to expectations? /

  A: 33% top-line growth comes from three sources: organic penetration of existing provider solutions and specialty distribution, new business wins from a robust pipeline, and contributions from the Core Ventures acquisition. Excluding Core Ventures, organic revenue growth is 24% and organic operating profit growth is 15%, in line with long-term targets. Florida Cancer Specialists integration has exceeded expectations on cultural integration, operational execution, and financial performance, and McKesson has started lapping the acquisition this quarter.

• Q: What market dynamics are you seeing for GLP-1 medications, particularly around employer coverage and direct-to-consumer demand? /

  A: GLP-1 growth remains healthy and robust. There is a strong vibrant cash market for GLP-1s, and growth in the covered insurance segment has also been strong, as demonstrated by the performance of the company's prior authorization and access solutions. While there has been public debate about coverage levels, coverage has not shifted significantly enough to impact category growth.