MCKESSON CORP Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Talent and Culture: Valued the breadth of backgrounds, experiences and skills of team members. Board elected two new members, Lynn Lynne Doughtie and Dr. Julie Gerberding, with relevant expertise.
• Strengthening Distribution Capabilities in North America: In U.S. Pharmaceutical, utilization trends stable with solid volume growth. Launched initiative to support community pharmacies. In Medical Surgical, positioned for alternate site markets but impacted by softer illness season. Made progress in business rationalization initiatives.
• Strategic Growth Pillars:
  • Oncology: Built portfolio of assets including distribution of oncology drugs and value-added services. US Oncology Network expanded to over 2,750 providers. Acquired controlling interest in PRISM Vision to enhance retina and ophthalmology services.
  • Biopharma Services Platform: Prescription technology solutions segment delivered strong performance with growth in access and affordability support for pharma brands. Updated user interface and enhanced technical infrastructure.
• Divestitures and Investments: Completed divestiture of Rexall and Well.ca businesses. Invested in modernizing distribution network in Canada and growing biopharma solutions.

Segment Performance

• U.S. pharmaceutical segment: Revenues were $87.1 billion, an increase of 19%. Operating profit increased 14% to $944 million. Revenues from GLP-1 medications were $10.9 billion in the quarter, an increase of approximately $3.4 billion or 45% compared to the prior year.
• Prescription Technology Solutions segment: Revenues increased 14% to $1.4 billion and operating profit increased 22% to $235 million. Growth accelerated in the quarter reflecting strong demand across product solutions, including growth in access and affordability support for pharma brands.
• Medical Surgical solutions: Revenues decreased 3% to $2.9 billion due to lower than anticipated volumes related to the illness season. Operating profit increased 4% to $294 million, driven by operational efficiencies and growth in the extended care business.
• International Results: Revenues were $3.9 billion, an increase of 6% and operating profit was $124 million, an increase of 18% driven by higher pharmaceutical distribution volumes in the Canadian business.
• Corporate: Corporate expenses were $134 million which included a pretax gain of $6 million or $0.04 per share related to equity investments within the McKesson Ventures portfolio compared to pretax losses of $8 million or $0.05 per share in the third quarter of fiscal 2024.

Guidance

• Adjusted earnings per diluted share range revised to $32.55 to $32.95 for fiscal 2025, representing 19% to 20% year-over-year growth.
• U.S. pharmaceutical segment: Anticipates revenues to increase 18% to 20% and operating profit to increase 11% to 13%.
• Prescription Technology Solutions segment: Anticipates revenues to increase 9% to 12% and operating profit to increase 12% to 15%.
• Medical Surgical solutions: Anticipates revenues and operating profit to be roughly flat to prior year due to weaker illness season, but cost optimization initiatives expected to deliver $100 million in savings in fiscal 2025.
• International Segment: Anticipates revenues to increase 3% to 7% and operating profits increase 10% to 14%, with impact from sale of Rexall and Well.ca businesses and commitment to exit European business.
• Corporate segment: Anticipates expenses in range of $480 million to $520 million, with interest expense and income attributable to non-controlling interest in specific ranges.
• Free cash flow: Anticipates free cash flow of approximately $4.8 billion to $5.2 billion for fiscal 2025, with plans to repurchase approximately $3.2 billion of shares.

Risks

• Illness Season Uncertainty: Impact on Medical Surgical segment due to variability in onset, severity, and duration of illness seasons.
• European Business Exit: Commitment to exit European business, with Norway being the only operating country in Europe not having an exit agreement, which may impact results.
• Interest Rate Changes: Higher than anticipated interest expense in the third quarter and potential additional borrowing activities could impact financial results.

Question and Answer

Q: Eric Percher from Nephron Research asked about attribution of pharma and specialty growth to macro trends vs unique aspects of specialty business and IRA impact.

A: Brian Tyler responded that prescription volume in pharma segment has been stable, specialty in oncology strong, with GLP-1s having quarter-to-quarter variability, and no specific comment on IRA impact at that time.

Q: Kevin Caliendo with UBS inquired about blessing of 2025 guidance for 2026 and inclusion of announced deals.

A: Brian Tyler clarified that 2026 guidance is based on qualitative factors supporting the business, acquisitions are subject to regulatory conditions, and accretion for acquisitions is provided but not included in 2025 outlook yet.

Q: Allen Lutz with Bank of America asked about 2% operating expense growth, drivers and variability by segment.

A: Britt Vitalone explained that operating leverage is driven by efficiencies, automation, and data analytics, with investments in RxTS to support growth strategy.

Q: Brian Tanquilut with Jefferies asked about market share in Medical Surgical segment and PRISM distribution.

A: Brian Tyler stated that Medical Surgical is focused on alternate site markets with leading positions, and Britt Vitalone mentioned PRISM is not currently a distributor and is included in accretion numbers.

Q: Lucas [ph] on for Charles Rhyee with TD Cowen asked about MedSurg segment outlook for 2026 and cost optimization lap.

A: Britt Vitalone noted no specific 2026 guidance, softer flu season impact, and cost optimization efforts with $100 million savings in 2025.

Q: Lisa Gill with JPMorgan inquired about formulary changes and biosimilar impact.

A: Britt Vitalone explained that a specific product's formulary change by a customer was a revenue impact in the quarter, with no general comment on other biosimilar products.

Q: Stephen Baxter with Wells Fargo asked about potential adjustments to earnings baseline and headwinds in 2026.

A: Britt Vitalone mentioned strong performance in pharmaceutical distribution and specialty areas, with a large strategic customer onboarded in 2025 as a positive factor.

Q: Erin Wright with Evercore ISI asked about PRISM opportunity and disclosure.

A: Brian Tyler discussed the opportunity in retina and ophthalmology similar to oncology strategy, and Britt Vitalone mentioned ongoing evaluation of disclosure for oncology platform.

Q: George Hill with Deutsche Bank asked about nonlinear cost savings in MedSurg and headwinds in 2026.

A: Britt Vitalone stated no specific 2026 guidance, and potential headwinds including public policy and slower volumes in primary care channel.

Q: Dan Clark [ph] on for Michael Cherny with Leerink Partners asked about flu season expectations and primary care channel stabilization in 2026.

A: Brian Tyler noted difficulty in forecasting illness season, and emphasized Medical Surgical's position in alternate site markets with aging demographics support.

Q: Daniel Grosslight with Citi asked about timing of PRISM acquisition and oncology platform expertise transfer to retina space.

A: Brian Tyler explained that oncology remains a growth pillar, timing of PRISM acquisition was due to willing buyer/seller and financial fit, and expertise from oncology platform includes practice management system and data integration for retina space.