McKesson Corporation

This time, I would like to turn the call over to Jenny Dominguez, VP of the First Quarter Fiscal 2026 Earnings Call. Today, I'm joined by Brian Tyler, our Chief Executive Officer, and Britt Villalon, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we'll move to a question and answer session. Today's discussion will include forward-looking statements, such as forecasts 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 the 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.

Thank you, Jenny. Good afternoon, everyone. I appreciate everyone joining our call today. Earlier today, we reported strong fiscal first quarter results exemplifying the value of our differentiated solutions and our ability to continuously drive progress against our strategic priorities. We delivered record consolidated revenues of $97.8 billion, an increase of 23% over the prior year. Adjusted operating profit increased 9% to $1.4 billion. Three of our segments delivered double-digit growth in adjusted operating profit, reflecting continued momentum across the enterprise. We are executing against our growth commitments we outlined to our shareholders as demonstrated by these first quarter results. The performance in the first quarter and our outlook for the remainder of the year gave us confidence to raise the full year guidance to $37.10 to $37.90 from a previous range of $36.90 to $37.70. Our financial strength reflects our commitment to deliver services with the highest standard of quality, to foster innovation, and to collaborate with our customers and partners to ultimately drive forward our mission as a diversified healthcare services company. I want to focus my remarks today on our strategy and our company priorities. I want to provide you with insights into how we're driving performance in the near term and positioning McKesson for continued long-term growth. I'll then hand it over to Britt for a more detailed discussion on the first quarter financial results. I want to start, as I always do, with our focus on people and culture. Everything we achieve is made possible by the dedication and the commitment of our 45,000 employees. The initiatives they work on, the problems they solve are complicated, including onboarding large strategic customers and or integrating new businesses. Success in these endeavors relies upon strong collaboration and a cohesive teamwork across our organization. I'm continually proud to see how our teams consistently come together to achieve our goals and deliver results. We're committed to taking care of our employees, empowering their growth and supporting their well-being. In July, we witnessed the devastating floods that struck Central Texas, resulting in widespread destruction and tragic loss of life. Our hearts go out to the families and the communities impacted. In difficult moments like these, we stand ready to support each other through initiatives like McKesson Foundation's Taking Care of Our Own. In the past fiscal year, we delivered over 700 grants to employees going through various types of hardships. Together as a team, we're stronger and more resilient to navigate challenges that come our way. Our people, along with our partners, community, and our planet are the four pillars we focus on. Recently, we published our impact report for fiscal year 25 that highlights the breadth of our impact and reaffirms our commitment to driving meaningful change across the healthcare landscape. I am quite proud of the progress we've made, and we're committed to leveraging our company's strengths and areas of expertise to build a healthier world for everyone. You can find our report on our corporate website. Now let me move on to our two strategic growth pillars, oncology and biopharma services. McKesson is uniquely positioned to bring innovative solutions and services to partners and patients in these areas. We began our journey in oncology over 18 years ago with the acquisition of oncology therapeutic networks, focusing on specialty distribution in the community-based settings. Over the years, We have significantly evolved our portfolio and extended our capabilities to other differentiated and value-added services that span across the patient's journey, including practice management, clinical trial services, and data and insights. In June, we were pleased to complete the acquisition of a controlling interest in Core Ventures, which is a business and administrative services organization established by Florida Cancer Specialists and Research Institutes. With the close of the acquisition, we welcome Florida Cancer Specialists and its providers to the U.S. Oncology Network. This marks an important step forward in our efforts to expand access to exceptional cancer care in local communities, growing the footprint of the U.S. Oncology Network to approximately 3,300 providers across 700 sites and 30 states. The growth of the U.S. Oncology Network combined with our strategic investments has created a flywheel effect across the oncology platform. It broadens our footprint, including distribution volume and demand for our GPO services. It enhances patient care access within the community. With providers practicing on the same electronic health record system, it enables us to generate valuable data and insights. For Florida cancer specialists and CORE Ventures, integration efforts are well underway, and we're excited about the opportunities ahead to accelerate growth across our oncology platform. Leveraging our leadership and community practice and specialty solutions, we have expanded our value proposition beyond oncology and into other therapeutic areas. In April, we completed the acquisition of a controlling interest in Prism Vision, enabling us to develop a leading retina and ophthalmology platform and further enhance our practice management solutions. Let me move down to biopharma services and our platform there. In the first quarter, prescription technology solutions deliver double-digit growth in revenue and adjusted operating profit. We continue to lead in transforming medication access and affordability. We have built a robust, scaled network that digitally and securely connects providers, pharmacists, and insurers so they can work together to remove barriers and improve efficiency. We're connected to over 50,000 pharmacies and approximately 985,000 providers. The extensive connectivity and reach of our networks are differentiating and enable us to provide commercialization solutions at scale while bringing unique value to each of our stakeholders. In the past quarter, we continued to experience volume growth and prior authorization requests. Our prescription technology solutions team brings over 15 years of experience transforming the prior authorization process, making it more efficient, more transparent, and more patient-focused to help ensure people get the care they need faster. Through our innovative solutions, we're committed to improving health outcomes and making a meaningful difference for our customers and their patients. Let's move on to our pharmaceutical distribution business in North America. These are our core foundational distribution assets in U.S. and Canada. In the first quarter, we saw growth in underlying businesses supported by solid utilization trends, accelerated growth in categories of specialty pharmaceuticals, and continued focus on operational excellence. Our pharmaceutical business services a wide range of customers. One of the channels that we have supported and partnered with for years are community pharmacies. This past July, we hosted our annual IdeaShare conference, a nationwide event that brought together community pharmacies to drive deeper connections and engagement. Despite the complexities present in the industry, their presence in the communities they serve is more important than ever. We are committed to helping them navigate this dynamic environment as a partner providing best-in-class services, empowering them through innovation, advocacy, and tailored solutions for their unique business needs. We're pleased to see that our Health Mart franchise, a nationwide network of independent pharmacies, ranked highest among brick-and-mortar chain drugstore pharmacies in a J.D. Power 2025 U.S. Pharmacy Study. To support the success of our customers and the growth of our pharmaceutical business, we continue to invest in our large and scaled distribution networks. modernizing our facilities, and positioning our operations for long-term success. Operating a distribution center at our scale is complex, and we're implementing automated technologies and processes in numerous areas across our facilities, including automated storage and retrieval systems and automated picking systems for order fulfillment. These technologies are leveraged across the network to enable improvements in productivity, quality, and safety for our teams. They also enable new processes like the upcoming DSCSA requirements to be effectively managed. We've also expanded our cold chain capabilities to support the growing demand for specialty therapies, which often require special handling, such as temperature control, ensuring product integrity from the manufacturer to the patient. Our efforts have resulted in nearly double digit growth in cold chain lines year over year. These investments not only strengthen our supply chain resiliency, they also position McKesson as a trusted partner to support future growth. In McKesson, Canada, we expanded our dedicated automation group that leads the way towards better health through the automation of medication delivery, resulting in faster and safer treatments. We're working closely with pharmacists and healthcare professionals to better understand their needs and bring forward solutions that leverage technology automation. Now, I want to provide a brief update as to our portfolio actions. Last quarter, we announced our intent to separate the medical-surgical segment into an independent company. This is a strategic decision that aligns with our enterprise focus on capital allocation and portfolio management, and it will enhance the operational focus for both companies. We firmly believe this action will unlock significant value for the medical business and McKesson. We have a strong track record of executing on large, complex transactions like the spinoff of Change Healthcare and the divestiture of our European business. We're confident in our ability to execute on this strategic initiative and maximize shareholder value. We look forward to providing an update on our progress at our upcoming Investor Day event in September. I also want to comment on our Norway business. This week we entered into a definitive agreement to sell our retail and distribution businesses in Norway. The transaction is subject to customary closing conditions, including receipt of required regulatory approvals. Norway is the only remaining operating country in Europe. The planned exit of the Norway business will mark the final phase in our strategy of fully divesting our European businesses. As I reflect on the progress across our company priorities, I'm proud of the impact we've achieved as a diversified healthcare services company. We continue to manage the business with discipline and focus while navigating a dynamic market and policy environment. We remain engaged with policymakers and key stakeholders to evaluate the potential impacts on our business and customers. We're committed to promoting awareness, fostering collaboration, and advocating for changes consistent with our values and our company's mission. McKesson delivered strong first quarter results underpinned by continuum momentum across the segments. I want to again thank McKesson employees for their dedication and contribution to advancing our strategies. We as a team are confident in our ability to carry forward the momentum with strength and focus, deliver meaningful results for our shareholders, and accelerate our mission to advance health care for all. Finally, we're excited to host our Investor Day on September 23rd, during which we'll provide an update on the company's strategic priorities, growth strategies, and business outlook. And with that, I'm going to hand it over to Britt for some more financial details.

Thank you, Brian, and good afternoon. Before I turn to our adjusted results, I want to provide two updates. As Brian mentioned in his opening remarks, we are pleased to have entered into a definitive agreement to sell the retail and distribution businesses in Norway. This transaction will complete the exit of our European operations and is subject to customary closing conditions and regulatory approvals. We will classify the assets and liabilities related to Norway as held for sale, beginning with our fiscal 2026 second quarter. The held-for-sale treatment includes the impact from discontinued depreciation and amortization, and our guidance assumes an approximate $0.20 adjusted earnings per diluted share impact. And this is included in our updated full-year guidance, which I will speak to in a few minutes. We've assumed that this transaction does not close during fiscal 2026. Next, in our first quarter, we recorded a gap-only pre-tax provision for bad debts of $189 million or $140 million after tax within the U.S. pharmaceutical segment. This charge represents the remaining trade accounts receivable balances due from Rite Aid prior to its second bankruptcy filing. The remainder of my comments today will refer to our adjusted results, and I'll start by discussing our first quarter fiscal 2026 results, and then I'll discuss our fiscal 2026 outlook. Our first quarter results were strong. led by double-digit operating profit growth in three of the four segments. This robust performance exhibited across the enterprise reflects continued momentum in the operation, execution against our strategies, and disciplined capital deployment, which is underpinned by the strength of our balance sheet. Consolidated revenues in the quarter increased 23% to $97.8 billion, led by growth in the U.S. pharmaceutical segment due to increased prescription volumes from retail national account customers, the addition of a strategic account customer at the beginning of the second quarter in fiscal 2025, growth of GLP-1 medications, and growth in the distribution of oncology and specialty products. We've also now cycled through the impact of the strategic account onboarding. Gross profit was $3.3 billion, an increase of 7%. a result of specialty distribution and provider growth within the U.S. pharmaceutical segment, and growth in the prescription technology solution segment, driven by our access and affordability solution, which is partially offset by lower contributions in our international segment as a result of the divestiture of our Canada-based Rexall and Well.ca businesses at the end of the third quarter of fiscal 2025. Operating expenses decreased 1% to $1.9 billion driven by divestitures in our Canadian business and cost optimization initiatives in the medical-surgical solution segment, which were partially offset by increased operating expenses in the U.S. pharmaceutical segment to support growth, including first quarter fiscal 2026 acquisitions. Kessin continues to deliver efficiency and operating leverage, the discipline focus, and the implementation of process innovations in advanced technology, including artificial intelligence. I'd also like to highlight how our automation investments are enhancing outcomes for customers, partners, and employees, while driving measurable improvement in operating leverage. Across our pharmaceutical distribution network, we're strategically allocating capital to scale automation, from outbound picking to inbound receiving and replenishment. We have observed distribution centers which have achieved up to 90% automation, serving as a tangible proof point of throughput scalability and operational consistency. These advancements are driving measurable operating leverage. We also recently opened our largest specialty distribution center in Olive Branch, Mississippi, which is equipped with mobile autonomous robots, or COBOTs, that assist associates in the order fulfillment process. These technologies improve productivity, efficiency, and order accuracy, while elevating the employee experience by reducing physical strain and minimizing injury risk. These investments are advancing our capabilities and delivering meaningful value to stakeholders. And these are just two of several examples across the enterprise that helped to contribute more than 450 basis points of year-over-year improvement in our consolidated operating expense to gross profit ratio. Our operating profit was $1.4 billion in the quarter, which was an increase of 9%. Year-over-year results benefited from growth across our operating segments. including strong oncology and multi-specialty volumes from organic growth and recent acquisition, increased demand for access solutions in our prescription technology solution segment, and benefits from the cost optimization initiatives in the medical-surgical solution segment. As a reminder, first quarter fiscal 2025 operating profit included $110 million of gains related to McKesson Ventures' equity investments. compared to gains of $1 million in the first quarter of fiscal 2026. Including the impact of gains related to McKesson Ventures' equity investments, operating profit increased 19%. Interest expense was $44 million, a decrease over the prior year, resulting from effective cash and portfolio management, including our derivative portfolio. The effective tax rate in the first quarter was 21.4%, compared to 13% in the prior year. In the first quarter of fiscal 2026, we recognized a discrete tax benefit of $23 million, compared to a discrete tax benefit of $125 million in the first quarter of fiscal 2025. First quarter diluted weighted average shares outstanding was $125.5 million, a decrease of 4%. In first quarter, earnings per diluted share increased 5% to $8.26. Year-over-year growth was driven by strong operational performance across the business, partially offset by a higher tax rate and pre-tax gains of $110 million associated with McKesson Ventures' equity investments in the first quarter of fiscal 2025. Excluding the gains from McKesson Ventures' investments, earnings per diluted share increased 14%. Turning to first quarter segment results, which can be found on slides 7 through 12 and starting with U.S. Pharmaceuticals. Revenues were $90 billion, an increase of 25%, driven by increased prescription volumes from retail national account customers and growth in the distribution of oncology and specialty products, including contributions from acquisitions. Growth in the quarter included the onboarding of a new strategic customer, as discussed previously. Revenues from GLP-1 medications were $12.1 billion in the quarter, an increase of approximately $3.3 billion, or 38%. when compared to the prior year. On a sequential basis, GLP-1 revenue increased 11%. Segment operating profit increased 17% to $950 million, driven by growth in quarter distribution, including higher volumes from retail national account customers and growth in the distribution of oncology and specialty products. Operating profit growth in the quarter also included contributions from the acquisitions of Prism Vision and Core Ventures. These acquisitions advance our strategy in oncology and multi-specialty solutions. Although integration work remains, we're seeing early gains benefiting our differentiated platforms. In the prescription technology solution segment, revenues increased 16% to $1.4 billion, driven by increased prescription volumes in the third-party logistics business. Operating profit increased 21% to $269 million, driven by higher demand for access solutions, including prior authorization services for GLP-1 medications. Turning to medical surgical solutions, in the first quarter, revenues were $2.7 billion, an increase of 2%, driven by higher volumes of specialty pharmaceuticals. Operating profit increased 22% to $244 million, driven by operational efficiencies from cost optimization initiatives. Next, let me address our international results. Revenues were $3.7 billion, an increase of 1%, resulting from higher pharmaceutical distribution volumes in the Canadian business, partially offset by the divestiture of our Canada-based Rexall and Well.ca businesses completed at the end of the fiscal 2025 third quarter. Excluding the impact of divested businesses, revenues increased 5%. Operating profit was $99 million, a decrease of 3%, driven by the divestiture of the Canada-based Rexall and Well.ca businesses, partially offset by higher pharmaceutical distribution volumes in the Canadian business. Excluding the impact of divested businesses, operating profit was flat. And wrapping up our segment review with corporate. Corporate expenses were $138 million in the quarter. As a reminder, during the first quarter of fiscal 2025, we had pre-tax gains of $110 million, or 62 cents per share, related to equity investments within the McKesson Ventures portfolio. Excluding McKesson Ventures gains in fiscal 2025 and 2026, corporate expenses were 4% lower than the prior year. The decrease was driven by lower opioid-related expense and technology costs. Let me turn to cash and capital deployment in the first quarter, which can be found on slide 13. We ended the quarter with $2.4 billion in cash and cash equivalents. For the first quarter, we had negative free cash flow of $1.1 billion, which included $189 million in capital expenditures. We used $3.4 billion of cash for the acquisitions of Prism Vision and Core Ventures. During the quarter, we completed the $2 billion bond issuance with tenors of 5, 7, and 10 years, the proceeds of which were used to finance the core venture's acquisition. Additionally, we returned $671 million of cash to shareholders, which included $581 million of share repurchases and $90 million in dividend payments. Moving now to our fiscal 2026 outlook. Our first quarter results represent strong execution against our strategies and growth across our operating segments. The strong start momentum across the enterprise, combined with our ongoing focus to deliver shareholder value through the management of our portfolio and alignment to our enterprise strategy, gives us confidence in our outlook for fiscal 2026. Stellar first quarter results, combined with our announcement of a definitive agreement to sell our Norway-based business, underpins today's increase to our fiscal 2026 earnings per diluted share outlook to a new range of $37.10 to $37.90. For fiscal 2026, we anticipate revenue growth of 11% to 15% and operating profit growth of 9% to 13% when compared to the prior year. Let me start with a review of our segments. In the U.S. pharmaceutical segment, we anticipate revenues to increase 12% to 16%. As a result of strong first quarter performance, we now anticipate operating profits to increase at the high end of the previously provided range of 12% to 16% growth. In the core distribution business, we anticipate continued growth of GLP-1 medication. However, we anticipate this growth may vary from quarter to quarter. During the first quarter, we successfully completed two strategic acquisitions, Prism Vision and Core Ventures. These actions are consistent with our discipline capital deployment strategy, allocating capital against our differentiated growth platforms, such as oncology and multispecialty. These acquisitions will deliver growth in a value creating manner and position us for durable growth in fiscal 2026, supporting our long range targets. The reminder on April 1st, we completed the acquisition of a controlling interest in Prism Vision Holdings. premier provider of general ophthalmology and retina management services. On June 2nd, we completed the acquisition of a controlling interest in Community Oncology Revitalization Enterprise Ventures, or CORE Ventures, an internal business and administrative services organization established by Florida Cancer Specialists and Research Institute. As I discussed previously, we're pleased with the first quarter performance for these acquisitions. We continue to anticipate the acquisitions of Prism and Core Ventures will contribute approximately 6% to 7% to the fiscal 2026 operating profit growth in the U.S. pharmaceutical segment. In the prescription technology solution segment, we anticipate revenues to increase by 8% to 12% and operating profit to increase by 9% to 13%. The higher revenue outlook is due to increased third-party logistics volumes from greater demand for our supported products and programs. We anticipate continued contribution from prior authorization services, including those related to GLP-1 medications, to drive increased demand for access and affordability solutions contributing to the growth of the segment. The outlook affirms our confidence in achieving operating profit growth in fiscal 2026 in line with the long-term growth rate target. As I previously discussed, the revenue and operating profit trajectory in this segment is not linear and can vary from quarter to quarter, driven by several factors, which include utilization trends, the timing and trajectory of new product drug launches, the evolution of a product's program support requirements as it matures, which could result in the shift to other services or program termination, product delays and supply shortages, pay requirements, including utilization management and formulary strategies, the annual verification programs that we provide for our customers that occur in our fiscal fourth quarter, and the size and timing of investments to support and expand our product portfolio. We have scale and breadth of capabilities and connections across multiple channels, including biopharma providers, retail pharmacies, and payers. Our leading scale of digitally connected solutions is addressing market and patient challenges in access, affordability, and adherence. in delivering growth and value for all stakeholders. In the medical surgical solution segment, we anticipate revenues and operating profit to increase 2% to 6%. We're pleased with the solid start to the year and the continued focus and delivery of cost optimization opportunities, resulting in operating efficiencies and better alignment with our customers. In the international segment, we anticipate revenues to be approximately a 2% decline to 2% growth. and operating profit increased 3% to 7%. Segment outlook reflects continued growth in the Canadian distribution business, partially offset by the impact of the divestiture of our Canada-based Rexall and Well.ca businesses at the end of the third quarter of fiscal 2025. As I mentioned earlier, on August 4, 2025, McKesson entered into a definitive agreement to sell its retail and distribution businesses in Norway. The transaction is subject to customary closing conditions, including receipt of required regulatory approvals. Our fiscal 2026 outlook contemplates contributions related to operations in Norway for the full fiscal year and includes held-for-sale accounting treatment, adding approximately 20 cents of operating profit to the segment. In the corporate segment, we anticipate expenses to be in the range of $570 to $630 million. When excluding the impact of McKesson Ventures' gains in fiscal 2025 and 2026, corporate expenses are roughly flat compared to the prior year, a reflection of efficiency gains and cost discipline across the enterprise. Turning now to items below the line, we anticipate interest expense to be in the range of $260 to $290 million, and income attributable to non-controlling interests be in the range of $215 to $235 million. The updated interest expense outlook includes the $2 billion of debt issuance associated with the acquisition of Core Ventures, completed in the first quarter of fiscal 2026. We anticipate the full-year effective tax rate will be in the range of 17% to 19%, with the first half of the fiscal year to be in the range of 17% to 20%, and the second half to be approximately 16% to 19%. Wrapping up our outlook with cash flow and capital deployment. We anticipate free cash flow of approximately $4.4 to $4.8 billion. Our working capital metrics and free cash flow will vary from quarter to quarter and are impacted by timing, including the day of the week that marks the close of a quarter. We're also pleased to announce that in July, our board of directors approved a 15% increase to our quarterly dividend. These actions demonstrate the confidence that the board of directors and management have in the strength of the company and execution of our strategic priorities. Our outlook reflects plans to repurchase approximately $2.5 billion of shares in fiscal 2026. As a result of this share repurchase activity, we estimate weighted average diluted shares outstanding to be in the range of approximately 124 to 125 million. In summary, we delivered outstanding performance in the first quarter of fiscal 2026, a continuation of the strong momentum across the enterprise. The strength and stability in the underlying fundamentals across our businesses including the acquisitions of Prism Vision and Core Ventures, give us confidence in our increased outlook. Our sustained financial performance, bolstered by the strength of our financial position and consistent operating execution, are leading to compelling value creation for our customers, partners, and shareholders. With that, I should move to the Q&A session.