McKesson Corporation

Welcome to McKesson's Fourth 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 Jenny Dominguez, VP of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and welcome everyone to McKesson's Fourth Quarter Fiscal 2026 Earnings Call. Today I'm joined by Brian Tyler, our Chief Executive Officer. and Britt Vitilone, 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 the risk factors section of our most recent annual and periodic SEC filings. for more 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. 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, and thanks, everyone, for joining McKesson's fiscal fourth quarter earnings call. Earlier today, we reported a good fourth quarter that caps the year of strong performance. In our fiscal 2026, we grew adjusted earnings per diluted share by 18%, driven by momentum across our strategic growth platforms. Our operating cash flow of $6.2 billion was strong and exceeded our plans. we returned $5.1 billion to shareholders. Fiscal 26 was another great year of execution and disciplined portfolio actions that sharpened our focus and drove continued operating momentum. At the beginning of the year, we added Core Ventures and Prism Vision to our oncology on our multi-specialty platforms. Both businesses have been onboarded seamlessly, delivering strong growth momentum while expanding high-quality care in the community setting. One year ago, we announced the plan to separate our medical surgical solution segment into an independent company. Since then, we've made significant progress towards that objective. We put transition service agreements in place, executed on financing transactions, and signed an agreement to welcome Apollo as a minority interest investor while advancing the separation readiness of the business itself. As we continue to execute towards our planned separation, We're confident that it will unlock shareholder value and create strategic clarity for both organizations. In January, we completed our exit from Norway, continuing our disciplined approach to portfolio optimization and fulfilling our commitment to fully exit the European business. Operationally, we made moves to better align our organizational structure to our strategy. We introduced new reporting segments, allowing increased transparency to our growth areas. and better aligning reporting with how we operate the business and how we allocate capital. Our execution on these strategic initiatives drove the strong results we delivered in fiscal 26 and positioned us well for fiscal 27. Looking ahead, we anticipate adjusted earnings per diluted share to be in the range of $43.80 to $44.60 in fiscal 27. With a strategically focused portfolio, a strong balance sheet, and a clear operating model, we are well positioned to deliver long-term value for shareholders while performing the critical role we play across the healthcare value chain. Now, let me share with you how our company priorities are shaping the future of McKesson. I'll start with our focus on people and culture, which remains the key enabler of everything we do. We're operating in a complex and rapidly evolving environment. And defining our future requires us to continue evolving how we lead while being grounded in our values and our mission. We embed this into our culture with our I2 care principles, which represent our values, integrity, inclusion, customer first, respect, and excellence. And through LeadRx, our leadership principles. Together, this is our leadership prescription framework. It reinforces accountability, trust, and focus on serving our customers. LeadRx provides a common standard to guide bold decision making, deliver results that matter with speed, and to build the teams of tomorrow. I'm always inspired by Team McKesson and how they demonstrate these leadership behaviors. Today, I want to recognize two individuals who have been exceptional partners to me and to our leadership team. During the quarter, we announced the planned retirement of Britt. Over the course of his tenure, he's played a critical role in strengthening McKesson's financial foundation, advancing our capital deployment framework, and positioning the company for long-term sustainable growth. His leadership has been marked by discipline, clarity, and an unwavering focus on value creation for shareholders. Britt has helped build a strong, deep finance organization that will continue to serve the company well into the future. I would be remiss if I didn't note that during Britt's tenure as CFO, we delivered over 500% increase in shareholder returns. That's over 20% annual growth rate. Thank you, Britt. Additionally, we're announcing changes to our board. Don Knauss will complete a service on our board prior to the 2026 annual stockholder meeting in July, consistent with our outside director age guidelines. I want to thank Don for his steady leadership and significant contributions as the independent chair of our board. Effective May 1st, I was elected chairman of our board to serve alongside Dominic Caruso, who has seven years of experience on McKesson's board, who will serve as the lead independent director, ensuring continued, ongoing, strong, independent oversight. I'd like to now discuss our strategic pillars. Let me start with oncology and multi-specialty platform. We continue to see strong growth in specialty medications, and we're leveraging our differentiated portfolio solutions to improve access, support providers in the community, and empower biopharma customers with valuable data and insights. We're pleased to see continued expansion of these platforms. For the US Oncology Network, it's been a remarkable year of growth. We added more than 570 providers in fiscal 26, the largest net increase since 2010. In April, we further expanded our footprint with the addition of Cancer Care Northwest with clinic locations across Washington and Idaho. We continue to leverage our capabilities and onboard core ventures onto our platform. Ontada, our data and insights business, for example, is now incorporating in-office dispensing data from Florida Cancer Specialists and Research Institute. This expands the data we provide to biopharma customers to better assess adoption and performance trends across the broader community oncology landscape. As we scale the platform, we're embedding automation and AI to improve workflow and enhance the patient experience. Within the U.S. Oncology Network, ambient scribe technology is now used by more than 1,900 providers. This allows them to spend more time with patients and less time on documentation, allowing them to do the jobs they trained for. These capabilities illustrate how we're using data technology and scale to meaningfully improve our physicians' productivity and dedicate more time to care delivery. Within our retina and ophthalmology platform, Prism Vision increased providers by approximately 20% over the past year and welcomed two new practices, Bocan Eye Clinic and more recently in May, the Retina Macula Institute, extending its footprint beyond the mid-Atlantic region. Let's move on to our biopharma services platform. Our fiscal fourth quarter is typically the busiest time of year as we support patients with their annual verification. This year, we delivered the most successful season to date, supporting a record number of 3.4 million patients in their journey to access the medicines they need. We achieved this through strong execution, discipline planning, and continued productivity investments, including the application of technology and automation. As a result, each full-time employee supported 120 more patients this season compared to last year. We're pleased with the continued business momentum. supported by a differentiated and scaled network. We're digitally connected to over 50,000 pharmacies and more than 1 million providers, and we support over 650 biopharma brands representing most therapeutic areas. Over the past year, we helped patients save approximately $10 billion on brand and specialty medications, the majority of which were for non-GLP-1 drugs. We helped to prevent an estimated 12 million prescriptions from being abandoned due to affordability challenges, and we enabled patients to access their medicines more than 135 million times. Building on this scale and continued momentum, we consistently reinvest into the business to advance our strategic focus on technology-enabled services. These investments focus on enhancing product functionality, improving the customer experience, and introducing greater automation. Recently, we launched an industry first integrated specialty access and affordability solution designed to address the fragmentation that often delays starting a treatment. By connecting benefits verification, prior authorization, and affordability support into a single coordinated workflow, this solution helps manufacturers accelerate time to therapy for high cost, high touch medications. This is a powerful example of how we're leveraging our scale and technology to support biopharma customers where access matters most. Turning to North American distribution, we remain focused on operational excellence and long-term sustainability as we continually build a more resilient, scalable distribution platform. Recently, we achieved a key milestone with the successful launch of our new Montreal Distribution Center. As part of our Supply Chain of the Future initiative, this state-of-the-art facility expands critical capacity and features industry-leading automation, including an advanced storage and retrieval system powered by AI and robots, which raise the standard for precision and performance. Once fully ramped, this facility will enhance resiliency, improve service reliability across eastern Canada, and reinforce our ability to serve customers and patients with greater speed, consistency, and efficiency. Across our supply chains, AI-driven inventory planning capabilities are helping us move from reactive to more technology-enabled real-time decision-making. We implemented an advanced planning system that uses AI to connect and orchestrate end-to-end planning across demand, supply, inventory, and operations inside an integrated environment. This transformation enables us to deliver working capital savings and meaningfully contributed to the strong operating cash flow in fiscal 2026. As we operate a scaled network that distributes approximately one-third of pharmaceuticals in North America, we take great pride in protecting the resiliency of our supply chain. In January, a significant winter weather across more than 20 states strained transportation networks. Through early risk monitoring, proactive planning, and strong execution, we maintain safe operations and minimize disruptions to our customers and their patients. This is yet another example that underscores the strength and reliability of our operating model and our focus on excellent service. In the past quarter, we successfully navigated the first wave of branded pharmaceutical price changes related to the Inflation Reduction Act. As expected, there was an impact to revenue growth, but the fundamentals of our business and the strength of our value proposition to manufacturers remain very strong, evidenced by the double-digit adjusted segment operating profit growth in fiscal 26. We continue to manage the business with discipline, ensuring appropriate compensation for the critical services we provide, which position us well for sustained long-term growth. We're operating in a dynamic policy environment. McKesson has a unique role to play, collaborating with policymakers and advocating for changes that advance healthcare for all. We're confident that our differentiated capabilities will continue to position us to evolve with the market and to enable better outcomes. Now let me provide a brief update on our portfolio action. In April, we reached an important milestone in preparing medical surgical solutions for separation. We completed two financing transactions, a $1 billion senior secured term loan A and a $1 billion revolving credit facility. This aids in establishing a standalone capital structure for the business, supporting separation readiness and positioning NUCO with financial flexibility as an independent company. We also announced a definitive agreement with Apollo Funds for a $1.25 billion strategic minority investment in medical surgical solutions, representing approximately 13% minority interest and valuing NUCO at approximately $13 billion of total enterprise value. The transaction is subject to regulatory approvals and customary closing conditions. We will retain operating control and majority ownership while benefiting from Apollo's experience in supporting complex carve-outs and public market transactions. This is another meaningful step forward as we execute the next phase of the separation and prepare for the planned IPO with a clear focus on maximizing value for shareholders. Let me close with this. McKesson delivered another year of strong operational performance, reflecting the strength of our growth strategy the value of our differentiated portfolio, and our disciplined portfolio management. We enter fiscal 27 from a position of strength with clear momentum across the business. We're well positioned to continue building on that momentum and to deliver sustainable long-term value to our customers, partners, and shareholders. Before I turn the call over to Britt, I want to thank McKesson's employees for their commitment and contributions, which are fundamental to our success. This is also Britt's last earnings call. I want to thank him for 20 years of outstanding leadership and service. As planned, Britt will continue to support the team through the CFO transition, ensuring continuity and stability for the team and operations. He'll also serve as a strategic advisor, providing valuable perspective as we execute our priorities, including the planned separation of the medical business. With that, Britt, I turn it over to you.