• Revenue: Increased 18% to $95.3 billion.
• Adjusted Operating Profit: Grew 16% to $1.5 billion.
• Adjusted EPS Guidance: Raised to $32.55 to $32.95, representing 19% to 20% year-over-year growth.
• Gross Profit: Increased 7% to $3.3 billion.
• Operating Expenses: Increased 2% to $1.9 billion.
• US Pharmaceutical Segment Revenue: Increased 19% to $87.1 billion.
• Prescription Technology Solutions Revenue: Increased 14% to $1.4 billion.
• Medical-Surgical Solutions Revenue: Decreased 3% to $2.9 billion.
• International Segment Revenue: Increased 6% to $3.9 billion.
• Free Cash Flow: Negative $2.6 billion for the quarter.
• Share Repurchases: $827 million at an average price of $537 per share.
• Dividend Payments: $92 million.
• GLP-1 Medications Revenue: $10.9 billion, a 45% increase from the prior year.
• Interest Expense: $62 million.
• Effective Tax Rate: 23.9%.

• Warning! GuruFocus has detected 3 Warning Sign with MCK.

Release Date: February 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• McKesson Corp (NYSE:MCK) reported strong third-quarter results with an 18% increase in revenue to $95.3 billion and a 16% growth in adjusted operating profit to $1.5 billion.
• The company announced the acquisition of a controlling interest in PRISM Vision, enhancing its specialty services platform and capabilities in ophthalmology and retina management.
• McKesson Corp (NYSE:MCK) has seen strong performance in its US Pharmaceutical and Prescription Technology Solutions segments, with double-digit growth in operating profit.
• The company is investing in strategic growth pillars such as oncology and biopharma services, with significant expansion in the US Oncology Network and clinical trial services.
• McKesson Corp (NYSE:MCK) is implementing cost optimization initiatives expected to deliver $100 million in savings, enhancing operational efficiencies across its segments.

Negative Points

• The Medical Surgical segment experienced lower-than-anticipated growth due to a softer illness season, impacting demand for seasonal vaccines and testing.
• Operating expenses increased by 2%, driven by higher costs to support growth in the US Pharmaceutical segment.
• The effective tax rate increased to 23.9% from 10.6% in the prior year, impacting net earnings.
• Free cash flow was negative $2.6 billion for the quarter, influenced by timing shifts in cash flow and capital expenditures.
• The company faces challenges in the primary care channel with lower volumes, impacting the Medical-Surgical Solutions segment.

Q & A Highlights

Q: How do you attribute the growth in the pharma and specialty segments, and are there any concerns about maintaining this growth? Also, is the Inflation Reduction Act (IRA) impacting your business? A: Brian Tyler, CEO: We've seen stable prescription volumes, with strong growth in specialty and oncology, particularly benefiting from GLP-1s. We expect this environment to remain steady. The US oncology network's growth is solid, with 6% same-store patient growth. The IRA hasn't significantly impacted us yet.

Q: Can you clarify your fiscal '26 guidance and whether it includes the recent acquisitions? A: Britt Vitalone, CFO: We're reaffirming our long-term EPS growth rate of 12% to 14%. The qualitative factors driving this year's business should continue next year. The acquisitions are subject to regulatory review, and we provided accretion estimates for the first 12 months post-closing.

Q: What are the main drivers of the 2% operating expense growth, and how should we think about this going forward? A: Britt Vitalone, CFO: We've focused on driving operating leverage through efficiencies and automation. We're investing in key areas like Prescription Technology Solutions (RxTS) to support growth. Expect continued investment in growth strategies while maintaining operating leverage.

Q: How are you thinking about market share in the Medical-Surgical segment, and is PRISM's business incremental for McKesson? A: Brian Tyler, CEO: We focus on alternate-site markets, aiming to grow our customer base and share of wallet rather than market share. Britt Vitalone, CFO: We are not the current distributor for PRISM, but we will pick up that business, which is included in our accretion estimates.

Q: What are your expectations for the flu and respiratory season, and what could drive stabilization in the primary care channel? A: Brian Tyler, CEO: Forecasting the illness season is challenging, but we planned for an average season. We believe in our assets and capabilities in alternate-site markets, which align with aging demographics and cost-effective care delivery.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.