Cencora - Earnings Call - Q4 2025

Executive Summary

• Q4 2025 delivered solid non-GAAP performance: adjusted EPS $3.84 and revenue $83.7B, with adjusted operating income up 20% YoY and margin expanding to 1.22%, driven by U.S. Healthcare Solutions and contribution from RCA; GAAP EPS of $(1.75) reflected a $724M PharmaLex goodwill impairment and higher interest expense tied to RCA financing.
• Versus S&P Global consensus, Cencora modestly beat on EPS (+$0.05) and revenue (+$0.33B) and exceeded EBITDA as reported by S&P Global’s actuals; GLP-1s contributed ~40 bps to consolidated revenue growth in Q4, less than recent quarters, as mix normalized.
• Management raised long-term guidance: adjusted operating income growth to 6–9% and adjusted EPS growth to 9–13%, and announced ~$1B distribution-network investments through 2030; FY26 guidance targets adjusted EPS of $17.45–$17.75, revenue growth 5–7%, AOI growth 8–10% and adjusted FCF ≈$3.0B.
• Strategic re-segmentation from FY26 (U.S. Healthcare Solutions, International Healthcare Solutions, and “Other”) and active review of “Other” (MWI Animal Health, Profarma/ProPharma, legacy U.S. Consulting Services, and parts of PharmaLex) sharpen focus on specialty/MSO platforms as a medium-term stock catalyst.

What Went Well and What Went Wrong

What Went Well

• Adjusted EPS and operating income outperformed: $3.84 (+15% YoY) and $1.023B (+20%) with margin expansion to 1.22%, led by U.S. Healthcare Solutions and RCA contribution.
• U.S. Healthcare Solutions strength: segment revenue $75.8B (+5.7% YoY) and operating income $872.4M (+25.1% YoY), underpinned by specialty volumes across health systems and physician practices and GLP-1 demand.
• Strategic investments/dividend: ~$1B U.S. distribution capacity program through 2030 and dividend raised 9% to $0.60, aligning payout growth with LT EPS growth range low end.

What Went Wrong

• GAAP earnings impacted by impairments and financing costs: GAAP EPS $(1.75) due to $723.9M PharmaLex goodwill impairment and higher net interest expense (+$56.9M YoY) from RCA-related debt.
• International Healthcare Solutions mixed: revenue +7.6% YoY but operating income down 2% (as-reported) on consulting pressure; constant-currency OI down 6%.
• Loss of an oncology customer (late June) and COVID headwind reduced the U.S. segment ex-RCA growth, with management flagging a headwind for the first three quarters of FY26 before lapping in Q4.

Transcript

Speaker 1

Good morning, good afternoon, and thank you all for joining us for this conference call to discuss Sencora's fiscal 2025 fourth quarter and full year results. I am Bennett Murphy, Senior Vice President, Investor Relations and Enterprise Productivity. Joining me today are Bob Mauch, President and CEO, and Jim Cleary, Executive Vice President and CFO. On today's call, we will be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website at investor.sencora.com. We've also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will discuss forward-looking statements about our business and financial expectations on an adjusted non-GAAP basis, including but not limited to EPS, operating income, and income taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change.

For discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10-Q. Cencora assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without the express permission of the company. You will have an opportunity to ask questions after today's remarks by management. We ask that you limit your questions to one per participant in order for us to get to as many participants as possible within the hour. With that, I will turn the call over to Bob.

Speaker 0

Thank you, Bennett. Hi everyone, and thank you for joining Cencora's fiscal 2025 fourth quarter earnings call. I'll begin today by expressing my gratitude to our team members who power our results, advance our strategy, and lead with purpose. In fiscal 2025, Cencora achieved strong financial performance with adjusted operating income and adjusted diluted EPS growth of 16%. Driven by our strategic positioning in specialty, thoughtful investments to enhance our solutions in fast-growing areas of the market, and continued strong pharmaceutical utilization trends. The results our team members deliver demonstrate the unique value we provide to our leading customers, both pharma manufacturers and providers, as an end-to-end healthcare services company. As a reflection of our confidence in continued market growth, the strength and positioning of our business.

Our successful investments in key growth areas like specialty, and conviction in our continued execution, we are pleased to be raising our long-term guidance for adjusted operating income growth to 6-9%. And our adjusted EPS growth to 9-13%. During the year, we made considerable progress in strengthening our role as a leading healthcare services provider through our discipline focus. Our strategy going forward centers on three growth priorities: leading with market leaders, enhancing patient access to pharmaceuticals, and strengthening our position in specialty, as well as four strategic drivers enabling our execution. First, prioritizing growth-oriented investments. We're committed to advancing our leadership in the healthcare industry, which requires us to invest significantly, both organically and inorganically, in the areas that will strengthen our strategic positioning and drive long-term value. Second, improving the customer experience by leveraging advanced data analytics and technologies.

We are enhancing how we utilize technology and analytics to expand our services and solutions, while also generating actionable insights to inform our industry partners. Third, driving a best-in-class talent experience. Our people are our most important asset. At Cencora, we're committed to empowering our talent with the skills and experiences they need to build meaningful careers as our industry and work continue to evolve. Fourth, identifying ongoing process and capability improvements. We're focused on enhancing our productivity, becoming even more integrated and efficient in serving the dynamic pharmaceutical supply chain. Today, I want to highlight the intersection of strengthening our position in specialty and how we are strategically prioritizing growth-oriented investments. I'll begin with how Cencora is prioritizing growth-oriented investments to fuel our long-term growth. Cencora is making investments that align with our pharmaceutical-centric strategy and elevate our offering.

We regularly evaluate our portfolio to ensure we are focusing on areas that advance our long-term vision. As announced this morning, we undertook a thorough review of our portfolio as part of our approach to prioritize growth-oriented investments. This review led us to sharpen our focus for the businesses included in both our U.S. and international healthcare solution segments. We identified specific areas of the business that do not align as closely with our strategy going forward, specifically our animal health business, MWI, our legacy U.S. hub services, our equity investment in ProPharma in Brazil, and certain components of Pharmalex. As a result, we are evaluating strategic alternatives for these businesses and are grouping them as other in our financial reporting to provide additional transparency for our investors.

By evaluating alternatives for these businesses, we will identify the right long-term partners to help the businesses within other capitalize on the strength of their offerings while we focus on executing against Sencora's strategy and our remaining businesses. We believe this prioritization will allow us to effectively deploy resources against our growth priorities, for example, strengthening our position in specialty. The acquisition of Retina Consultants of America, RCA, is a recent investment that reflects our commitment to strengthening our leadership in specialty. Since the acquisition closed earlier this year, RCA has continued to demonstrate the unique value the platform provides for physicians, while our joint teams have been identifying areas where we can augment the RCA value proposition. The MSO relationship is key for providers.

With RCA now a part of Sencora and our pathway to full ownership of One Oncology, we are excited about our ability to drive growth while contributing positively to patient outcomes by increasing time physicians can spend with patients, enhancing access to innovative treatments through renowned research capabilities, and informing best practices in community-based care. We are also prioritizing internal investments. In order to continue to lead with market leaders, Sencora is expanding and enhancing our supply chain infrastructure to support our customers' continued growth and innovation. This morning, we were proud to announce significant investments totaling $1 billion through 2030 to amplify our distribution network, including opening a second national distribution center and expanding our existing specialty distribution capacity. These investments will allow us to better support our customers with additional cold chain storage as the specialty market grows.

This commitment builds on our track record of successful investments to expand our infrastructure and will enhance the resiliency and efficiency of our supply chain to ensure we are well-positioned to handle the rising demand and complexity of pharmaceutical treatments. We're confident we have the right culture and strategy to ensure we continuously strengthen our business to support growth. I'll now turn the call to Jim to discuss our fourth quarter and fiscal 2025 results, fiscal 2026 guidance, and Sencora's updated long-term guidance. Jim?

Speaker 2

Thanks, Bob. Good morning and good afternoon, everyone. Before I turn to a review of our fourth quarter and full year fiscal 2025 results, as a reminder, my remarks today will focus on our adjusted non-GAAP financial results unless otherwise stated. For a detailed discussion of our GAAP results, please refer to our earnings press release and presentation. Fiscal 2025 was a pivotal year for Cencora as we took decisive steps to advance our strategy, guided by our strategic priorities and growth drivers, and delivered impressive results due to our team members who remain committed to our customers and patients. To reflect our strong execution, intentional positioning in and prioritization of growth-oriented areas, and positive core fundamentals, we are pleased to be raising our long-term guidance for adjusted diluted EPS and operating income, which I will discuss in more detail following a review of our results.

Turning now to our fourth quarter results, we completed the quarter with adjusted diluted EPS of $3.84, an increase of 15%, driven by strong performance in our U.S. healthcare solution segment. Consolidated revenue was $83.7 billion, up 6%, driven by growth in both reportable segments, primarily due to continued volume growth. In the quarter, GLP-1s were a less meaningful contributor to revenue growth than in recent quarters and represented a 40 basis points contribution to our consolidated revenue growth. Moving to gross profit, consolidated gross profit was $2.9 billion, up 18%, largely driven by gross profit growth in the U.S. healthcare solution segment. Consolidated gross profit margin was 3.47%, an increase of 37 basis points, primarily due to the gross profit contribution from our acquisition of Retina Consultants of America.

Consolidated operating expenses were $1.9 billion, up 18%, primarily due to the RCA acquisition and in support of our overall revenue growth. Turning now to operating income, consolidated operating income was $1.0 billion, up 20% compared to the prior year quarter. The increase in operating income was driven by continued strong growth in our U.S. healthcare solution segment, which I will discuss in more detail when reviewing segment-level results. Moving now to our net interest expense. Net interest expense was $78 million, an increase of $57 million, primarily due to the $3.3 billion in debt raised to finance a portion of the RCA acquisition. In the September quarter, we repaid $500 million of our existing term loan. As a result, we have now already repaid $700 million of the $1.5 billion three-year term loan, which was issued in January as part of the RCA financing.

Moving to effective tax rate, our effective tax rate in the fourth quarter was 20.6% compared to 20.3% in the prior year quarter. Finally, our diluted share count was 195.3 million shares, a 1% decrease compared to the prior year fourth quarter, primarily driven by opportunistic share repurchases completed earlier this fiscal year. This completes the review of our consolidated results. Now I'll review our segment results for the fourth quarter. U.S. healthcare solutions segment revenue was $75.8 billion, up approximately 6% versus the prior year quarter, as we continued to benefit from strong utilization trends. Sales of GLP-1 products increased $876 million, or 10% year-over-year, representing a 50 basis point contribution to segment revenue growth. As a reminder, we indicated on our third quarter earnings call, the moderation in U.S. healthcare solution segment revenue growth was expected and then was reflected in street consensus.

Turning now to operating income, U.S. healthcare solution segment operating income increased by 25% to $872 million due to growth across our distribution businesses and the contribution from RCA. During the quarter, we continued to see good volumes in specialty across health systems and physician practices as our partnerships with leaders in both channels drove solid growth, more than offsetting the previously disclosed loss of an oncology customer that occurred at the end of June due to its acquisition by a peer. Turning now to international healthcare solutions segment, in the quarter, international healthcare solutions segment revenue was $7.9 billion, an increase of 8% on an as-reported basis and an increase of 6% on a constant currency basis, primarily driven by revenue growth in our European distribution business.

International healthcare solutions segment operating income was $151 million, a 2% decrease on an as-reported basis and a 6% decrease on a constant currency basis, primarily driven by continued pressure in our global consulting services businesses, partially offset by growth in all other business units in the segment. In our European distribution business, we saw continued strong demand for our 3PL services, which includes logistics for specialty products and signed a number of new contracts. Additionally, during the quarter, we were encouraged to see a rebound in our global specialty logistics business, where shipment volumes returned to growth. Before turning to our full year fiscal 2025 results, I would like to take a moment to discuss our GAAP operating income results in the fourth quarter, which includes a $724 million goodwill impairment related to Pharmalex, as noted in our press release.

Pharmalex has continued to experience persistent demand challenges, which resulted in the business falling below our original expectations and declining year-over-year. We have taken steps to better position Pharmalex for long-term success. As part of the strategic review Bob mentioned in his remarks, we've made the decision to simplify Pharmalex's business and will now only be focused on three main areas where we are better positioned: pharmacovigilance, market access, and regulatory affairs. We are evaluating strategic alternatives for Pharmalex's other service verticals. That concludes the discussion of our fiscal fourth quarter financials. Now I'll turn to a discussion of our full year fiscal 2025 results compared to the prior year, beginning with revenue. Our consolidated revenue was $321.3 billion, up 9%, driven by U.S. healthcare solutions segment growth of 10% and international healthcare solutions segment growth of 6%.

Consolidated operating income was $4.2 billion, an increase of 16%, driven by growth in the U.S. healthcare solutions segment, where we continued to benefit from volume growth, particularly growth in specialty, and three-quarters of contribution from the RCA acquisition. Concluding the discussion of our full year fiscal 2025 results, during the year, we generated $3 billion of adjusted free cash flow and ended the year with a cash balance of $4.4 billion. During the year, in addition to investing in our business through capital expenditures and furthering our strategy through M&A, we continued to prioritize returning capital to our shareholders through dividends and share repurchases that totaled close to $900 million.

This morning, we were pleased to announce our 21st consecutive annual dividend increase, with our board of directors approving a 9% increase to our quarterly dividend, once again aligning our dividend growth rate to the low end of our long-term guidance for adjusted diluted EPS growth. This completes the review of our full fiscal year results. Before I turn to a discussion of our fiscal 2026 guidance and updates to our long-term guidance, I will take a moment to discuss our updated financial reporting structure that Bob mentioned in his remarks. Beginning in the first quarter of fiscal 2026, in addition to our two reportable segments, U.S. healthcare solutions and international healthcare solutions, we will begin reporting certain businesses that we are exploring strategic alternatives for under other.

Through this increased transparency, we hope to provide our investors with additional visibility into the strength of our go-forward business performance and trajectory as we prioritize growth-oriented businesses aligned with our strategy. As Bob mentioned, other includes MWI Animal Health, our equity stake in ProPharma, Legacy U.S. Consulting Hub Services, and components of Pharmalex. We are committed to finding the right strategic fit for each of these businesses to drive mutual success and value for all our stakeholders. For recast comparable segment results for fiscal 2024 and fiscal 2025, I would refer you to our investor website and Form AK we furnished this morning. Turning now to discuss our fiscal 2026 guidance expectations. As a reminder, we do not provide forward-looking guidance on a GAAP basis, so the following metrics are provided on an adjusted non-GAAP basis.

We have also provided a detailed overview of guidance on slides 11 and 12 of our earnings presentation, including constant currency guidance for our international healthcare solutions segment. Starting with EPS, we expect adjusted diluted EPS to be in the range of $17.45-$17.75, representing growth of 9%-11%. Now I'll provide some details on the items contributing to this EPS growth. Beginning with revenue, we expect consolidated revenue growth to be in the range of 5%-7%, reflecting U.S. healthcare solutions revenue growth in the range of 5%-7%, international healthcare solutions revenue growth in the range of 6%-8%, and other revenue growth in the range of 0%-4%. Turning to operating income, we expect consolidated operating income growth to be in the range of 8%-10%, reflecting U.S. healthcare solutions operating income growth in the range of 9%-11%.

International healthcare solutions operating income growth in the range of 5%-8%, and other operating income decline in the range of 1%-4%. Before turning to our additional guidance assumptions, given our updated reporting structure, I wanted to provide some additional context on the makeup of other to assist in your modeling. First, MWI Animal Health represents nearly 70% of other's revenue based on fiscal 2025 results. In the fourth quarter, the business continued its strong performance and ended fiscal 2025 with full year revenue growth of 6%. Second, ProPharma, a standalone pharmaceutical distribution business in Brazil, represents about a quarter of revenue in other based on fiscal 2025 results. As a reminder, given the nature of the equity stake we hold in ProPharma, we consolidate its financials and eliminate a portion of net income not attributable to Cencora through our non-controlling interest line.

Now moving to interest expense, we expect our interest expense to be in the range of $315 million-$335 million. As a reminder, we issued a majority of the debt related to the RCA acquisition in December 2024, with the acquisition closing in January 2025. As a result, our interest expense will be higher in fiscal 2026 due to the incremental quarter of higher interest expense. Turning to income taxes, we expect our effective tax rate to be in the range of 20%-21% for fiscal 2026. Moving now to share count, we expect that our full year average share count will be approximately 194 million shares for fiscal 2026. This contemplates approximately $1 billion in share repurchases over the course of the fiscal year. Regarding our capital expenditure expectations in fiscal 2026, we expect capital expenditures to be approximately $900 million.

While the CapEx dollar spend is elevated relative to recent years, as a percentage of gross profit, it aligns with historical periods when we've made significant investments in our infrastructure. In addition to the U.S. supply chain infrastructure investments Bob mentioned, we will be making IT investments to support our digital transformation. As it relates to free cash flow, we expect adjusted free cash flow to be approximately $3 billion for fiscal 2026. Before I conclude my remarks and provide an update on our long-term guidance, while we do not provide guidance on a quarterly basis, there are a few things to keep in mind on our quarterly operating income cadence as you review your models. First, as we have discussed, at the end of June, we lost an oncology customer following its acquisition by a peer.

This impact was fully reflected in our results in the fourth quarter of fiscal 2025. However, we will have a headwind related to this loss for the first three quarters of fiscal 2026. As you update your quarterly models to reflect the fiscal 2026 guidance, we would expect growth to pick up in the fourth quarter of our fiscal year as we begin to lap this customer loss. Second, we completed the RCA acquisition at the beginning of the second quarter of fiscal 2025 and will begin to lap the inclusion of RCA in our results. The loss of the oncology customer and incremental quarter of contribution from RCA represent a net headwind of 1% for our U.S. healthcare solutions segment in fiscal 2026.

To conclude, Sencora has clearly delivered strong performance over the years as our pharmaceutical-centric strategy and positioning in specialty have allowed us to capitalize on positive industry trends driven by our team members' focus and execution. In recognition of this performance track record and underlying industry fundamentals, including continued innovation and demographic trends, we are pleased to be raising our long-term adjusted operating income growth guidance to a range of 6%-9% from our prior range of 5%-8%. This is driven by our increased expectations for our U.S. healthcare solutions segment, where we are now calling for adjusted operating income growth of 6%-9% up from our previous range of 5%-8%, powered by our strong positioning in specialty and our efforts to augment our solutions offerings to our customers. With our long-term EPS contribution from M&A and share repurchases unchanged at 3%-4%.

We feel we are strongly positioned to grow EPS over the long term in the range of 9%-13%. Before we open the line for questions, I will turn the call back to Bob for his closing remarks. Bob? Thank you, Jim. Fiscal 2025 was a pivotal year for Sencora. As we strengthened our leadership in specialty through the acquisition of RCA and took key steps to sharpen our focus and execution in alignment with our strategy. It is our obligation as a healthcare company to continue to champion innovation and efficiency. We are focused on driving continued strong growth for our enterprise by leveraging our robust infrastructure, differentiated capabilities, and continued investment in specialty, including our MSO platform. Sencora's growth priorities are clear as we are leading with market leaders, enhancing patient access to pharmaceuticals, and relentlessly strengthening our position in specialty.

Once again, I want to thank the Sencora team members. It is due to their disciplined execution and commitment to our purpose that Jim and I are able to report strong results and guidance. As we look ahead, we're positioning ourselves for long-term growth and value creation. Informed by our strategic drivers and growth priorities, and guided by our purpose, we are united in our responsibility to create healthier futures. With that, I will turn the call over to the operator for Q&A. Operator? Thank you. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We kindly ask all participants to ask one question only. The first comes from Lisa Gill of JP Morgan. Your line is now open.

Please go ahead. Thanks very much, and thank you for all the detail. When I think about the business, Bob, and I look at how well you've done the last few years, and we appreciate you updating the long-term guidance, can you maybe just spend a minute strategically how you view the business? You're now taking some of these businesses, putting them into other, I would assume, looking at potentially selling them as you talked about, or partnering with others. How do I think about, one, your strategic priorities going forward? You talk a lot about specialty. You're clearly a leader there. Two, like the MSO business, do we expect that you'll do incremental acquisitions there? Just if you could spend a couple of minutes from a strategic standpoint as we think about 2026 and beyond. Yeah. Hi, Lisa. Thank you very much for the question.

Yeah, I think what you see in our actions and what we're discussing today is our attempt to be very focused in our strategic execution. When you think about what's in the U.S. Solutions segment and international solutions segment, we feel we're better positioned now to make sure that we're dedicating resources, allocating capital, both human and financial capital, to make sure that we're investing in the areas that best align with our strategy going forward. It doesn't mean that the businesses that we've identified through our strategic review are bad businesses or troubled in some way. We're just being disciplined and focused in making sure that we can focus on where we've been really clear about where we're going to continue to differentiate ourselves. Lisa, you mentioned the MSOs, and I think that's a really good example of as we have.

The successful acquisition of RCA, which is going really well, and the pathway to full ownership of One Oncology, we want to make sure that we are able to continue to invest in those businesses and that we have our management team focused, we have our financial focus there. The result of that really is allowing the MSO value proposition to be most evident. That value proposition is really making care easier for patients and making care easier for physicians. That is what we want to do. As you know, over a long period of time, we have focused resources in multiple areas, actually, to support providers, to support small businesses within healthcare. What you are seeing here today is just us being disciplined and focused and making sure that as we go forward, we have our capital deployment very broadly well-defined, but also specifically on our growth areas.

Specialty is certainly top of mind. The MSO platforms within specialty are something that we will continue to invest in. Lisa, one thing that I'll add there is if we look at our performance in the fourth quarter and our performance in fiscal year 2025, one of the things that we benefited from was the strength of the results in RCA and the organic growth there and the inorganic growth there also. We are seeing the same things from our investment in One Oncology, which really reinforces the strategy that you were asking about and Bob was talking about. On top of the strong organic growth, One Oncology has continued to grow inorganically, and this has positively contributed to our distribution and GPO business.

Our sales to One Oncology are a really good example when we talk about the strength of our sales to physician practices. We have been very excited about RCA and what it adds to the business. We are also excited about One Oncology and the pathway to full ownership and what we can do with full ownership across our MSO platform alongside RCA, which is what Bob was talking about and you were asking about with respect to our strategy. Thank you. The next question comes from Elizabeth Anderson of Evercore ISI. Your line is now open. Please go ahead. Hey, guys. Thanks so much for the question. Maybe to double-click on what you were just talking about, Jim, in response to Lisa's question. As you have owned RCA for almost a year and One Oncology, what are the next steps in the evolution of the MSO platform?

What, I guess, maybe in your allusion to what you were just talking about in terms of things you can't do while it's not consolidated, that would be sort of helpful to hear and just kind of incremental learnings as we're lapping the first year of contribution. Thank you. Hey, Elizabeth, it's Bob. I'll take the first pass at that. When you think about at some point when we can bring things together, there are very real capabilities and strengths within each of the MSO platforms that we're going to be able to leverage across all of Sencora's MSO platform. If you think about clinical trial expertise, that's something that can be shared across both retina and oncology. There's a very real opportunity for that that we're excited about.

There are some back-office activities like revenue cycle management that we'll also be able to leverage across the MSO that will, again, make the ability for these physicians to provide care, not have to worry about the back-office activities as much, and also provide the highest level of care through the clinical trial access is something that we're really excited about. The next phase is really looking at the things that we'll be able to do together across the platforms, and that's where we'll be focused next. One thing that I'll add there, Elizabeth, is that when Bob was talking about the strength of RCA with clinical trial sites, from a financial standpoint, that's one of the things at RCA that's really exceeded our expectations during the first year from a financial standpoint, but also.

In the way it's helped attract fellows out of training to RCA, which is one of the key things that's been benefiting the inorganic growth there, is the opportunity for fellows out of training to practice and also be involved in the clinical trials. Thank you for the question. Thank you. The next question comes from Michael Cherney of Leerink Partners. Your line is now open. Please go ahead. Good morning. Thanks for taking the question. Maybe if we can just hone in on the USAOI performance in the quarter. Usually, we're not used to distributors putting up mid-20%+ EBIT growth on a two-quarter basis. Obviously, RCA, as we all know, is in there. You lost FCS this quarter. As you think about the durability of growth there against the backdrop of your new LRP.

What's driving that level of magnitude of growth, and how durable do you feel like the drivers behind that are appropriately embedded in the updated long-range plan? Thanks so much. Yeah. Thank you very much for the question. Of course, we had exceptional results in the U.S. segment during the fourth quarter. We had adjusted operating income growth of 25%. I'll provide some additional detail for you. If we look at it ex-RCA, it was growth of 13%. That was in spite of a COVID headwind during the quarter of $15 million, and in spite of the headwind from the loss of the oncology customer that was acquired by a peer. In 2025, we saw exceptionally strong growth in the U.S. healthcare solution segment with broad-based performance across the portfolio.

As we look towards fiscal year 2026, we still see strong performance across the business, but in our guidance, we do not have the same level of outperformance that we have seen recently. One thing that I will add, looking at our guidance for fiscal year 2026. When excluding the additional quarter of RCA, our guidance still contemplates growth within our new long-term guidance range of 6-9%, even when considering the oncology customer loss. You asked about our long-term guidance also, and our increased U.S. healthcare solution segment long-term guidance and the increase in our consolidated long-term guidance for adjusted operating income and EPS, it reflects the confidence in the strength of our business and our team's ability to continue executing at a high level. Of course, we do have a lot of confidence in our long-term guidance ranges. Thank you for the question.

Thank you. The next question comes from Charles Reay of TD Cowen. Your line is now open. Please go ahead. Yeah. Thanks for taking the question. Jim, maybe I can just follow up on what you respond to Mike's question is, obviously, you said 30% growth ex-RCA, but you included the impact of COVID as well as the Florida cancer. I mean, if you normalize for those, the core growth is actually still quite strong, probably north of 20-something % by our estimation. I guess maybe when you think about your planning then, it's fair to think that your long-range, your LRP here that's been obviously increased is reflecting the potential for these kind of events to occur. Now and then into the future, right? A peer acquires somebody or some of those events happen. But fair to think, though, right.

In fact, the core strength is still quite above what the LRP at the moment is. Is that a fair understanding of how to interpret the results right now? And then when we think about the—and just if I could add on the capital. Deployment of 3-4% in your long-term range, does that already contemplate sort of the next step in the One Oncology transaction? Is that already kind of embedded into that? Thanks. Yeah. And so let me address the questions that you asked. I'll start with FY2026, and then I'll move on to the long-term guidance for both adjusted operating income and EPS. In FY2026, in the U.S., our guide for adjusted operating income growth is 9-11%. When we take a look at the net headwind that's caused from the extra quarter of.

RCA, which is a tailwind and offset by the loss of the oncology customer due to the acquisition for kind of the three-quarter impact that that has on fiscal year 2026, that's a net headwind of 1%. If we look at it, excluding that net headwind, our guidance in the U.S. for fiscal year 2026 is 10-12%. As we look at our long-term guidance, as I said, we have a lot of confidence in our long-term guidance, and we think we're really well-positioned to continue to drive value for our stakeholders through our core and pharmaceutical distribution and the other services. We're pleased to increase that long-term guidance.

I think probably one way to address your question is there is the law of large numbers, and we're just continuing to grow at such a rate that that law of large numbers has an impact at some point in time. Having said that, we do have a great deal of confidence in the strength of our businesses and our ability to execute. I'll also say you asked about capital deployment. There's no change in our capital deployment priorities in our long-term guidance. A lot of our capital deployment is unspoken for because it's highly likely that, as we've talked about before, that we'll acquire the rest of One Oncology, and that is included in our long-term guidance. Thank you. Appreciate the question. Thank you. The next question is from Erin Wright of Morgan Stanley. Your line is now open. Please go ahead. Great. Thanks.

Can you talk a little bit about the overlap with your core business across some of those other businesses that are now in the other segment? For instance, like MWI, I guess it sounds like it's not really integrated with much of the infrastructure today, but where you see overlap, whether it's human generics or otherwise across animal health, can you reconcile with that and how easy it is to separate some of these businesses? When you took a step back and you looked at your commitment to World Courier or the European wholesale business, how do you think about that? Any sort of key findings when you were looking at the synergy opportunities across those businesses? Sure. I'll take the first part of that. You asked about MWI and overlap with.

The rest of the enterprise, and you asked with regard to some of the other businesses and other also. One thing I'll say about MWI, and this applies to the additional businesses and other, is MWI is a great business. One thing I'll say is that it doesn't provide competitive advantage to the balance of the enterprise. By placing it in other and starting to explore strategic alternatives, I think we can better position the business for long-term success in its market. The same thing applies to some of the other businesses that we've placed in others, such as ProPharma. These are very good businesses, but businesses that by starting to explore strategic alternatives, we can better position them for long-term success. Yeah. Erin, I'll take the second part of your question in terms of things that are in the business going forward.

Specifically, you mentioned World Courier, but I'll just hit on a couple of the businesses that are not in others. If you think about Alliance Healthcare with a very good foundation in distribution and, importantly, a significant footprint in 3PL, which is where the specialty growth is in Europe. That is how we're continuing to stay dedicated to differentiation and specialty. World Courier is a very strong business over a long period of time with a differentiated footprint and differentiated solutions like cell and gene therapy that we're excited about. Inamar is a business in Canada that has a strong reputation with the pharmaceutical manufacturer community, providing both hub and spoke services within Canada. Just a couple of solutions and a couple of examples of things that we are keeping within the core business.

I'll just mention at the end of that, Erin, as you'd expect, the strategic process is. It's an outside-in process. We're looking at markets first. We're looking at services. We're looking at where. Sencora really has the ability to differentiate and when. All of that goes into these assessments. At the end of the day, if you think back to us. Following specialty growth and the markets where we can play, I think you will see—I would say human health specialty growth—you'll see some rationale in the decisions that we're making. Thank you. The next question comes from Alan Lutz of Bank of America. Your line is now open. Please go ahead. Good morning, and thanks for taking the question. Really strong quarter in U.S. healthcare. Jim, I think you talked about 10-12% AOI growth in that U.S. healthcare segment in fiscal 2026.

How should we think about the relative growth rate between specialty and generics? I would assume that the specialty growth rate is probably accretive to that 10-12%, and then the generics a little diluted. Is there any way to frame the relative growth rate of the generics business? Is that growing mid-single? Is that growing closer to where the entire business is growing? Any way to frame how the generics business is performing or expected to perform in fiscal 2026 and maybe comparatively to 2025? Thank you. Sure. We do not specifically break out those numbers, but let me talk generally about it. As we talked about for some time, we are benefiting from utilization trends, and we are particularly benefiting from the strength of our sales to specialty physician practices and health systems.

As we look over the longer term, whether we look in the past or going forward, specialty, of course, has been very much accretive to our operating income growth. Over time, we expect that to continue to be the case given the innovation in the specialty markets and given our continued investments in our MSO strategy. I'll also say that one of the strengths about Sencora is the breadth of our portfolio and the breadth of our offerings. As we've talked about for several years now, we've really rebalanced our contracts so we make a fair return on brand, generic, and specialty. One other thing I'll add with the specialty market is we talked for some time now about the moderation—excuse me.

One thing I'll add about the generic market is we talked for some time about the moderation of generic deflation, and those trends that we talk about continue to be the case. While specialty is really accretive to our growth, really all parts of the business are good for us: brand, specialty, and generic. Thank you for the question. Thank you. The next question comes from Eric Percher of Nephron Research. Your line is now open. Please go ahead. Thank you. I'd like to pivot to the international business. If I'm reading the recap correct, it looks like the businesses that you're pulling out of the segment maybe had a little bit better growth than the negative 10% in fiscal year 2025.

I welcome your perspective on what is enabling the pivot to 5-8% growth in 2026 and enables the long-term guide at that level. Yeah. Let me first talk about the guidance. Of course, our long-term guide that we have for international is 5-8%. That is our guidance also for the upcoming fiscal year. The guidance for the upcoming fiscal year for other is a decline of -1% to -4%. Just a quick comment as I talk about that -1% to -4%. In other for our guide this year, we are expecting profit growth in MWI and ProPharma. It is the balance of the businesses in other that we expect a decline.

Let me kind of go on to that key part of your question: is our confidence in the long-term guide for international of 5-8%? If we look at the most recent quarter, the decline in international was due to Pharmalex. As I said in my prepared remarks, all of the other businesses in international grew profits in the fourth quarter. We really saw a rebound in our global specialty logistics business. World Courier, which had been the underperformer along with Pharmalex this past few quarters, rebounded in the fourth quarter and had revenue growth and profit growth during the fourth quarter. If we look at our long-term guidance or our fiscal year 2026 guidance for the international segment, it contemplates and assumes the international segment returns to growth in 2026. Then we have.

Confidence because we are starting to see benefit from the market demand rebounding for our global specialty logistics business. We also have some easier comparisons and a more tailored portfolio, moving some of the Pharmalex assets into other. We have some core businesses there which have been performing well, such as Alliance, and then parts of that business which are performing particularly well. That is 3PL. We expect the 3PL to be growing at a really nice rate over the long term because that is how a lot of the specialty products are distributed internationally. Thank you for the question. Those are some of the things that give us confidence in that 5-8% long-term guide. Thank you. The next question comes from Steven Velichet of Mizuho Securities. Your line is now open. Please go ahead. Yeah. Thanks. Good morning. Yeah.

Thanks for taking the question. I guess within the other segment, with most of those businesses under strategic review, most of us are going to assume likely to be divested. I guess I'm curious, how should we think about the potential accretion or dilution related to any asset sales? Should we assume that you would most likely use sale proceeds to maybe do buybacks to just avoid or mitigate dilution? Also, are all these businesses in the other segment profitable right now? Or are any of them unprofitable where a sale could be immediately accretive? Just curious to get your thoughts around all this. Thanks. Yeah. That is a great question. As we said, we're currently beginning to explore strategic alternatives for the business and other, though no path has been determined at this time.

That being said, if we look at some of the businesses and other, a sale of a business could be dilutive in the short term. Over the long term, we believe our portfolio being more focused on higher growth businesses would allow us to have a more strategic prioritization of investment to drive better long-term returns and long-term accretion. You asked about profitability of the businesses and other, and I mentioned that before. We're expecting in fiscal year 2026, we're expecting profit growth at MWI and ProPharma. The balance of the businesses are what's causing the decline in fiscal year 2026. Some of the businesses there have been performing quite well. For instance, MWI had 6% revenue growth this past year and had good operating income growth.

To address part of the question you asked, while some of the businesses in Other are not showing profit, we are not expecting profit growth this year. All of the businesses in Other are profitable. Thank you for the question. Thank you. The next question comes from George Hill of Deutsche Bank. Your line is now open. Please go ahead. Good morning, guys. Thanks for taking the question. Jim, I want to zoom out for a second because if you look at the U.S. business for a decade or more, it has basically been a business that has seen margin erosion as lower margin brand drugs have outpaced higher margin generic drugs. Now, with the business mix into the MSO segments and the expansion into specialty.

We seem to be at the inflection point where now the higher margin, faster growth specialty segment is outpacing what I would call regular way brand and regular way generic. My question is, has the business inflected to a point where the margin expansion, as indicated by the guidance this year, operating earnings growing faster than revenue growth, is sustainable on an ongoing basis? And should investors be looking at that segment going forward, continuing to expect operating earnings growth to outpace revenue growth? Yeah. Excellent questions that you asked there. I'll add just a couple of key things. I think your focus on margins is key because, of course, that's a really important part of the business. I'll also add that one of the key metrics that we focus in on is return on invested capital. And.

Even some of our lower margin businesses in the core distribution business, given our expertise in managing working capital, can be lower margin but still can be really good return on invested capital businesses. Now, to get more to the specific question you're asking, of course, there are so many moving parts that can impact our gross margin and operating margin every year. We really stay on top of those. One thing that we benefit from in specialty is all of the wraparound services that we offer. This is in part B, such as GPO. That's kind of one of the key things in specialty that's been accretive to our margins. The MSO strategy is the natural evolution of our highly successful specialty business to offer more services. Of course, that's accretive to our margins also.

Thank you very much for asking the question. Thank you. The next question comes from Kevin Caliendo of UBS. Your line is now open. Please go ahead. Good morning. And thanks for taking my question. Jim, I know how conservatively you always guide and how thoughtful you are around the outlook for the business. Raising the guidance and raising the LRP is obviously meaningful. I guess we are all trying to figure out underlying what has changed. I just want to ask you, are your macro assumptions of your end markets different, or is this being driven by your own mix and the fact that you have more specialty now, you are more levered to that?

I'm just wondering if anything's actually changed in the marketplace or if your positioning and your assets have changed, and that's what's driven the sort of upside that we've seen in the macro and your ability to raise your guidance. Yeah. I would not say it's a change in the macro. We've been experiencing strong utilization trends for some time, and we've been benefiting from our strength in specialty for some time and the growth in the specialty market. I would not say that it's a change in macro, but it's based on our historical results, which have been great, and our expectations for future results. I think Bob has things he'd like to add. Yeah. I'll add a bit because I think it's important to take a step back and think about how.

We have been building capabilities and evolving the footprint of Sencora over a long period of time. The fact that the specialty market has become what it is is not a surprise to us, and I do not think it is a surprise to anybody. We have been very carefully working and investing to make sure that we were well positioned for this moment, which will continue, as we believe will continue, as you can tell from our tone, our results, and from our guidance. I will just reiterate something that Jim said earlier, that going back to 2016, 2015, when the generic market really changed significantly, we have very actively worked to balance our portfolio so that we were not in subsidized pricing models. As mix changes over time, we are getting a fair return for the work that we do.

Our customers are getting a fair price for what they receive from us and that we both have predictability as we go forward. That is an important part of the story as well. If you put those two things together, I think you see the consistent performance from Cencora based on the fact that the market has been performing well on its own, the utilization trends, the specialty market growth that we have discussed. Thank you very much for the question. Thank you. Our final question comes from Daniel Grosslight of Citi. Your line is open. Please go ahead. Hi, guys. Thanks for taking the question. I want to focus back on capital deployment priorities in the near term. You obviously have a step up in CapEx. You are increasing your dividend and share repurchases next year. You have the One Oncology call option exercise coming up.

How are all these factors informing your near-term M&A strategy. Outside of One Oncology? Do you think we'll see a slowdown in some of the larger M&A given these competing priorities? And then just on One Oncology, can you remind us when you expect to exercise that call option? Thanks. Sure. First, let me say, most importantly, that our capital deployment strategy, it's focused on four key areas. Internal investments in the business. As we've indicated and Bob indicated earlier, and the company has said, is that we're making significant investments in infrastructure in the businesses and then also technology investments. Of course, we're focused on strategic M&A and RCA and One Oncology are examples of that. We'll always look at opportunistic share repurchases. I think over the last few years or so, we've done a very good job in repurchasing shares as.

WBA was selling shares. We'll maintain a reasonable growing dividend. Of course, we announced today that we increased our dividend growth rate to 9% growth, which we feel very good about, given our previous growth rates. With regard to One Oncology, we've been very pleased with the business. We experienced very good growth in sales to One Oncology this year, which is one of the things that's driving our increase in sales of specialty products. One Oncology is a business that's owned 35% by ourselves and 65% by a private equity firm and the practices and the physicians at One Oncology. We have a put-call structure in place, so we ultimately will expect to own all of One Oncology. Thanks a lot for the question. Now I'll turn it over to Bob. Thanks, Jim.

Just to close, everyone, thank you very much for joining the call today and your interest in Cencora. Our strategic positioning and specialty, our thoughtful approach to refocusing our portfolio and prioritization of growth-oriented investments are enabling us to capitalize on positive industry trends. Cencora will build on our track record of strong performance and continue to create value for all of our stakeholders through our focused execution and strategic progress in the year to come. We're confident that with the strength of Cencora's positioning, our demonstrated track record of execution, and continued market growth, we will deliver on our updated long-term guidance. Thank you, everyone. This concludes today's call. Thank you all for joining. You may now disconnect your lines.