Q1 2025 Earnings Summary
- Cencora is advancing its leadership in specialty healthcare by expanding services with strategic investments, such as the acquisition of Retina Consultants of America (RCA) and investment in OneOncology, positioning the company to outgrow the market in specialty areas like oncology and ophthalmology.
- The company is demonstrating strong utilization trends and expects continued robust performance in its U.S. Healthcare Solutions segment, with increased revenue growth guidance to 9%-11% for fiscal 2025, reflecting confidence in its market-leading position and resilient market demand.
- Cencora's Animal Health business is experiencing positive growth, with a 7% top-line increase in the quarter and incremental market share gains, contributing to the company's diversified revenue streams and overall positive outlook.
- The Global Specialty Logistics business faced challenges due to subdued clinical trial activity, leading to a decline in operating income for the International Healthcare Solutions segment. Increased competition in this market could further impact performance.
- The company expects its second quarter to be the lowest growth quarter in fiscal 2025, attributed to higher net interest expenses from the RCA acquisition financing, COVID-19 vaccine headwinds, and a slower start for the International segment. This could signal potential earnings pressure in the near term.
- Decreasing gross profit margins due to increased sales of low-margin GLP-1 products and lower sales of COVID-19 vaccines and therapies may impact profitability. The company's guidance also assumes a deceleration in GLP-1 growth in the remaining quarters, which could affect revenue growth.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +13% | The increase to $81,487 million was primarily driven by strong U.S. prescription demand, particularly in specialty products and GLP-1 class medications, and higher sales from existing customer contracts. Continued market growth and demand for chronic therapies also supported revenue expansion. |
U.S. Healthcare Solutions | +14% | Rising to $74,033 million, growth in this segment reflected higher unit volumes, especially for diabetes/weight-loss GLP-1 products, and expanded specialty distribution for health systems. Increased sales to key customers contributed substantially, overcoming minor headwinds from COVID-19 product shifts. |
Human Health | +14% | Revenue reached $72,653 million, largely due to heightened prescription utilization, growth in chronic and specialty meds, and the continued demand for GLP-1 pharmaceuticals. Company-led initiatives to boost distribution efficiency also drove top-line gains, reinforcing robust performance. |
Animal Health | +7% | At $1,380 million, the segment benefitted from post-COVID normalization in veterinary services and incremental market share gains in both companion and production animal categories. While cattle numbers remained low, increased demand for companion animal products helped sustain growth. |
International Healthcare Solutions | +5.5% | Rising to $7,457 million, the segment faced foreign currency pressures but still achieved growth due to strong European distribution sales, higher demand in Canada, and incremental contributions from global logistics services. Currency volatility and increased IT expenses partially offset these gains. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted Diluted EPS | FY 2025 | $14.80 to $15.10 | $15.25 to $15.55 | raised |
Consolidated Revenue Growth | FY 2025 | 7% to 9% | 8% to 10% | raised |
U.S. Healthcare Solutions Segment Revenue Growth | FY 2025 | 7% to 9% | 9% to 11% | raised |
International Healthcare Solutions Segment Revenue Growth | FY 2025 | 7% to 9% | 4% to 5% | lowered |
Consolidated Operating Income Growth | FY 2025 | 5% to 6.5% | 11.5% to 13.5% | raised |
U.S. Healthcare Solutions Segment Operating Income Growth | FY 2025 | 5% to 6.5% | 14.5% to 16.5% | raised |
International Healthcare Solutions Segment Operating Income Growth | FY 2025 | 5% to 6.5% | Flat year-over-year (≈0%) | lowered |
Interest Expense | FY 2025 | $150M to $170M | $290M to $310M | raised |
Average Share Count | FY 2025 | ~196 million shares | Under 196 million shares | lowered |
Adjusted Free Cash Flow | FY 2025 | $2B to $3B | $2B to $3B | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue Growth | Q1 2025 | 7% to 9% for FY2025 | 12.8% YoY (from 72,253To 81,487) | Surpassed |
Operating Income Growth | Q1 2025 | 5% to 6.5% for FY2025 | -14.2% YoY (from 822,875To 706,254) | Missed |
Adjusted Diluted EPS | Q1 2025 | $14.80 to $15.10 for FY2025 (≈8% to 10% YoY growth) | $2.50 vs. $2.98 in prior Q1 (≈-16.1% YoY) | Missed |
Interest Expense | Q1 2025 | $150 million to $170 million for FY2025 | $27.933 million | Surpassed |
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Revenue Growth Guidance
Q: Is revenue growth decelerating in coming quarters?
A: Jim explained that despite the 14% revenue growth in the U.S. segment during Q1, the updated guidance of 9% to 11% reflects assumptions that GLP-1 growth was higher in Q1 than expected for the rest of the year. Other factors include anticipated conversions in the mail-order channel, which impact revenue more than operating income, and the acquisition of RCA, which contributes significantly to operating income but adds less to revenue. Therefore, the adjusted guidance accounts for specific factors and does not indicate a deceleration in underlying business performance. -
Walgreens Contract Negotiations
Q: Any update on Walgreens contract discussions?
A: Bob stated they are actively engaged with Walgreens, partnering closely to innovate and create win-win value. As a very important strategic customer, they focus on bringing together world-class experts to find opportunities that benefit both parties. Jim confirmed that their guidance includes all assumptions regarding Walgreens and all other aspects of their business. -
RCA Acquisition and MSO Strategy
Q: How does RCA acquisition impact guidance and MSO strategy?
A: Jim noted that the acquisition of RCA, effective January 2, significantly contributes to the increase in U.S. operating income growth, though it adds less to revenue. They expect $0.35 of accretion during the first 12 months, with growth ramping up over FY25 through business expansion and strategic initiatives. Bob emphasized that strong physician leadership and value creation through new services are key to MSO success. The RCA acquisition strengthens their position in the retina space with a leading platform known for clinical excellence and the ability to attract new practices and physicians. -
Specialty Business and Biosimilars
Q: How is the biosimilar Eylea launch affecting business?
A: Bob mentioned they have a long-standing relationship with retina physicians and expect the biosimilar introduction of Eylea to contribute to a healthy market. Biosimilar adoption in the Part B space is strong and tends to be faster than in Part D. Ownership of RCA allows them to be closer to providers, supporting them through market changes, but clinical decisions will ultimately be made by physicians based on patient needs. -
Utilization Trends and Guidance
Q: How are utilization trends impacting guidance?
A: Jim stated they observed strong utilization trends in FY24 and Q1 FY25. The guidance range accounts for potential variability in utilization for the remainder of the year, which is a key driver of their projections. They have confidence in their performance and view the market strength as resilient, supporting their guidance assumptions. -
World Courier Performance
Q: Why was World Courier's performance subdued, and what's the outlook?
A: Jim explained that World Courier faced challenges due to subdued clinical trial activity, impacting the global specialty logistics business. They anticipate performance improvement later in FY25 as demand for their premium services picks up, supported by a strong pipeline and focused regional growth efforts. Bob added that their global footprint is crucial for future growth, and they are bullish on their long-term strategy to support manufacturers and providers globally with innovative services. -
COVID Headwind and Guidance
Q: How did COVID impact results and guidance?
A: Jim noted that exclusive COVID therapies presented a $0.06 headwind in Q1 FY25, and they expect no significant contribution for the rest of the year. The contribution from COVID-19 vaccines was about half of the prior year's quarter, with a similar headwind expected in Q2 FY25. Despite these factors, they raised guidance, reflecting strong performance in other areas and confidence in overcoming COVID-related headwinds.