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McKesson Corporation is a leading healthcare services and information technology company that operates through four main segments, focusing on the distribution of pharmaceutical and medical products, which account for the majority of its revenues . The company distributes branded, generic, specialty, biosimilar, and over-the-counter pharmaceutical drugs and healthcare-related products in the United States, and provides practice management, technology, clinical support, and business solutions to specialty practices . McKesson also addresses medication access and affordability challenges, offers medical-surgical supply distribution, and operates internationally in Canada and Europe .
- U.S. Pharmaceutical - Distributes branded, generic, specialty, biosimilar, and over-the-counter pharmaceutical drugs and other healthcare-related products in the United States, and provides practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices .
- Prescription Technology Solutions (RxTS) - Addresses medication access, affordability, and adherence challenges by connecting patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma companies, offering prescription price transparency, benefit insight, dispensing support services, and third-party logistics .
- Medical-Surgical Solutions - Provides medical-surgical supply distribution, logistics, and other services to healthcare providers, including physician offices, surgery centers, nursing homes, hospital reference labs, and home health care agencies, offering national brand medical-surgical products and McKesson's own line of products .
- International - Includes operations in Canada and Europe, providing non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services, with Canadian operations delivering medicines, supplies, and information technology solutions, and European operations focusing on distribution and services in Norway .
What went well
- Significant Growth in Oncology Platform Attracting Providers and Driving Expansion: McKesson has been acquiring oncologists and enhancing its oncology platform, which is attracting providers due to the platform and capabilities that help them practice better, more efficiently, and see more patients. This includes benefits like EMR integration with 2,700 providers and expanded access to clinical trials through partnerships like Sarah Cannon, positioning McKesson to capitalize on the greatest opportunity to help community cancer care be more quality and lower cost.
- Participation in Value-Based Care Models in Oncology Leading to Significant Savings: McKesson has supported value-based care models, participated in government programs, and providers within USAN drove a tremendous amount of savings. With providers like Florida Cancer participating in value-based care initiatives, McKesson is ready to support more providers in this shift, aligning with the industry's move towards value-based care.
- Rapid Growth in Access Solutions Driven by GLP-1s: McKesson's Access Solutions have been growing the fastest due to the GLP-1 component. Approximately 70% of revenue within Access comes from prior authorizations, and 55%-65% of prior authorizations are GLP-1s, indicating strong growth potential in this segment. Additionally, affordability programs have had nice growth, working closely with manufacturers on discounting or voucher programs.
What went wrong
- Heavy reliance on GLP-1 drugs for growth in the Access solutions segment may pose a risk if demand changes.
- Investments in data and analytics are creating a 2% headwind to MedSurg EBIT growth, potentially affecting profitability.
- McKesson's decision not to own U.S. pharmacies or enter hospital distribution may limit growth opportunities compared to competitors expanding in these areas.
Q&A Summary
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Impact of IRA on Oncology
Q: How will IRA affect oncology drug pricing?
A: Management acknowledged that the impact of the IRA on Part B oncology drugs is uncertain but could affect drug pricing and margins. They are engaging with stakeholders, educating on the issues, and closely monitoring developments, though it's too early to predict outcomes.
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M&A Plans and Capital Deployment
Q: Will more capital be allocated to M&A?
A: McKesson plans to continue share repurchases but emphasizes growing the company through strategic acquisitions like Florida Cancer Specialists. They focus on opportunities that fit their strategic pillars and offer the right financial returns, aiming to create the most shareholder value.
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Oncology Business Growth
Q: What drives growth in oncology business?
A: The lion's share of the oncology business is from distribution, but growth is fueled by adding new providers and expanding clinical trial capabilities, resulting in a 20% increase in accruals. The overall oncology market has grown beyond the previous estimate of $55 billion, and McKesson continues to invest due to the strong drug pipeline and innovation.
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Impact of GLP-1s on Margins
Q: How do GLP-1s affect margins and reimbursement?
A: GLP-1 products are a headwind to margins on distribution due to high inventory costs and logistics requirements. McKesson provides services on the prior authorization side, which offsets some margin pressure. They work to ensure fair value for services provided and manage customer needs across segments.
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Florida Cancer Specialists Acquisition
Q: Where does EPS accretion from FCS come from?
A: The accretion from the FCS acquisition is primarily from distribution and drug-related activities. Over time, McKesson expects to leverage capabilities and scale to drive efficiencies and cost benefits to customers. Financing costs are included in the accretion estimates.
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Medical Surgical Segment Outlook
Q: Confidence in long-term growth despite softness?
A: Management maintains confidence in the long-term growth rate of the medical supply business, despite current softness and increased competitiveness. They have a strong history of growth and are making intentional investments in automation and data capabilities to optimize costs.
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CoverMyMeds Growth
Q: What's driving growth in CoverMyMeds?
A: The provider network has grown to 750,000 providers, driven by their leading position in electronic prior authorizations and the range of services offered. McKesson believes their connectivity and scale give them a competitive advantage.
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Growth Outlook and Guidance
Q: Level of visibility into second-half earnings?
A: Management expressed high confidence in the back half of the year, with strong visibility into earnings. They have conducted normal operating reviews and expect a strong second half based on current performance and business unit feedback.
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Cell and Gene Therapy Opportunities
Q: How is McKesson positioned in cell and gene therapy?
A: McKesson leverages its oncology capabilities to service a range of needs in cell and gene therapy, depending on each drug's requirements. They are positioned to provide logistics, specialty pharmacy, and distribution services, adapting to complex commercialization processes.
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Health Mart and Independent Pharmacies
Q: What's the status of independent pharmacies?
A: Health Mart continues to be a resilient group of independent pharmacies. McKesson supports them by providing sourcing, distribution, and reimbursement opportunities through Health Mart Atlas, helping them manage challenges in reimbursement.
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Rx Savings Solutions Acquisition
Q: Update on Rx Savings Solutions acquisition?
A: The acquisition has performed well over the last few years, offering price transparency services to employers and employees. It's a smaller part of McKesson's business but aligns with their strategy to add capabilities valued by biopharma customers.
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Provider Turnover in Acquisitions
Q: Is there provider turnover after acquisitions?
A: Provider turnover has been immaterial after acquisitions. Providers are often attracted to McKesson's platform for its capabilities in practice management, clinical trials, and cost efficiencies.
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Competitive Environment in Prior Auth
Q: Any changes in electronic prior auth competition?
A: McKesson continues to see growth in their network and believes they have the best position due to their connectivity and range of services. They are monitoring developments like AI but feel well-positioned due to their scale and capabilities.
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Medical Surgical Product Exposure
Q: Any specific product exposure concerns?
A: There are no specific product exposures to highlight, except for possible supplier disruptions. Service levels have improved, and McKesson manages through disruptions with a diversified supplier base.
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Shift to Value-Based Care
Q: How is McKesson supporting value-based care?
A: McKesson has participated in government programs supporting value-based care in oncology and has seen significant savings from these initiatives. They support providers who choose to participate and will continue to back such models.
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Online Pharmacy Considerations
Q: Will McKesson own virtual pharmacies?
A: McKesson has decided not to own retail pharmacies in the U.S., believing their customers run pharmacies better. They focus on supporting retail pharmacies through sourcing and distribution, not direct ownership.
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Impact of COVID Vaccines
Q: Was Q2 the peak for COVID vaccines in P&L?
A: COVID vaccines are not a material driver for the pharma distribution segment, and management is not particularly focused on them in this context.
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Customer Compliance with GLP-1 Growth
Q: Are customers struggling with purchasing compliance due to GLP-1s?
A: The growth of GLP-1 products can affect compliance requirements for generic purchasing among customers. McKesson works with customers to address any pressures and discuss impacts as needed.
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RxTS Product Roadmap
Q: Is McKesson building or buying in RxTS?
A: McKesson evaluates whether to build or buy based on the capability needed. They build adjacent solutions when possible but may acquire solutions that offer new capabilities valued by biopharma customers.
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Change Healthcare Cyber Attack
Q: Did the cyber attack lead to new opportunities?
A: McKesson's goal was to help customers through the issue and smooth the transition. They did not pursue it as an opportunity for competitive gain.
Guidance Changes
Annual guidance for FY 2025:
- Revenue Growth: 15% to 17% (raised from 13% to 15% )
- Operating Profit Growth: 13% to 15% (raised from 10% to 15% )
- Earnings Per Diluted Share (EPS): $32.40 to $33 (raised from $31.75 to $32.55 )
- International Segment Revenue: 5% to 9% (raised from 4% to 8% )
- International Segment Operating Profit: 16% to 20% (raised from 8% to 12% )
- Corporate Expenses: $510 million to $560 million (raised from $495 million to $555 million )
- Interest Expense: $240 million to $260 million (lowered from $245 million to $265 million )
- Income Attributable to Non-Controlling Interest: $180 million to $190 million (raised from $175 million to $185 million )
- Effective Tax Rate: 17% to 19% (no change from prior guidance )
- Free Cash Flow: $4.8 billion to $5.2 billion (no change from prior guidance )
- Share Repurchases: $3.2 billion (raised from $2.8 billion )
- Weighted Average Diluted Shares Outstanding: 127 million to 129 million (lowered from 128 million to 130 million )
- U.S. Pharmaceutical Segment Revenue: 16% to 19% (raised from 13% to 16% )
- U.S. Pharmaceutical Segment Operating Profit: 9% to 11% (raised from 8% to 10% )
- Prescription Technology Solutions Segment Revenue: 8% to 12% (lowered from 14% to 18% )
- Prescription Technology Solutions Segment Operating Profit: 11% to 15% (no change from prior guidance )
- Medical-Surgical Solutions Segment Revenue: 1% to 5% (lowered from 3% to 7% )
- Medical-Surgical Solutions Segment Operating Profit: Low end of 6% to 8% (no change from prior guidance )
- With the acquisition of Rx Savings Solutions aiming to provide price transparency to employers and employees, how does McKesson plan to leverage this capability to impact drug pricing or influence drug utilization patterns, and what is the long-term strategic vision for integrating this asset into your overall strategy?
- Given the evolving landscape of U.S. retail pharmacies and the closures of many stores, would McKesson consider changing its domestic strategy by owning a virtual pharmacy to capitalize on emerging opportunities, despite previous beliefs about customer conflict and operational challenges?
- As oncology care shifts towards value-based models, how is McKesson adapting its services to support providers in this transition, and what specific initiatives or partnerships are you pursuing to facilitate success in value-based oncology care?
- In light of competitive pressures from companies serving both acute care facilities and alternate sites, especially with large integrated delivery networks (IDNs) owning both assets, how does McKesson plan to address potential market changes and growth opportunities, and is there a need to rethink your approach to the medical distribution market?
- Considering your expansion into specialties like retina and ophthalmology through acquisitions, does McKesson have plans to build comprehensive platforms in other specialty areas similar to your oncology platform, and how do you evaluate the potential for achieving similar success outside of oncology?
Q2 2025 Earnings Call
- Issued Period: Q2 2025
- Guided Period: FY 2025
Guidance:
- Revenue Growth: 15% to 17%
- Operating Profit Growth: 13% to 15%
- Earnings Per Diluted Share (EPS): $32.40 to $33 (18% to 20% growth)
- International Segment:
- Revenue increase: 5% to 9%
- Operating profit increase: 16% to 20%
- Corporate Expenses: $510 million to $560 million
- Interest Expense: $240 million to $260 million
- Income Attributable to Non-Controlling Interest: $180 million to $190 million
- Effective Tax Rate: 17% to 19%
- Free Cash Flow: $4.8 billion to $5.2 billion
- Share Repurchases: $3.2 billion
- Weighted Average Diluted Shares Outstanding: 127 million to 129 million
- U.S. Pharmaceutical Segment:
- Revenue increase: 16% to 19%
- Operating profit increase: 9% to 11%
- Prescription Technology Solutions Segment:
- Revenue increase: 8% to 12%
- Operating profit increase: 11% to 15%
- Medical-Surgical Solutions:
- Revenue increase: 1% to 5%
- Operating profit at the low end of 6% to 8% .
Q1 2025 Earnings Call
- Issued Period: Q1 2025
- Guided Period: FY 2025
Guidance:
- Revenue Growth: 13% to 15%
- Operating Profit Growth: 10% to 15%
- Earnings Per Diluted Share: $31.75 to $32.55 (16% to 19% growth)
- International Segment Revenue: 4% to 8%
- International Segment Operating Profit: 8% to 12%
- Corporate Expenses: $495 million to $555 million
- Interest Expense: $245 million to $265 million
- Income Attributable to Noncontrolling Interest: $175 million to $185 million
- Effective Tax Rate: 17% to 19%
- Free Cash Flow: $4.8 billion to $5.2 billion
- Share Repurchases: $2.8 billion
- Weighted Average Diluted Shares Outstanding: 128 million to 130 million
- U.S. Pharmaceutical Segment Revenue: 13% to 16%
- U.S. Pharmaceutical Segment Operating Profit: 8% to 10%
- Prescription Technology Solutions Segment Revenue: 14% to 18%
- Prescription Technology Solutions Segment Operating Profit: 11% to 15%
- Medical-Surgical Solutions Segment Revenue: 3% to 7%
- Medical-Surgical Solutions Segment Operating Profit: Low end of 6% to 8% .
Q4 2024 Earnings Call
- Issued Period: Q4 2024
- Guided Period: FY 2025
Guidance:
- Interest Expense: $220 million to $240 million
- Income Attributable to Noncontrolling Interest: $140 million to $160 million
- Effective Tax Rate: 18% to 20%
- Free Cash Flow: $4.8 billion to $5.2 billion
- Share Repurchases: $2.8 billion
- Weighted Average Diluted Shares Outstanding: 128 million to 130 million
- Revenue Growth: 15% to 17%
- Operating Profit Growth: 9% to 14%
- Earnings Per Diluted Share: $31.25 to $32.05 (14% to 17% growth)
- U.S. Pharmaceutical Revenues: 16% to 19%
- U.S. Pharmaceutical Operating Profit: 8% to 10%
- Prescription Technology Solutions Revenues: 18% to 22%
- Prescription Technology Solutions Operating Profit: 12% to 16%
- Medical-Surgical Solutions Revenues: 4% to 8%
- Medical-Surgical Solutions Operating Profit: 6% to 8%
- International Segment Revenues: 4% to 8%
- International Segment Operating Profit: 6% to 10%
- Corporate Expenses: $580 million to $640 million .
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: FY 2024
Guidance:
- U.S. Pharmaceutical Segment:
- Revenue increase: 16% to 18%
- Operating profit increase: 6% to 8% (11% to 14% excluding COVID-19 impact)
- Prescription Technology Solutions Segment:
- Revenue growth: 9% to 13%
- Operating profit growth: 24% to 28%
- Medical-Surgical Solutions Segment:
- Revenue growth: Flat to 4%
- Operating profit decrease: 11% to 15% (6% to 8% excluding COVID-19 impact)
- International Segment:
- Revenue decline: 29% to 33%
- Operating profit decline: 21% to 26%
- Corporate Segment Expenses: $615 million to $655 million
- Interest Expense: $220 million to $230 million
- Income Attributable to Noncontrolling Interest: $155 million to $165 million
- Effective Tax Rate: 18% to 19%
- Free Cash Flow: $3.2 billion to $3.6 billion
- Share Repurchases: $3 billion to $3.5 billion
- Weighted Average Diluted Shares Outstanding: 134 million
- Earnings Per Diluted Share: $27.25 to $27.65
- Operating Profit: 2% decline to 1% growth (8% to 11% excluding certain items) .
Competitors mentioned in the company's latest 10K filing.
- Cencora, Inc. - Mentioned as one of the largest competitors in distribution, wholesaling, and logistics .
- Cardinal Health, Inc. - Mentioned as one of the largest competitors in distribution, wholesaling, and logistics .