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MCKESSON CORP (MCK)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 delivered broad-based growth: revenue $95.3B (+18% YoY), adjusted EPS $8.03 (+4% YoY), and adjusted operating profit $1.463B (+16% YoY) . Management raised and narrowed FY2025 adjusted EPS guidance to $32.55–$32.95 (+19–20% YoY) .
  • Segment strength in U.S. Pharmaceutical ($87.1B revenue, +19% YoY; adjusted OP $944M, +14% YoY) and Prescription Technology Solutions ($1.4B, +14% YoY; adjusted OP $235M, +22% YoY); Medical-Surgical revenue declined 3% YoY on a softer illness season, though adjusted OP grew 4%; International grew revenue +6% YoY with adjusted OP +18% .
  • Strategic moves: signed agreement to acquire 80% of PRISM Vision for ~$850M (expected accretion $0.20–$0.30 in first 12 months; $0.65–$0.75 by year three), consolidating in U.S. Pharmaceutical; closed divestiture of Rexall and Well.ca on Dec 30, 2024 .
  • Watch items: Medical-Surgical guidance cut to roughly flat revenue and OP on weaker illness season; interest expense raised to $255–$265M; corporate expenses trimmed to $480–$520M; FY25 FCF maintained at $4.8–$5.2B; planned repurchases ~$3.2B and diluted shares ~128M .

What Went Well and What Went Wrong

What Went Well

  • U.S. Pharmaceutical and RxTS outperformed: adjusted U.S. Pharma OP +14% on specialty distribution and oncology; RxTS adjusted OP +22% on access and affordability solutions growth .
  • Enterprise operating leverage: adjusted operating expenses rose just 2%, with OpEx-to-gross profit ratio improving >250bps YoY, reflecting automation and analytics investments .
  • Strategic specialty expansion: PRISM Vision acquisition advances retinal/ophthalmology platform; “develop a leading platform for retinal care, delivering differentiated solutions and value across providers, biopharma partners, and patients” — Brian Tyler .
  • Guidance raised: FY25 adjusted EPS range increased to $32.55–$32.95 based on strong Q3 performance .

What Went Wrong

  • Softer illness season: Medical-Surgical revenue declined 3% YoY; management cut FY25 segment outlook to flat revenue and OP; illness severity ~62% of the average of prior five non-COVID seasons (IQVIA), impacting primary care volumes .
  • Higher tax rate: effective tax rate 23.9% in Q3 vs 10.6% prior year, partially offsetting EPS growth .
  • Working capital timing drove negative free cash flow in Q3 (~$2.6B), with ~$2B cash shift into Q4; QTD capex $196M .
  • Prior formulary change: decline in certain brand volumes (e.g., HUMIRA biosimilar switch at a retail national account) continued to weigh on branded revenue in U.S. Pharmaceutical .

Financial Results

Headline Financials (FY2025)

MetricQ1 FY2025Q2 FY2025Q3 FY2025
Revenue ($USD Billions)$79.3 $93.7 $95.3
Adjusted Operating Profit ($USD Billions)$1.3 $1.3 $1.463
Gross Profit (GAAP, $USD Billions)$3.1 $3.2 $3.284
Adjusted EPS ($USD)$7.88 $7.07 $8.03
EPS (GAAP, $USD)——$6.95

Segment Performance (Q1–Q3 FY2025)

SegmentQ1 FY2025 Revenue ($B)Q1 Adjusted OP ($M)Q2 FY2025 Revenue ($B)Q2 Adjusted OP ($M)Q3 FY2025 Revenue ($B)Q3 Adjusted OP ($M)
U.S. Pharmaceutical$71.7 $815 $85.7 $902 $87.1 $944
Prescription Technology Solutions$1.2 $223 $1.3 $218 $1.4 $235
Medical-Surgical Solutions$2.6 $200 $2.9 $243 $2.9 $294
International$3.7 $102 $3.7 $100 $3.9 $124

KPIs and Drivers

KPIQ1 FY2025Q2 FY2025Q3 FY2025
GLP-1 Revenue Contribution ($USD Billions)$8.8 $10.4 $10.9
U.S. Oncology Network Providers>2,600 +118 providers added YTD; plan to reach ~3,300 post Core Ventures close >2,750 providers; same-site visits +6%
Diluted Weighted Avg Shares (Millions)130.7 129.3 126.6
Free Cash Flow ($USD Billions)$(1.5) $1.9 ~$(2.6) (Q3)
Share Repurchases ($USD Millions)$527 $1,500 $827
Effective Tax Rate (%)13% 21% 23.9%

Notes:

  • Q3 GAAP EPS benefited from lapping prior-year Rite Aid bad debt provision; adjusted EPS included pre-tax McKesson Ventures gains of $6M vs prior-year losses .
  • Held-for-sale accounting for Canada-based assets was ~$0.11 EPS accretive in Q3; FY25 adjusted EPS includes $0.57 YTD gains from Ventures .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY2025$32.40–$33.00 $32.55–$32.95 Raised/Narrowed
U.S. Pharmaceutical Revenue GrowthFY2025+16% to +19% +18% to +20% Raised
U.S. Pharmaceutical Operating Profit GrowthFY2025+9% to +11% +11% to +13% Raised
RxTS Revenue GrowthFY2025+8% to +12% +9% to +12% Slightly Raised (midpoint)
RxTS Operating Profit GrowthFY2025+11% to +15% +12% to +15% Slightly Raised (floor)
Medical-Surgical RevenueFY2025+1% to +5% Roughly flat Lowered
Medical-Surgical Operating ProfitFY2025Low end of +6% to +8% Roughly flat Lowered
International Revenue GrowthFY2025+5% to +9% +3% to +7% Lowered
International Operating Profit GrowthFY2025+16% to +20% +10% to +14% Lowered
Corporate ExpensesFY2025$510–$560M $480–$520M Lowered
Interest ExpenseFY2025$240–$260M $255–$265M Raised
Noncontrolling InterestFY2025$180–$190M $185–$195M Raised
Effective Tax RateFY2025~17%–19% ~17%–19% Maintained
Free Cash FlowFY2025$4.8–$5.2B $4.8–$5.2B Maintained
Share RepurchasesFY2025~$3.2B ~$3.2B Maintained
Diluted SharesFY2025~127–129M ~128M Maintained

Key drivers:

  • Medical-Surgical lowered on weaker illness season; International lowered due to earlier-than-expected closing of Canadian retail divestiture; interest expense increased on higher borrowing and working capital timing .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 FY2025)Current Period (Q3 FY2025)Trend
AI/Technology initiativesModernizing enterprise cloud, automation; Ontada–Microsoft Azure AI to process 150M documents; enterprise acceleration program benefits ~$250M over 5 years Accelerating use of AI in supply chain disruption prediction, forecast algorithms, fraud detection Expanding scope and deployment
Supply chain & GLP-1sGLP-1 revenue $8.8B (Q1), $10.4B (Q2); variability expected; improving supply constraints GLP-1 revenue $10.9B; continued YoY growth with quarter-to-quarter variability Sustained demand; variable q/q
Oncology platform expansionAdded practices; Core Ventures (FCS) transaction signed (70% ownership, $2.49B); USON providers >2,600; SCRI accruals +20% USON providers >2,750; same-site visits +6%; PRISM Vision acquisition signed Strengthening network; adjacent specialty
Medical-Surgical & illness seasonWeak primary care volumes; cost optimization program ($100–$150M charges) to deliver ~$100M FY25 savings H2 Illness severity approx 62% of five-year non-COVID average; segment outlook cut to roughly flat revenue and OP Macro headwind; cost actions ongoing
Regulatory/policy & IRAMonitoring health policy; bipartisan engagement; no specific IRA headwind cited Continued policy watch; no IRA headwind flagged in Q&A Neutral
Generics sourcing (ClarusONE)Strength supporting customers; NCI guidance up on JV strength Continued strength; NCI guidance $185–$195M Positive
Cell & Gene (InspiroGene)Launch to support commercialization Ongoing integration; leverage oncology assets Building capabilities

Management Commentary

  • “McKesson reported strong third quarter operational results with broad-based Revenue growth of 18% and Adjusted Operating Profit growth of 16%... Based on our third quarter performance, we are raising and narrowing our guidance range for fiscal 2025 Adjusted Earnings per Diluted Share to $32.55 to $32.95” — Brian Tyler, CEO .
  • “Operating profit was $1.5 billion, an increase of 16%... The effective tax rate was 23.9%... In third quarter, earnings per diluted share increased 4% to $8.03” — Britt Vitalone, CFO .
  • “We signed a definitive agreement to acquire a controlling interest in PRISM Vision... intended to develop a leading platform for retinal care” — Brian Tyler .
  • “Operating expenses increased 2%... reflected in the operating expense to gross profit ratio, which improved over 250 basis points” — Britt Vitalone .
  • “Medical-Surgical... observed lower-than-anticipated volumes due to less demand for illness season products... cost optimization initiatives will deliver approximately $100 million in cost savings in fiscal 2025” — Britt Vitalone .

Q&A Highlights

  • Persistence into FY2026: Utilization trends stable; specialty and oncology strong; GLP-1 variability remains; long-term adjusted EPS growth target affirmed at 12–14% (ex-PRISM until close) .
  • Medical-Surgical cadence: Savings back-half weighted (more in Q4 than Q3); illness season forecasting inherently volatile; primary care softness remains a potential headwind .
  • PRISM accretion and distribution: McKesson is not current distributor; will pick up business; accretion $0.20–$0.30 in first 12 months; $0.65–$0.75 by year three .
  • Operating expense leverage: Company driving efficiencies via automation, data/analytics while investing in RxTS capabilities .
  • ClarusONE generics JV: Strength on cost and supply; supports new volume from strategic partnerships .

Estimates Context

  • S&P Global consensus estimates for revenue and EPS were unavailable due to a platform request limit; as a result, explicit “vs estimates” comparisons cannot be provided at this time [GetEstimates error]. Values retrieved from S&P Global were unavailable.

Key Takeaways for Investors

  • Momentum in core U.S. Pharmaceutical and RxTS continues to drive consolidated growth; oncology and specialty assets remain durable engines, with GLP-1s adding volume albeit with quarter-to-quarter variability .
  • Guidance quality is improving: FY25 EPS raised/narrowed; segment outlooks refined with risks localized to Medical-Surgical and International timing effects—reduces uncertainty and supports multiple expansion .
  • Specialty adjacency is accelerating: PRISM Vision materially expands ophthalmology/retina capabilities, with clear accretion path and consolidation in U.S. Pharmaceutical, positioning McKesson for multi-year EPS uplift .
  • Operating leverage is real: OpEx discipline and automation improving ratios; expect continued cost discipline to offset macro variability, particularly in Medical-Surgical .
  • Near-term trading catalysts: PRISM close/regulatory milestones; Q4 illness season trajectory; RxTS annual verification program seasonality; updates on Core Ventures (FCS) and oncology network growth .
  • Watch headwinds: Higher interest expense and tax rate; primary care softness; payer/formulary dynamics affecting branded volumes (e.g., HUMIRA) .
  • Capital deployment remains supportive: ~$3.2B buybacks, stable credit ratings, FY25 FCF $4.8–$5.2B underpinning shareholder returns and strategic M&A execution .