Q3 2025 Earnings Summary
- Strong Growth in Oncology Platform: McKesson added 185 providers to its U.S. Oncology Network this year, marking a high watermark over the last several years, and is experiencing 6% same-site patient growth, strengthening its position in specialty businesses.
- Operational Efficiency Driving Margin Expansion: The company achieved 2% operating expense growth, demonstrating operating leverage through efficiencies, automation, and data analytics capabilities, while continuing to invest in growth areas like RxTS.
- Stable Growth in Pharmaceutical Distribution: McKesson expects the stable and consistent overall prescription volume in the pharma segment to continue, with strong performance in specialty and oncology, and benefits from the growth in GLP-1 medications.
- McKesson's Medical-Surgical Solutions segment is experiencing slower volumes in both illness season products and the primary care channel for the past three quarters, which could continue to be a headwind for future growth.
- The company is implementing cost optimization initiatives in the Medical-Surgical segment to better align with market demand, indicating underlying weaknesses and potential challenges in this business line.
- Volatility and unpredictability in the volumes of GLP-1 medications, which have been significant drivers of revenue growth, may pose a risk to sustained growth if volumes decline or fluctuate.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +18% (from $80,898M to $95,294M) | This increase was primarily driven by continued growth in the U.S. Pharmaceutical segment, including higher prescription volumes and specialty medication demand, as well as the onboarding of a new strategic partner and GLP-1 medication growth. Divestitures in the International segment tempered growth slightly compared to previous years. |
U.S. Pharmaceutical | +19% (from $73,023M to $87,110M) | The segment benefited from increased prescription volumes, including strong retail national account trends, continued specialty drug expansion, and GLP-1 medication growth, which rose 47% YoY in earlier periods. The new strategic partner also contributed significantly to revenue gains, echoing prior quarters’ trends. |
Prescription Technology Solutions | +14% (from $1,205M to $1,371M) | Growth was driven by higher prescription transaction volumes in third-party logistics and technology services, particularly for GLP-1 access solutions, as seen in previous quarters. Ongoing investments in digital platforms and cost management helped sustain momentum from prior periods. |
International | +6% (from $3,639M to $3,860M) | Revenues increased on higher Canadian distribution volumes, supported by seasonal illness-related demand and stable performance compared to the prior fiscal year. Planned divestitures in Europe and Canada, announced in prior quarters, partially constrained growth in certain markets. |
Operating Income (EBIT) | +91% (from $642M to $1,224M) | The significant jump was powered by strong U.S. Pharmaceutical performance, cost-management efforts, and a partial reversal of previously reserved balances connected to Rite Aid. Comparisons to prior periods prominently reflect reduced COVID-19 program costs and the lapping of divestiture impacts. |
Net Income | +>1,000% (from $63M to $788M) | This surge stemmed from fewer large restructuring charges compared to prior quarters and a Rite Aid-related provision reversal, which had weighed heavily on earlier results. Lower COVID-19 vaccine contributions were offset by strong operating profit in the core Pharmaceutical business. |
Diluted EPS | +56% (from $4.44 to $6.91) | The EPS increase reflects strong U.S. Pharmaceutical segment growth, an ongoing share repurchase program lowering the share count, and the absence of major one-time charges seen in prior periods. Adjusted EPS gains also benefited from Prescription Technology Solutions momentum and cost controls. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EPS Growth | FY 2025 | 18% to 20% | 19% to 20% | raised |
Free Cash Flow | FY 2025 | $4.8B to $5.2B | $4.8B to $5.2B | no change |
Medical-Surgical Solutions (Revenue & Operating Profit) | FY 2025 | Lower end of 6% to 8% year-over-year | Roughly flat year-over-year | lowered |
U.S. Pharmaceutical Segment Revenue Growth | FY 2025 | no prior guidance | 18% to 20% | no prior guidance |
U.S. Pharmaceutical Segment Operating Profit Growth | FY 2025 | no prior guidance | 11% to 13% | no prior guidance |
Prescription Technology Solutions Revenue Growth | FY 2025 | no prior guidance | 9% to 12% | no prior guidance |
Prescription Technology Solutions Operating Profit | FY 2025 | no prior guidance | 12% to 15% | no prior guidance |
International Segment Revenue Growth | FY 2025 | no prior guidance | 3% to 7% | no prior guidance |
International Segment Operating Profit Growth | FY 2025 | no prior guidance | 10% to 14% | no prior guidance |
Corporate Segment Expenses | FY 2025 | no prior guidance | $480M to $520M | no prior guidance |
Interest Expense | FY 2025 | no prior guidance | $255M to $265M | no prior guidance |
Income Attributable to Noncontrolling Interest | FY 2025 | no prior guidance | $185M to $195M | no prior guidance |
Effective Tax Rate | FY 2025 | no prior guidance | 17% to 19% | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Adjusted EPS Growth | Q3 2025 | 18% to 20% YoY | 55.6% YoY growth (from 4.46In Q3 2024 to 6.94In Q3 2025) | Beat |
Adjusted Operating Profit Growth | Q3 2025 | 13% to 15% YoY | 90.7% YoY growth (from 642In Q3 2024 to 1,224In Q3 2025) | Beat |
Medical Segment Growth | Q3 2025 | Expected to be at lower end of 6% to 8% long-term range | -2.7% YoY growth (from 3,031In Q3 2024 to 2,949In Q3 2025) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Oncology platform expansions and provider additions | Previously: Continued additions (e.g., +185 providers in Q2), growth in U.S. Oncology Network, clinical trials expansion. | Currently: Oncology platform still expanding; +185 providers this year, 6% same-site visit growth. | Consistent expansion and strong momentum. |
Medical-Surgical Solutions segment volume challenges | Previously: Softer illness seasons, lower primary care foot traffic, COVID-19 normalization impacted volumes. | Currently: Segment still faces weakness from a softer illness season (about 62% of prior normal average) and low primary care volumes. | Ongoing challenges with continued volume softness. |
Operational efficiency, cost optimization, and margin impacts | Previously: Emphasis on automation, AI, and restructuring plans; $100M-$150M in restructuring charges, targeted cost savings. | Currently: Achieved cost optimization efforts with ~$100M expected savings in FY25; operating profit up 16% year-over-year. | Sustained focus on cost efficiencies, yielding margin improvements. |
Stable and growing pharmaceutical distribution | Previously: Steady revenue increases driven by specialty drugs, oncology, GLP-1, and key partnerships (Optum), generating strong cash flow. | Currently: 19% revenue growth to $87.1B in U.S. Pharmaceutical segment; ongoing strength in specialty and oncology. | Continues to be a core driver of performance. |
The role and volatility of GLP-1 medication distribution | Previously: GLP-1 revenues grew steadily (e.g., $8.8B in Q1, ~26% YoY), supply constraints, quarter-to-quarter variability. | Currently: GLP-1 revenues at $10.9B (+45% YoY), acknowledged continued volatility. | Significant growth but with ongoing variability. |
Access Solutions growth tied to GLP-1 demand | Previously: Prior authorization services saw rapid demand due to GLP-1 uptake; ~55–65% of PAs tied to GLP-1. | Currently: Increased GLP-1 script transactions driving higher Access Solutions revenue. | High growth from GLP-1 demand persists. |
Value-based care initiatives in oncology | Previously: Mentioned in Q2 as part of McKesson’s strategy with some savings in U.S. Oncology Network. | Currently: Not discussed in Q3 2025. | No current update; topic not mentioned this quarter. |
Declining COVID-19 related revenues | Previously: Normalization post-COVID reduced testing and vaccine distribution revenues; Q4 2024 saw lower contributions from U.S. gov’t programs. | Currently: Lower COVID-19 vaccine distribution volumes vs. prior year in U.S. Pharmaceutical. | Continued decline in COVID-19 revenue. |
Strategic partnerships (e.g., Optum, Sarah Cannon) | Previously: Expanded Optum distribution contract, Sarah Cannon JV for clinical trials, acquisitions (e.g., Florida Cancer in Q2). | Currently: Highlights include large new strategic partner onboarded in Q2, Sarah Cannon JV with 25% trial accrual increase, and the PRISM Vision acquisition to expand specialty care. | Broadened and deepened with new acquisitions and partnerships. |
Investments in data and analytics affecting costs | Previously: Cited as a 2% EBIT headwind in Medical-Surgical; part of AI and automation investments. | Currently: Ongoing tech/data focus to drive operational efficiency and growth (included in capital expenditures). | Ongoing priority with near-term cost impact but strategic long-term returns. |
Generic sourcing advantages (ClarusONE) | Previously: Successful generic sourcing engine; $175–$185M in noncontrolling interest. | Currently: Projected $185–$195M noncontrolling interest, reinforcing strong generic sourcing performance. | Consistent success supporting cost competitiveness. |
Ownership strategy and potential limitations in pharmacy/hospital distribution | Previously: No U.S. retail pharmacy ownership; limited hospital distribution due to mismatch with strategy. | Currently: Not mentioned in Q3 2025. | No new commentary; topic not addressed this quarter. |
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Fiscal '26 EPS Growth Guidance
Q: Are you reaffirming 12-14% EPS growth for fiscal '26, and does it include pending acquisitions?
A: McKesson is reaffirming its long-term adjusted EPS growth rate of 12% to 14% for fiscal '26. This guidance does not include the pending acquisitions, as they are still subject to regulatory approvals, but the company is comfortable providing accretion estimates for the first 12 months post-closing. -
Potential Headwinds for Fiscal '26
Q: Are there any headwinds or swing factors we should consider for fiscal '26?
A: Public policy is a potential wildcard that could impact fiscal '26. Additionally, slower volumes in the Medical segment, particularly in the primary care channel, have been observed and could continue to be a headwind. McKesson is addressing this through cost optimization initiatives to better align the business. -
Impact of PBM Formulary Changes and Biosimilars
Q: How will PBM formulary changes and biosimilars affect your business?
A: A formulary change by a large retail national customer for a product that went biosimilar resulted in a revenue impact this quarter. This is an issue previously noted, affecting revenue with one specific customer. The company is monitoring future products that may go biosimilar and how those developments play out. -
Sustainability of Specialty and Oncology Growth
Q: Is your specialty growth sustainable, and how much is due to macro trends?
A: Overall prescription volume is stable, with specialty and oncology being particularly strong. Growth is driven by the U.S. Oncology Network, which has seen 6% same-store patient growth and new practice members joining. While GLP-1s have contributed, their volatility is hard to predict, but the environment is expected to remain steady. -
MedSurg Segment Outlook and Flu Season Impact
Q: How is the flu season affecting MedSurg, and what are your expectations for fiscal '26?
A: The flu season has been softer, leading to less demand for illness-related products. McKesson anticipates achieving $100 million in cost optimization savings this year. The company continues to evaluate market conditions and align the business with customer needs, noting softer volumes in primary care channels. -
PRISM Acquisition Strategic Rationale
Q: What is the rationale behind acquiring PRISM, and how does it fit your strategy?
A: PRISM provides coordinated care across retina and general ophthalmology, aligning with McKesson's strategy to build platforms similar to their oncology success. By leveraging distribution, GPO services, and data analytics, McKesson aims to bring value-added services to physicians in a market with strong drug growth prospects. -
Operating Expense Growth and Investments in RxTS
Q: What drove the low 2% operating expense growth, and are you investing in areas like RxTS?
A: Operating leverage is being achieved through efficiencies in distribution and investments in data analytics and operations. While improving efficiency, McKesson continues to invest in key growth areas like RxTS to support additional products and services. -
Market Share in Medical Business
Q: How do you view your market share in the medical segment?
A: McKesson focuses on alternate-site locations and believes it holds leading positions in these markets. The strategy emphasizes growing the customer base and expanding share of wallet by offering more sophisticated medical products and services beyond commodities. -
Incremental Business from PRISM Acquisition
Q: Is PRISM's business incremental for you, and who currently distributes for them?
A: McKesson is not currently the distributor for PRISM. Upon completing the acquisition, McKesson will gain this business, which is included in the accretion estimates provided. -
Cost Savings in Medical Segment
Q: Can we annualize Q4 cost savings in the Medical segment moving forward?
A: While specific guidance hasn't been provided for fiscal '26, the cost optimization initiatives are expected to yield more than temporary savings. McKesson continues to focus on aligning the business with market conditions and customer needs.