Cencora, Inc. (COR) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects a positive outlook with increased guidance for operating income and EPS, strategic partnerships, and strong specialty sales. Despite some headwinds like the oncology customer loss and interest expenses, the company anticipates growth driven by the OneOncology acquisition and strategic investments. The Q&A section reassures that challenges like the International segment timing issue won't affect full-year guidance. Additionally, a 9% dividend increase aligns with EPS growth guidance, further supporting a positive sentiment.
Key Financial Performance
Adjusted Operating Income Growth 12% year-over-year increase, driven by strong execution in the U.S. Healthcare Solutions segment and the acquisition of Retina Consultants of America (RCA).
Adjusted Diluted EPS $4.08, a 9% year-over-year increase, driven by performance in the U.S. Healthcare Solutions segment.
Consolidated Revenue $85.9 billion, up 5.5% year-over-year, due to solid growth in both reportable segments and in Other, including a $1 billion or 11% increase in U.S. sales of GLP-1 products.
Consolidated Gross Profit $3.0 billion, up 18% year-over-year, primarily due to growth in the U.S. Healthcare Solutions segment and the acquisition of RCA.
Consolidated Gross Profit Margin 3.48%, an increase of 37 basis points year-over-year, driven by the January 2025 acquisition of RCA.
Consolidated Operating Expenses $1.9 billion, up approximately 22% year-over-year, driven primarily by the RCA acquisition and to support revenue growth.
Net Interest Expense $72 million, an increase of $44 million year-over-year, primarily due to debt raised to finance a portion of the RCA acquisition.
Effective Tax Rate 19%, compared to 20% in the prior year quarter, with full-year expectations of approximately 20%.
Adjusted Free Cash Flow Negative $2.4 billion, compared to negative $2.8 billion in the prior year quarter, due to seasonal working capital needs.
U.S. Healthcare Solutions Revenue $76.2 billion, up 5% year-over-year, driven by growth in GLP-1s and specialty sales to health systems and physicians.
U.S. Healthcare Solutions Operating Income $831 million, a 21% year-over-year increase, driven by the RCA acquisition and specialty growth in health systems and physician practices.
International Healthcare Solutions Revenue $7.6 billion, up approximately 10% year-over-year on an as-reported basis and 6% on a constant currency basis, driven by European distribution business growth.
International Healthcare Solutions Operating Income $142 million, down 14% year-over-year on an as-reported basis, due to timing of manufacturer price adjustments in a developing market country.
Other Revenue $2.1 billion, up 6% year-over-year, primarily due to growth at MWI Animal Health and Profarma.
Other Operating Income $91 million, down 6% year-over-year, due to a decline in U.S. Hub Consulting Services business, partially offset by growth at MWI Animal Health.
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Operating Highlights
Acquisition of OneOncology: Cencora completed the acquisition of the majority of the remaining equity interest in OneOncology, a leader in community oncology. This acquisition is expected to enhance Cencora's MSO platform and strengthen its leadership in specialty pharmaceuticals.
Advanced Imaging Devices: Deployment of hundreds of advanced imaging devices across Retina Consultants of America (RCA) practices to improve patient care.
MSO Expansion: Cencora is expanding its MSO footprint, which strengthens its leadership in specialty pharmaceuticals and enhances relationships with pharmaceutical companies.
International Healthcare Solutions: Revenue grew by 10% on an as-reported basis, driven by European distribution and Global Specialty Logistics businesses.
U.S. Healthcare Solutions Performance: Revenue grew by 5% to $76.2 billion, driven by growth in GLP-1 products and specialty sales to health systems and physicians.
Operational Excellence: Focus on leveraging technology and advanced analytics to improve customer experience and operational efficiency.
Strategic Growth Priorities: Focus on strengthening leadership in specialty pharmaceuticals, leading with market leaders, and enhancing patient access to pharmaceuticals.
Research and Innovation: RCA and OneOncology physicians are actively contributing to clinical trials and research, advancing treatments like cell-based gene therapy and biosimilars.
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Risk or Challenges
Regulatory and Compliance Risks: The company acknowledges forward-looking statements are subject to uncertainty and change, and refers to SEC filings for key risks and assumptions. This indicates potential regulatory and compliance risks that could impact operations.
Operational Complexity: The acquisition of OneOncology and Retina Consultants of America introduces operational complexity, including integration challenges and the need to manage advanced treatment options and administrative support for physicians.
Financial Risks: Increased net interest expense due to debt raised for acquisitions and seasonal working capital needs could strain financial resources. Additionally, the company has paused share repurchases to prioritize debt paydown.
Market and Competitive Pressures: Loss of a large grocery customer and an oncology customer due to acquisition by another entity highlights competitive pressures and customer retention challenges.
International Business Risks: Decline in operating income in the International Healthcare Solutions segment due to timing of manufacturer price adjustments in a developing market country.
Supply Chain and Revenue Risks: Seasonal working capital needs and reliance on specialty pharmaceutical utilization trends could pose risks to revenue stability.
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Guidance & Outlook
Fiscal 2026 Guidance Update: Cencora has raised its fiscal 2026 guidance to reflect year-over-year adjusted operating income growth of 11.5% to 13.5%, driven by the acquisition of OneOncology and strong performance in the U.S. Healthcare Solutions segment.
Revenue Growth Expectations: Consolidated revenue growth is now expected to be in the range of 7% to 9%, up from the previous 5% to 7%. This includes 7% to 9% growth in the U.S. Healthcare Solutions segment and 7% to 9% growth in the International Healthcare Solutions segment on an as-reported basis.
Operating Income Growth: Consolidated operating income growth is projected to be 11.5% to 13.5%, with the U.S. Healthcare Solutions segment expected to grow 14% to 16%.
Adjusted Diluted EPS: The full-year adjusted diluted EPS guidance is reaffirmed at $17.45 to $17.75, reflecting strong execution and the contribution from OneOncology.
Interest Expense: Interest expense is expected to range between $480 million and $500 million, up from the previous range of $315 million to $335 million, due to borrowings for the OneOncology acquisition.
Adjusted Free Cash Flow: Full-year adjusted free cash flow is expected to be approximately $3 billion, with seasonal working capital dynamics expected to unwind later in fiscal 2026.
International Healthcare Solutions Segment: Revenue growth is expected to be 7% to 9% on an as-reported basis and 6% to 8% on a constant currency basis, with operating income expected to recover in the balance of fiscal 2026.
OneOncology Contribution: The acquisition of OneOncology is expected to be neutral to adjusted diluted EPS in its first 12 months and will contribute to long-term operating income growth.
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Shareholder Return Plan
Share Repurchase: Due to the OneOncology acquisition, Cencora has paused share repurchases as it prioritizes debt paydown. The full year diluted share count is anticipated to be approximately 195.5 million shares.
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Key Q&A
Q:Can you provide more color on the deceleration in the U.S. segment's operating income growth from September to December quarter and the full-year guidance?
A:James Cleary explained that the U.S. segment had adjusted operating income growth of 21% in the December quarter. Excluding RCA, the performance was still at the higher end of the long-term guidance range of 7%-10%, despite the headwind from the loss of an oncology customer. The full-year guidance for adjusted operating income growth in the U.S. was increased from 9%-11% to 14%-16%, driven by utilization trends, strong specialty sales, and broad-based performance.
Q:What are the short-term and long-term opportunities for MSO platform AOI growth?
A:Robert Mauch highlighted that the MSO strategy aligns with Cencora's focus on specialty providers and biopharma. Short-term opportunities include leveraging clinical trial excellence and revenue cycle management capabilities across the platform. Long-term opportunities involve developing new capabilities and services to support physicians and enhance patient care.
Q:Can you elaborate on the benefits of strategic partnerships with health systems and their impact on growth?
A:Robert Mauch stated that strategic partnerships with health systems are a key growth area. Cencora focuses on understanding health systems' strategies and providing capabilities to support their growth. This complements their specialty pharmaceutical growth strategy, which includes partnerships with community physicians and other providers.
Q:What is the expected cadence of earnings for the next several quarters?
A:James Cleary noted that the oncology customer loss will remain a headwind in the second and third fiscal quarters but will no longer impact the fourth quarter, enhancing operating income growth. Additionally, interest expense in the second quarter will be approximately double that of the first quarter due to debt from the OneOncology acquisition.
Q:How is Cencora preparing for IRA price negotiations and their impact on supplier relationships?
A:James Cleary explained that Cencora's strategic global sourcing team successfully maintained gross profit dollars during list price reductions by leveraging supply chain value. The company was well-prepared for these changes, and the impact on brands and price increases was in line with expectations.
Q:What caused the timing dynamic in the International segment, and how does it affect guidance?
A:James Cleary attributed the challenging first quarter in the International segment to a timing difference in manufacturer price adjustments in a developing market. This timing issue will not affect the full-year guidance of 5%-8% adjusted operating income growth. Positive volume growth in the Global Specialty Logistics business also supports the guidance.
Q:Can you break down the revised U.S. EBIT guidance and the contribution from OneOncology?
A:James Cleary stated that the U.S. EBIT guidance increase from 9%-11% to 14%-16% is largely driven by the OneOncology acquisition and continued strong performance in the U.S. The OneOncology contribution will ramp over the fiscal year, with benefits also reflected below the operating income line in other income and noncontrolling interest.
Q:What is the outlook for the core U.S. business excluding RCA and OneOncology?
A:James Cleary indicated that the core U.S. business, excluding RCA and OneOncology, is performing within the long-term guidance range of 7%-10%, driven by solid utilization trends, strong specialty sales, and broad-based performance. The company remains confident in its guidance despite strong comps.
Q:How does Cencora view asset divestitures in the context of long-term growth and earnings impact?
A:Robert Mauch emphasized that Cencora prioritizes growth-oriented investments and has assessed its businesses to align with this strategy. While divestitures may cause short-term dilution, they are expected to enhance long-term growth and returns. James Cleary added that MWI continues to perform well, with 7% revenue growth in the most recent quarter.
Q:Can you provide an update on RCA's performance and its contribution to growth?
A:James Cleary reported that RCA has exceeded expectations, with strong performance in clinical trials and other areas. The business has shown good organic growth and successful tuck-in acquisitions, contributing positively to the company's overall growth.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact financial contribution of RCA and OneOncology to the overall earnings, as well as the precise impact of strategic partnerships with health systems on future growth. Additionally, while they acknowledged timing issues in the International segment, they did not quantify the specific financial impact of these issues.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America MSO
CAR activity
CEO Dr
CFO statement
Chair Dr
Dr OneOncology
Dr world
Enterprise Productivity
FDA cell
GPO service
MSO expansion
MSO footprint
MSO physician
MSO platform
MSOs extension
MSOs help
MSOs practice
MSOs value
OneOncology physician
President Investor
Productivity today
RCA physician
Relations Enterprise
access pharmaceutical
acquisition OneOncology
addition
adoption
dedication
disease
expansion priority
health care
pharmaceutical specialty
quality
research capability
specialty pharmaceutical
technology
therapy
treatment option
trial research
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