McKesson Corporation (MCK) Q3 2026 Earnings Call Transcript
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Overview
The earnings call reveals strong financial performance, with raised guidance for EPS and revenue growth, alongside significant operating profit growth across segments. The Q&A highlights management's strategic investments in technology and automation, contributing to operational efficiency and margin improvements. Despite some lack of clarity on fiscal 2027 guidance, the overall sentiment is positive due to strong organic growth, strategic acquisitions, and positive market trends, suggesting a likely stock price increase in the near term.
Key Financial Performance
Revenue Consolidated revenues increased 11% to $106.2 billion, reflecting broad-based growth across the business. Higher prescription volumes from retail national account customers within our North American Pharmaceutical segment, continued momentum in our oncology and multispecialty segment, including expanded distribution of oncology and multispecialty products and contributions from recent acquisitions contributed meaningfully.
Gross Profit Gross profit was $3.7 billion, an increase of 10%, led by provider growth and continued strength in specialty distribution within the oncology and multispecialty segment.
Operating Expenses Operating expenses increased 7% to $2.1 billion reflecting higher expenses in our high-performing growth platforms within the oncology and multispecialty and Prescription Technology Solutions segment, including current year acquisitions. A 138 basis point improvement in operating expenses as a percentage of gross profit was achieved year-over-year.
Operating Profit Operating profit was $1.7 billion, an increase of 13% year-over-year. This growth reflects increased demand for access solutions in our Prescription Technology Solutions segment, as well as strong growth in specialty distribution volumes in both the oncology and multispecialty and North American Pharmaceutical segments.
Interest Expense Interest expense was $59 million, a decrease of 5% year-over-year, driven by effective cash and portfolio management.
Earnings Per Share (EPS) Third quarter earnings per diluted share increased 16% to $9.34, driven by strong operational performance, including contributions from acquisitions within the oncology and multispecialty segment.
North American Pharmaceutical Segment Revenue Revenues were $88.3 billion, an increase of 9% driven by higher prescription volumes, including higher volumes across retail national account customers and continued specialty product distribution strength.
Oncology and Multispecialty Segment Revenue Revenues increased 37% to $13 billion, driven by strong provider growth, expanded specialty distribution and contributions from acquisitions completed this fiscal year. The acquisitions of PRISM and Core Ventures contributed approximately 13% to third quarter segment revenue growth.
Prescription Technology Solutions Segment Revenue Revenues increased 9% to $1.5 billion, supported by higher prescription volumes across our third-party logistics and technology services businesses.
Medical-Surgical Solutions Segment Revenue Revenues were $3 billion, an increase of 1% compared to the prior year, driven by higher specialty pharmaceutical volumes.
Free Cash Flow Third quarter free cash flow was $1.1 billion, which included $175 million in capital expenditures. For the trailing-12 months, McKesson delivered free cash flow of $9.6 billion, demonstrating strong operational performance and working capital management.
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Operating Highlights
Oncology and Multispecialty: Continued progress in integrating Florida Cancer Specialists and PRISM Vision, contributing to strong performance. Released a report on advancing Community Oncology, emphasizing the role of community practices in cancer care and growth in precision medicine. Hosted the inaugural McKesson Accelerate conference to focus on the future of community oncology.
Biopharma Services: Added over 50 new programs across 43 unique brands, highlighting demand for access and affordability solutions. Investments in electronic patient enrollment processes to reduce time and errors, digitizing enrollment for over 1,600 specialty medications.
North American Pharmaceutical Distribution: Strong momentum supported by stable utilization trends and specialty product strength. Expanded refrigerated capacity by over 50% in forward distribution centers to support temperature-sensitive products.
Global Market Exit: Completed divestiture of Norwegian business, marking the final step in exiting the European region.
AI and Automation: Leveraged AI and automation in Canada and the U.S. to improve customer care and supply chain efficiency. Examples include AI chat tools for customer inquiries and enhanced live chat capabilities.
Operational Efficiencies: Improved productivity with each full-time employee supporting 120 more patients annually. Enhanced efficiency in annual verification season.
Portfolio Actions: Progressed in separating the Medical-Surgical business, targeting an IPO by the second half of 2027. Completed the divestiture of the Norwegian business as part of a broader strategy to optimize assets and accelerate growth.
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Risk or Challenges
Regulatory and Policy Environment: The company highlighted the dynamic policy environment in oncology care and the need to navigate regulatory changes. This could pose challenges in maintaining compliance and adapting to new regulations, which may impact operations and patient access.
Inflation Reduction Act and Medicare Part D Changes: The implementation of Medicare Part D price changes under the Inflation Reduction Act requires close collaboration with manufacturer partners. This transition could introduce operational complexities and financial risks.
Separation of Medical-Surgical Business: The ongoing separation of the Medical-Surgical business involves establishing an independent organization and capital structure. This process is complex and subject to market conditions and regulatory approvals, which could delay or complicate the separation.
Soft Illness Season Demand: The Medical-Surgical segment experienced lower volumes due to a soft illness season, which could impact revenue and operating profit growth in this segment.
Technology and Infrastructure Investments: The company is making significant investments in technology and infrastructure, including AI and automation. While these are aimed at improving efficiency, they represent a financial burden and carry execution risks.
Portfolio Actions and Divestitures: The company has recently completed the divestiture of its Norwegian business and is exiting Europe. While this streamlines operations, it also reduces geographic diversification and may impact revenue streams.
GLP-1 Medication Growth Variability: The growth of GLP-1 medication distribution is expected to vary from quarter to quarter, introducing revenue unpredictability in the North American Pharmaceutical segment.
Annual Verification Program Costs: The Prescription Technology Solutions segment anticipates incremental costs related to technology investments for its annual verification program, which could impact short-term profitability.
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Guidance & Outlook
Full Year EPS Guidance: Raised to a range of $38.80 to $39.20, reflecting 17% to 19% year-over-year growth.
Oncology and Multispecialty Segment: Anticipated revenue growth of 29% to 33% and operating profit growth of 51% to 55% for fiscal 2026. Acquisitions of PRISM Vision and Core Ventures are expected to contribute approximately 30% to 34% to the segment's operating profit growth.
Prescription Technology Solutions Segment: Anticipated revenue growth of 9% to 13% and operating profit growth of 14% to 18% for fiscal 2026. Investments in technology infrastructure and capability are expected to continue.
North American Pharmaceutical Segment: Anticipated revenue growth of 10% to 14% and operating profit growth of 8% to 12% for fiscal 2026. Growth supported by stable utilization trends, strong specialty distribution, and operational excellence.
Medical-Surgical Solutions Segment: Anticipated revenue and operating profit growth at the lower end of 2% to 6% for fiscal 2026. Separation of the segment is progressing, with an IPO planned by the second half of calendar 2027, subject to market conditions.
Free Cash Flow: Anticipated to be approximately $4.4 billion to $4.8 billion for fiscal 2026.
Capital Deployment: Plans to repurchase approximately $2.5 billion of shares in fiscal 2026.
Refrigeration Capacity Expansion: A multiyear plan to expand refrigerated capacity across the network by more than 50%, with completion expected within five years.
AI and Automation Investments: Continued investments in AI and automation to drive operational efficiencies and improve customer experience.
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Shareholder Return Plan
Dividend Payments: During the quarter, McKesson returned $101 million in dividend payments to shareholders.
Share Repurchase Activity: McKesson repurchased $680 million worth of shares during the quarter as part of its ongoing share repurchase program.
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Key Q&A
Q:Can you talk about the specific investments you're making in technology and automation to support more patients during the annual verification season?
A:Brian Tyler explained that McKesson has been investing in technology, including AI, large language models, and other tech tools, to improve internal workflows. Examples include automating emails and building a digitally native process for DSCSA, which autonomously resolves 75% of customer inquiries. These investments aim to enhance employee experience, customer experience, and operational efficiency.
Q:How should we think about the longer-term opportunity to improve margins in the segment?
A:Britt Vitalone noted that half of the segment's revenue comes from third-party logistics services, while the other half is from technology service businesses supporting biopharma. Operating margins have grown over 130 basis points year-over-year, and the company is focused on automating capabilities and services to continue improving margins.
Q:What are the key considerations for fiscal 2027 guidance and the oncology and multispecialty margins?
A:Britt Vitalone highlighted stable utilization trends, strong specialty distribution growth, and investments in oncology and multispecialty segments. Operating efficiency improvements and acquisitions like PRISM and Core Ventures are contributing positively. Organic revenue growth was 24%, and organic adjusted operating profit growth was 15%.
Q:What is driving the margin improvement in the oncology and multispecialty division?
A:Britt Vitalone attributed margin improvement to positive mix attributes from acquisitions like PRISM and Florida Cancer, growth in specialty and oncology products, and early impacts of automation and AI capabilities. Quarter-to-quarter variability exists, but overall, the additions are accretive to revenue, operating profit, and margins.
Q:What is driving the growth trajectory in North American pharma for Q4 and the wider guidance range?
A:Britt Vitalone mentioned strong specialty distribution growth, efficiency gains, and operational excellence as key drivers. The guidance range was widened due to confidence in the business momentum and mix, with no specific concerns noted.
Q:What areas are you focusing on in the regulatory landscape, and how are you navigating challenges like IRA and MFP?
A:Brian Tyler stated that McKesson is engaging with manufacturing partners to address portfolio evolution and pricing strategies. The company views the policy landscape as navigable, with minimal material impact expected from changes like Globe and MFN. McKesson's team in D.C. is actively involved in discussions to support community-based care.
Q:What is contributing to the strong performance in the North American Pharmaceutical segment?
A:Brian Tyler credited a clear strategy, focused management, disciplined execution, and recent acquisitions like PRISM Vision and Florida Cancer. These factors, along with operational improvements, have driven strong performance.
Q:How are PRISM and Florida Cancer progressing, and what is the outlook for the MSO business?
A:Britt Vitalone reported that both PRISM and Florida Cancer are performing well, with PRISM slightly ahead of expectations. Integration is progressing smoothly, and volumes are stable and growing. The MSO business is meeting or exceeding acquisition case expectations.
Q:What is driving the strong operating profit results in the RxTS segment?
A:Brian Tyler and Britt Vitalone highlighted the addition of 50 new programs across 43 brands, strong annual verification program volumes, and operational efficiency improvements. Growth is broad-based across LoyaltyScript, hub services, and access and affordability programs.
Q:How are IT investments influencing capital deployment priorities?
A:Brian Tyler stated that McKesson's capital allocation framework remains unchanged, with a focus on investing in internal growth and strategic acquisitions. The company continues to prioritize investments in people, technology, and resources to expand differentiation and market opportunities.
Q:What is the impact of branded drug manufacturer price decreases on McKesson's business?
A:Britt Vitalone noted that pricing changes are consistent with expectations and have not impacted McKesson's bottom line. The company maintains strong relationships with manufacturers and continues to negotiate fair value for its services.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on fiscal 2027 guidance, particularly regarding nuances or potential challenges. Additionally, they did not offer clarity on the long-term impact of oral GLP-1 drugs on prior authorization trends or the broader market.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI automation
AI chat
Accelerate conference
Act Medicare
Act language
America footprint
American Pharmacists
Association HAB
Award award
Canada contact
Canada momentum
DSCSA question
Dominguez
access medication
accuracy
brand
capacity
community practice
course
customer experience
engagement
enrollment process
event
future
generation
group
inquiry
insight
momentum oncology
network provider
oncology multispecialty
partnership
patient access
place
portfolio action
remark
role community
separation
service distribution
specialty medication
step
therapy
transition
MCK Transcript
McKesson Corporation (MCK) Q3 2026 Earnings Call Transcript
Positive2-4
The earnings call reveals strong financial performance, with raised guidance for EPS and revenue growth, alongside significant operating profit growth across segments. The Q&A highlights management's strategic investments in technology and automation, contributing to operational efficiency and margin improvements. Despite some lack of clarity on fiscal 2027 guidance, the overall sentiment is positive due to strong organic growth, strategic acquisitions, and positive market trends, suggesting a likely stock price increase in the near term.
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