MCK earnings call transcript, November 4, 2026

More recently, we launched Family Forward, a new employee resource group that fosters connection and supports employees with caregiving responsibilities at every stage of life. We now have 12 employee-led resource groups. across the company, and I am proud of how these groups enrich our culture and advance inclusion for all members of Team McKesson. Our annual impact report, published in July, highlights additional examples of the progress for making to advance health outcomes by supporting our communities, developing our people, and enabling our partners to improve care for patients. Building on a strong commitment to our mission and purpose, we continue to accelerate our enterprise strategy. With a focus on strengthening our North American distribution business and advancing our growth platforms in oncology, multi-specialty, and biopharma services. During the quarter, we were pleased to announce this. strategic transaction that directly supports these priorities. Our acquisition of precision medicine group, which we closed this week. We're pleased to welcome PMG to McKesson as we advance our shared commitment to accelerating innovation. and improving patient access to care. Expanding access to clinical trials is an important element of our oncology strategy, connecting innovation and drug development with community-based practices where patients receive care. In 2022, we established our joint venture with Sarah Cannon Research Institute, bringing together the U.S. Oncology Network's provider reach and practice management expertise with SCRI's research infrastructure and clinical trial expertise to support these.

Precision Medicine Group builds on this foundation, adding complementary clinical research expertise in oncology, rare and orphan diseases, and cell and gene therapies. Its global footprint and experience... conducting late-stage clinical trials broaden our ability to support clinical development and expand patient access to innovative therapies. The acquisition also advances our biopharma services strategy. Precision Medicine Group... Market access and commercialization services complement our existing access and affordability solutions. Broadening the support we can provide to biopharma partners as they bring their therapies to market. In addition, last month... We signed a definitive agreement to make a strategic investment in Option Care Health, the nation's largest independent provider of home and alternate site infusion services. As specialty therapies grow in importance and complexity... This transaction reflects our conviction that care will increasingly be delivered in lower cost community settings at or closer to home. McKesson knows this shift well. For over 25 years, we have supported... the U.S. Oncology Network and over 3,400 providers in delivering connected, high-quality care in the community. Option Care Health clinical model and national infusion footprint across home and ambulatory sites are... well aligned with these priorities. As a strategic investor, we look forward to bringing our specialty expertise to help broaden access to complex therapies and to support its continued growth. And we're pleased to partner with CDNR, which brings a strong track record of supporting companies and creating long-term value.

CDNR will own a majority interest in option care health at closing. The transaction is subject to customary closing conditions, including approval by option care health stockholders and the receipt of required regulatory approvals. In our oncology and multi-specialty platform, we are encouraged by strong market trends, supported by drug innovation and stable utilization. As new therapies come to market, our deep expertise in specialty distribution and specialty pharmacy, together with our strong connections across community-based care, position us well to enable access to these medications. Within the oncology platform, we continue to reinforce our value to community-based providers by bringing together complimentary capabilities, which include community-based practice management experience, clinical research expertise, and data-enabled capabilities. As we welcome Precision Medicine Group, we're excited to build on this foundation and accelerate our strategy. Within our retina and ophthalmology platform, we welcome Spectrum Vision Partners and its over 150 providers to the Prism Vision Group, further expanding its footprint. This is another meaningful addition to our platform. We're encouraged by its continued strong performance, which demonstrates its compelling value proposition to providers and their patients. Across oncology and other... specialty areas are distribution capabilities, data-enabled insights, clinical expertise, and experienced supporting providers allow us to create value for customers and improve patient access to care. Within our...

From the biopharma services platform, we continue to see strong demand for solutions that improve medication access and affordability. As therapeutic innovation accelerates and the treatment landscape becomes more complex, our difference... ...appreciated solutions are helping translate that innovation into meaningful access for patients. Our platform connects providers, pharmacies, payers, and manufacturers through technology that's embedded in prescribing and dispensing workflows. We continue to expand our payer network, which now includes payers that represent 96% of US prescription volume. This connectivity enables us to simplify administrative processes and address financial barriers. At scale, helping patients start and stay on therapy while supporting biopharma partners across their product life cycles. The momentum across our biopharma services platforms continues to be broad based. During the quarter, we added 67 new programs across 58 unique brands, representing a diversified portfolio of therapeutic areas in both access and affordability. We expanded connectivity with providers. With more of them exploring our automated solutions, including our recently introduced medical prior authorization capabilities. We also saw growth in services that provide dedicated reimbursement specialists to help providers navigate insurance. Coverage and reimbursement challenges, reinforcing the value of hands on expertise alongside our automated solutions. Looking ahead, we remain focused on leveraging technology and automation to enhance the functionality of our solutions and streamline.

Workflows by simplifying routine processes and complementing them with specialized expertise where greater support is needed. We can address a broad range of access and affordability barriers and strengthen the value we deliver to biopharma partners. Providers and patients. Let's turn to North American distribution. Our pharmaceutical distribution business continues to perform well, supported by stable market fundamentals, operational excellence, and our differentiated customer value proposition. Recently, we announced an extension of our pharmaceutical distribution relationship with CVS Health. This agreement reflects the strength of our longstanding partnership of more than 25 years, the value of our distribution. capabilities and our ability to support customers at scale with reliability, efficiency, and service excellence. We value our relationship with customers across the healthcare ecosystem and remain focused on supporting their growth through consistent execution and the highest levels of service. Across this segment, we continue to see strong momentum reflecting our unwavering commitment to customers, the consistent delivery of high quality service, and a disciplined focus. Focus on operational excellence. This performance enables us to reinvest in the business, including our distribution network, supply chain capabilities, and technology infrastructure, which further strengthen the reliability, efficiency, and scale of our platform and position us to deliver sustainable long-term growth.

The strength of our business and our diversified capabilities position us well to drive continued growth amid evolving industry tense and a dynamic policy environment. We are committed to working closely with policy makers to advance thoughtful reforms that support patient and providers expand access to care and improve health outcomes. In closing, our strong second quarter results build on a strong record of execution and growth. We're pleased with the momentum of the underlying business reinforcing our commitment to our strategic priorities. The precision medicine group acquisition and our proposed investment and option care health represents significant progress in expanding our capabilities and investing in areas of compelling long term opportunity. Looking ahead work. Confident in our ability to deliver sustainable growth and long term shareholder value with that. Let me turn it over to Kenny.

Good afternoon, everyone. We delivered a strong second quarter supported by. Broad based growth across the enterprise. This quarter's performance builds on the momentum from last quarter, resulting in a strong first half of fiscal 2027 and reinforcing our confidence and the opportunities. Before I turn to our adjusted results, I want to highlight the two important transactions we announced recently. As Brian mentioned in his opening remarks, we are pleased to have completed the acquisition of precision medicine group. For approximately $2.25 billion. The business will report within our oncology and multi-specialty segment, further expanding the breadth of solutions we provide across our oncology, multi-specialty, multi-specialty. and biopharma services. We expect the transaction to be accretive and reinforce our long-term growth profile. We estimate the acquisition will contribute approximately $0.10 to $0.20 of a just- per diluted share in fiscal 27 with contributions more heavily weighted towards the fourth quarter. By the end of year three, we estimate accretion of approximately $1.60 to $1. $1.80. We funded this transaction with cash reflecting the strength and flexibility of our balance sheet. Additionally, we announced that we have entered into a definitive agreement to invest approximately $1.4 billion for a 49% minority interest in option care health. The transaction aligns with our strategy to expand access to innovative therapies and our commitment to advance care and lower

to $1.80 billion. cost community settings. The transaction is expected to close during the first half of calendar year 27 subject to customary closing conditions, including approval by option care health share. And the receipt of required regulatory approvals. Our current outlook does not contemplate contributions from option care health. Together, these investments reinforce our disciplined approach for capital deployment. First, we prioritize growth opportunities that align. With our strategy, complement our portfolio and meets our financial criteria for attractive returns and long term value creation. Second, we remain committed to returning capital to shareholders through a combination. of share repurchases and a growing dividend. Lastly, we maintain a strong balance sheet supported by robust free cash flow generation and liquidity. This enables us to continue investing in and growing. business. Unless otherwise noted, my comments today will refer to our adjusted results. Let me turn to our second quarter consolidated performance. Revenues increased 8% to 100 and 11 billion dollars with growth across all four operating segments. Growth was driven by higher prescription volumes in North American Pharmaceutical and continued strength in oncology and multi-specialty. This was partially offset by lower contributions from branded pharmaceuticals and continued branded to generic conversions.

Growth profit increased 10% to $3.9 billion driven by growth in North oncology and multi specialty and prescription technology solutions. The increase reflects higher prescription volumes in continued strength and specialty as we leverage our skill. and distribution capabilities. Operating expenses increased 8% to $2.1 billion, reflecting higher expenses to support growth across the business. We remain focused. on driving productivity and strengthening our network while maintaining expense discipline and investing to enhance how we serve our customers and drive future growth. We demonstrate a strong operating leverage. During the quarter with operating expenses as a percentage of gross profit improving by approximately 141 basis points year over year. Operating profit increased 13% to $1.9 billion driven by North American farmers. Prescription technology solutions and oncology and multi specialty interest expense was $103 million reflecting financing activities completed in support of the plan. Medical surgical solution separation. Effective tax rate in the second quarter was 17.8% which included net discrete tax benefits of $105 million. As a reminder, our effective tax rate can vary quarter to quarter, driven by timing and the amount of discrete tax items. The looted weighted average shares were 116.7 million. A decrease of 6%, reflecting continued share repurchase activity. Adjusted earnings per diluted share increased 18% to $11.68, driven by strong...

Operating performance across North American pharmaceutical, oncology and multi-specialty, and prescription technology solution segment, and the benefit of a lower share count. Excluding the prior year contribution... ...from the $25 million Norway divestiture and the net gains of $51 million from the sale of an equity investment and market decisions within the U.S. oncology network adjusted... earnings per diluted share increased 24%. Let me now turn to our segment results, starting with North American pharmaceutical segments. Revenues were $91.4 billion, an increase of 6%. Driven by higher prescription volumes, including growth in specialty products and GLP-1 medication. This was partially offset by lower contributions from branded pharmaceuticals and continued branded to generic conversions. Lower branded pharmaceutical pricing as a result of wholesale acquisition cost decreases in January 2026 reduced year-over-year revenue growth by approximately 4%. Consistent with prior periods, these pricing changes did not have a meaningful impact on the segment operating profits. Revenues from GLP-1 medication distribution were $16 billion in the quarter, an increase of approximately $3 billion or 26 percent versus the prior year. Sequentially GLP-1 revenues increased 8 percent. Demand and volumes across the category remain strong with quarter to quarter variability based on pair dynamic and patient utilization. Operating profit increased 22 percent to $1 billion. Growth was driven by specialty distribution, including health systems.

and strategic accounts. Our distribution platforms support a broad and evolving portfolio of products, including increasingly complex therapies. Outreach and expertise allows us to effectively support these products as demand continues to grow. Turning to oncology and multi-specialties. Revenues were $15 billion, an increase of 24%, driven by growth from specialty product distribution and higher volumes across our provider platforms. We saw strong yield. Initialization within provider solutions, including distribution of oncology and multi-specialty products. Operating profit increased 8% to $427 million. As a reminder, the prior year period included net gains of $51 million within the U.S. oncology network. Excluding the net gains, operating profit increased by 23%. It was driven by provider solution businesses, including GPO services and higher specialty distribution volumes. We expanded our provider platforms through growth within existing practices and new provider additions. Utilization trends remain solid, with the same-store patient visits reaching their highest level in recent quarters across our networks. In prescription technology solutions, revenues were $1.5 billion. An increase of 10%, driven by higher prescription volume in third-party logistics and access solutions. This was partially offset by lower contributions from hub dispensing services. Operating profit increased 18% to $307 million, driven by higher demand across our access solutions, including prior authorization services.

We continue to see volume growth across services for both. GLP-1 and non-GLP-1 medications, including contributions from the CMS Medicare GLP-1 Bridge Program, which started on July 1st. We also saw solid performance across other. therapeutic categories as we added new brands and expanded existing programs across the platform. Our solutions support biopharma partners across the life cycle of a product. As therapies move from launch to broader adoption. and maturity, our platform is well positioned to support the evolving need for access, affordability, and adherence solutions. Turning to medical surgical solutions. Revenues were 3.5% 1 billion dollars, an increase of 5%, driven by growth across extended and ambulatory care channels. This represents continuous sequential improvement in revenue growth trends, supported by higher volumes across possible product categories, including specialty pharmaceuticals. Operating profit decreased 10% to $225 million, driven by lower contributions from the ambulatory care channel. due to product mix, partially offset by growth in the extended care channel. We are pleased with the growth in the extended care channel supported by higher demand across several product categories. Wrapping up. I'll review with corporate. Corporate expenses were $147 million, a decrease of 3%, reflecting discipline expense management, partially offset by continued investment in technology.

Abilities to support the business. Let me turn to cash and capital allocation. We ended the quarter with $6.5 billion in cash and cash equivalents and total liquidity of approximately 11.5. billion dollars, which is above the minimum threshold. Our balance sheet remains robust and provides ample capacity to support our strategic priorities. During the second quarter, we deliver a free cash flow of 2.0. nine billion dollars, including one hundred and twenty three million dollars in capital expenditures. Our strong cash generation provides capacity to reinvest in the business, including technology, infrastructure and. operational capabilities. We also maintain flexibility to continue to execute our capital allocation priorities, including share repurchases during the quarter, we return nine hundred and ninety million dollars to shareholders. Through a combination of share repurchases and dividend payments, we remain disciplined in deploying capital towards opportunities that offer attractive returns and long term shareholder value. Turning now to our fiscal twenty seven outlook, we deliver strong results. Through the first half of the year, including second quarter performance that exceeded our expectations. Based on these results, our outlook for the remainder of the year, we are raising our fiscal twenty seven adjusted earnings for diluted share outlook to forty five dollars and sixty cents.

So, thank you very much. Forty six dollars and forty cents. We enter the second half with confidence in the fundamentals of our business and our ability to execute against our priorities. Our updated outlook implies adjusted EPS growth of seventy. The nineteen percent, excluding the impact of the Norway divestiture and the net gains within the U.S. oncology network in fiscal twenty six, our outlook implies adjusted EPS growth of nineteen to twenty one percent, which is well above a long term growth target of thirteen to sixteen percent. For fiscal twenty seven, we anticipate revenue growth of six to ten percent and operating profit growth of twelve to sixteen percent. Let me provide additional context on our segment outlook. In North American Pharmaceutical, we anticipate revenue growth of five to nine percent and operating profit growth of fourteen to eighteen percent. The outlook reflects broad-based strength. across the business, including strong performance in the second quarter. We anticipate the momentum will be supported by stable market trends, including growth in prescription volume, increasing demand for specialty and branded medications, including GLP-1s, and benefits. from improved productivity, driving operational leverage underpinned by discipline execution across sourcing and distribution. The outlook also contemplates continued impact on segment revenue from lower branded.

pharmaceutical pricing following hostal acquisition cost decreases. Looking ahead to the second half of the fiscal year, we anticipate accelerated investments focused on enhancing our capabilities and supporting business growth. Additionally, the outlook reflects our continued strong relationship with customers, including customer wins and renewals of existing relationships. Turning to oncology and multi-specialty. We anticipate a revenue growth of 20 to 24% and operating profit growth of 18 to 22%. Excluding the net gains of $51 million in fiscal 26, our outlook implies a high operating profit growth of 22 to 26%. The outlook is supported by provider solutions, including specialty distribution and GPO services and our broader portfolio of oncology and multi. specialty offerings. We continue to see expansion across our provider platforms through both new additions and growth within existing practices. Within our retina and ophthalmology platform, the Prism Vision Group recently welcomed Spectrum Vision Partners, further strengthening its presence in the Mid-Atlantic. We anticipate some variability from quarter to quarter, including investments weighted towards the earlier part of the second half. In prescription technology solutions, we anticipate revenue growth of 2.5 to 6.5% and operating profit growth of 11 to 15%. We expect continued growth and access and affordability solutions supported by demand across

GLPY medications and other therapeutic categories. As products move through their life cycle, the type and level of support required can change. This creates opportunities for onboarding of new programs and expanding the service. provided to existing relationships. These dynamics can also create quarterly variability based on utilization, product launch timing, shifts in payer landscape, and changes in program requirements. For example, we are in the early phases of supporting the CMS. Medicare GLP-1 bridge program. Following initial strong demand, prior authorization volumes have begun to normalize and we will continue to monitor trends as the program progresses. Looking to the second half, the historically benefits from contributions from annual re-verification programs and we anticipate a similar cadence this year. Moving now to Metsurge, we anticipate revenue growth of one to six percent. and operating profit to range from a four percent decline to flax. Our outlook reflects the breadth of the business across alternate sites of care, including ambulatory and extended care, consumer health. and at-home care. To support future growth, we implemented initiatives across the business, focused on driving growth opportunities, building the commercial pipeline, and driving operating efficiency. We expect the initiatives implemented during the first half to support growth and performance through the remainder of the year.

Our second half results can also be impacted by the annual illness season. As a reminder, each illness season is unique. The timing, severity, and duration can vary from year to year. In corporate, we anticipate expenses at the high end of the 580 to 640 million dollar range. As a reminder, we completed our exit from Norway in January. In fiscal 26, the Norway business contributed 74 million dollars of operating profit, including 28 million dollars in the fiscal third quarter. Turning now to items below the line, we expect interest expense to be on the high end of 380 to 420 million dollars. Reflecting higher borrowing rates associated with financing activities. We expect income attributable to non-controlling interest of 290 to 320 million dollars, which includes the minority. Ownership interest by Apollo and our met search business. We anticipate the 4 year effective tax rates of 18 to 19%. We expect quarterly tax rate phasing to be broadly similar to fiscal. 26 with a higher tax rate in the third quarter than the fourth quarter due to the timing of discrete tax items. Wrapping up our outlook with cash flow and capital deployment. We anticipate free cash flow of approximately four. Point five to four point nine billion dollars. As a reminder, cash flow can vary from quarter to quarter based on timing, including day of the week, a quarter ends. We remain disciplined on capital allocation. We expect to.

We purchased approximately five billion dollars of shares during fiscal twenty seven. Through the first half, we purchased approximately three point four billion dollars of shares and an average price of approximately. Eight hundred and eighteen dollars per share, completing a significant portion of our planned full year share repurchases. We estimate the weighted average shares outstanding to be in the range of one fifteen point five to one seventeen. Two point five million. In closing, I am pleased with the performance through the first half of the year and the progress we are making across the business. We enter the second half with strong momentum, clear priorities.

And again, that is star one if you'd like to ask questions. And our first question will come from Grinson Tangelo with Barclays.