McKesson Corporation 2027 Q1 Earnings Call

Good afternoon. Welcome, everyone, to McKesson's first quarter fiscal 2027 earnings call. Today, I'm joined by Brian Tyler, our Chair and Chief Executive Officer, along with Kenny Cheung, our Chief Financial Officer. Brian will lead off, followed by Kenny. We will move to a question and answer session. Today's discussion will include forward-looking statements, such as forecasts on McKesson's operations and future results. Please refer to the cautionary statements in today's earnings release and presentation slides available on our website at investor.mckesson.com and to the Risk Factors section of our most recent annual and periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements.

Information about non-GAAP financial measures that we will discuss during this webcast, including a reconciliation of those measures to GAAP results, can be found in today's earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and guidance assumptions. With that, let me turn it over to Brian.

Good afternoon, everyone. Thank you for joining our call. Earlier today, we reported strong fiscal first quarter results, reflecting broad-based momentum across the enterprise and the disciplined execution of our teams. Revenues increased 8% to $105 billion. Adjusted earnings per diluted share increased 20% to $9.93, both results exceeding our expectations. During the quarter, three of our reporting segments delivered double-digit operating profit growth, reflecting the strength of our core operating businesses. This performance is underpinned by good, stable utilization and volume growth and is reinforced by our differentiated portfolio of solutions, our focus, and the execution of our strategy. We're pleased with the strength of our first quarter performance, which gives us the confidence to raise full-year adjusted earnings per diluted share guidance to $44.20-$45 from the prior range of $43.80-$44.60.

Before I share an update on how we advanced our strategic priorities during the quarter, I wanted to take a moment to recognize an important leadership transition and recognize someone in the room with me today, Kenny Cheung, who is our new Chief Financial Officer. Kenny joined us in May, and we're excited to have him as part of Team McKesson. Following a thoughtful and comprehensive search, we're confident that Kenny is the right leader for McKesson. He brings extensive experience across finance and operations with a focus on execution and discipline that is well aligned with McKesson's operating model. He has led finance organizations across complex, scaled businesses with a track record of managing through change, executing portfolio strategy, and allocating capital to create long-term value. These experiences are especially relevant as we continue to grow our diversified healthcare services offering and execute against our strategic portfolio initiatives.

Just as important, or maybe more important, Kenny shares our belief that strong performance begins with strong teams. He's stepping into a high-performing finance organization, and I'm confident he'll build on that strength while helping guide McKesson through the next phase of growth. You'll hear more from Kenny today about his approach to the CFO role and his confidence in the business. Let me turn to the quarter and highlight several key strategic initiatives that reflect our continued progress against priorities that are shaping the future of McKesson. I'll start with our people and culture, which is foundational to everything we do. We are committed to developing strong talent and building capabilities our teams need to continue leading in an increasingly dynamic environment. An example of that commitment is how we're empowering our teams to lead in an AI-enabled environment.

During the quarter, we hosted a full day enterprise AI training at our headquarters, bringing teams together for educational sessions and real hands-on learning experience focused on the practical applications of AI. I had the opportunity to participate in person, and it was great to see the enthusiasm and the energy across Team McKesson. I continue to be impressed by the work our teams are advancing to leverage our ongoing investments in tech and AI, which are driving measurable business outcomes, strengthening how we operate, how we innovate, and how we create long-term value. Let me turn to our strategic growth pillars, beginning with the Oncology & Multispecialty platform. The continued growth of specialty therapies represents a significant market opportunity, and McKesson is extremely well positioned to capitalize on that growth.

Our strategy on Oncology & Multispecialty is built on the foundation of our scaled distribution services, including our GPO services, specialty pharmacy, and advanced clinical therapies capabilities to help providers access the medicines their patients need. Today, we serve more than 14,000 providers across a broad range of community-based specialties. Through Unity and Onmark, we help providers achieve meaningful savings on drug purchases, improving the health of their practices. Biologics supports commercialization and access for more than 200 cancer and other rare disease therapies. Through InspiroGene, we're expanding our advanced therapy capabilities by forming new manufacturer partnerships and bringing complex cell and gene treatments to more patients. Together, this demonstrates the breadth of our specialty distribution capabilities as we continue to enable high-quality community-based care.

While our specialty distribution capabilities extend across many therapeutic areas, we are, of course, particularly focused on building a differentiated platform for oncology and for retina and ophthalmology. These areas have strong innovation pipelines and meaningful opportunities for McKesson to offer additional services. During the quarter, we saw continued growth in our practice management business. The US Oncology Network grew to approximately 3,400 providers and treats more than 2 million patients annually. It's a leading force in expanding access to care and accelerating innovation in community-based oncology care. PRISM Vision brings together over 200 providers in 97 locations, helping expand access to high-quality retina and ophthalmology care, again, in the community setting. As we expand relationships with these community-based providers, we create additional opportunities to build off distribution and GPO services. It allows us to expand patient participation in clinical trials, generating more data and more insights.

Our clinical trial services joint venture, Sarah Cannon Research Institute, continues to bring innovative therapies to patients faster and closer to where they live. SCRI participated in research that contributed to 43 of the 52 adult oncology drugs approved by the FDA in 2025. Recently, SCRI announced a strategic oncology research collaboration with Pfizer to help accelerate clinical trials. Through this collaboration, SCRI and Pfizer will leverage a next-generation clinical trial delivery model designed to streamline trial operations, enhance site efficiency, and reduce administrative burden for investigators and care teams alike. Let's move on to our biopharma services platform. We continue to enable connectivity across providers, biopharma, pharmacies, and payers. We're advancing programs that improve access and affordability while allowing patients greater ease and confidence in navigating their prescription journey.

In July, we began supporting the CMS Medicare GLP-1 Bridge program, where our integrated solutions help enable the operational workflow infrastructure, including eligibility determination, electronic prior authorization connectivity, and pharmacy claims transactions for Medicare beneficiaries. Once a prior authorization request is submitted to the payer, 95% of them receive a determination within 30 minutes. This reflects the power of our scaled network and the important role our technology plays in helping providers, pharmacies, payers, and biopharma partners move information more efficiently so patients can get therapy faster. In addition to the CMS program, we saw continued growth in the new program wins throughout the quarter, demonstrating broad demand across the portfolio. Growth remains diversified across both access and affordability solutions, with brands represented across many therapeutic categories. A key differentiator of our biopharma services solutions is our use of technology and automation to reduce manual process and improve productivity.

With the advances in AI, we're applying these capabilities to improve how we build and deliver technology. During the quarter, our team designed, developed, tested, and deployed a production-ready external data connection in a one business day, work that historically would have taken several weeks or even months. The impact extends beyond faster software development. Greater speed allows us to respond more quickly to customer needs and brings new capabilities to market sooner. While we're still in the early stages of AI-enabled development, examples like this demonstrate the potential to scale these capabilities more broadly across the segment. Turning to North American distribution. In Q1, we delivered strong growth in our core distribution business, supported by stable business fundamentals. We continue to deliver substantial value to our customers through scaled distribution capabilities, exceptional service, and a diversified channel reach.

One of the customer channels we're proud to support for many years is independent community pharmacies. In June, we hosted our annual ideaShare conference, bringing together independent pharmacy leaders from across the country for education, for collaboration, and practical solutions focused on helping them navigate a changing healthcare environment. This year's event emphasized innovation, including the use of AI-enabled tools, as well as advocacy efforts that support the long-term vitality of community pharmacy. These are the types of capabilities and connections that reinforce the value of our distribution platform and help our customers continue to serve the patients in their local communities. We also broke ground on a new regional distribution center in Moore, Oklahoma, an important investment to strengthen the resiliency and capacity of our pharmaceutical distribution network.

The new facility will increase throughput by 75% compared to the prior facility, supported by advanced automation, digitally enabled logistics, and expanded cold chain capabilities. This investment strengthens the foundation of our supply chain and positions us to serve our customers with greater scale, resilience, and accuracy. Let me provide a brief update on our portfolio actions. During the quarter, we continued to successfully execute on the planned separation of Medical-Surgical Solutions, allowing us to continue to build momentum towards becoming a standalone company. We completed the previously announced strategic minority investment from Apollo Funds, bringing on an important partner with financial resources and experience in complex separations. Additionally, we completed a $2.25 billion senior secured Term Loan B, further establishing a standalone capital structure for the business with a clear focus on maximizing long-term value for shareholders.