Cencora, Inc. 2026 Q3 Earnings Call

Bennett, please go ahead. Good morning, good afternoon, thank you all for joining us for this conference call to discuss Cencora's fiscal 2026 third quarter results.

I am Bennett Murphy, Senior Vice President of Investor Relations and Enterprise Productivity. Joining me today are Bob Mauch, President and CEO, and Eva Boratto, Executive Vice President and CFO. On today's call, we will be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided within today's press release, which is available on our website at investor.cencora.com. We've also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will discuss forward-looking statements about our business and financial expectations on an adjusted non-GAAP basis, including but not limited to EPS, operating income, and income taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change.

For a discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10-Q. Cencora assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without the permission of the company. You have the opportunity to ask questions after today's remarks by management. We ask that you limit your questions to one per participant in order for us to get to as many as possible within the hour. With that, I will turn the call over to Bob.

Thank you, Bennett. Hi, everyone, and thank you for joining Cencora's fiscal 2026 third quarter earnings call. To start, I'd like to thank our Cencora team members for their continued commitment to providing valuable solutions for our customers. In our third quarter, we delivered strong results driven by execution across Cencora and investments to advance our specialty positioning and our pharmaceutical-centric strategy. Our business performance drove double-digit adjusted operating income growth and, supported by $1 billion of opportunistic share repurchases, we achieved 12% EPS growth in the quarter. We're pleased to be raising our fiscal 2026 EPS guidance, reflecting our confidence in our continued execution and the strength of our portfolio as we close out the fiscal year. I'm very happy Eva Boratto has joined us as Chief Financial Officer. She will provide details on our performance and continued confidence in our short and long-term expectations.

During my remarks today, I'll highlight how our strategy enables us to deliver on our growth priorities. First, our differentiated specialty pharmaceutical platform uniquely positions us to support innovation and patient care across our footprint. Second, through our digital transformation, we are modernizing how we operate and serve our partners. Finally, our focus on talent and culture is equipping our teams with the skills, resources, and leadership needed to continue advancing our pharmaceutical-centric strategy and delivering our purpose. I'll start with specialty, where our platform supports growth across the healthcare ecosystem. Our specialty platform builds on our strong foundation in pharmaceutical distribution and deep relationships with providers and manufacturers. Over time, we've expanded our capabilities into a broad set of services designed to address the needs of specialty care.

Over nearly three decades, Cencora has worked alongside community providers to advance our distribution, GPO, and practice solutions, helping physicians operate effectively and care for patients close to home. As specialty care has become more complex, these providers are seeking partners who can help them navigate access, reimbursement, and administrative demands while preserving their ability to deliver care in community-based settings. Our management services organizations are well-positioned to help oncology and retina practices manage the growing complexity of specialty care and broaden access to clinical trials and research while allowing physicians to remain focused on patient care. Importantly, our role across the specialty landscape gives us a clear view of what it takes for new therapies to reach patients. That unique perspective informs the work we do with manufacturers who increasingly need partners with the infrastructure, expertise, and connectivity to enable successful launches and protect product integrity.

Across Cencora, our specialty logistics, 3PL, and commercialization services help bring innovation to market and drive reliable access to therapies. Before moving to the next topic, I want to reiterate our confidence in the value Cencora provides and our ability to help all stakeholders navigate the impact of market dynamics as we've demonstrated. As the market continues to digest and annualize list price changes, the value proposition of the services we provide remains clear. We're well-positioned through our distribution footprint, sourcing scale, and end-to-end channel relationships. Importantly, Part B biosimilars will continue to be an opportunity for Cencora to drive value for all stakeholders while taking cost out of the healthcare system and improving patient access. Moving to our digital transformation, where we're combining business process improvement and technology advances to improve how we operate and work with partners across the healthcare system.

A tangible example of this is our work in demand forecasting. Our teams are using AI to better anticipate product needs across our network and identify key factors driving changes in demand. In a business like ours, these tools help improve planning, enhance product availability, and maintain reliable service for providers, pharmacies, and health systems. Across our organization, we're applying the same disciplined approach to simplify routine activities and give our team members better insights. That allows team members to spend less time on manual processes and more time using their expertise to work with partners and solve problems. Next, through our focus on talent culture, we're equipping our teams to continue advancing our pharmaceutical-centric strategy and delivering on our purpose. Across Cencora, our teams bring the expertise and commitment needed to serve providers, manufacturers, and patients in an evolving healthcare environment.

We're focused on ensuring our talent has clear career paths while strengthening our ability to execute for customers and partners. That focus extends to key roles across the organization. This quarter, in addition to Eva, we welcome Sam Hammock as Chief Human Resources Officer. Since joining the company, both Eva and Sam have brought valuable expertise and proven to be excellent enterprise leadership team members. I also want to recognize the significant contributions of James Cleary and Silvana Battaglia, who recently retired as CFO and CHRO. Both will continue as advisors through the end of the calendar year. With that, I'll turn the call over to Eva for a discussion of our financial results and updated fiscal 2026 guidance. We're glad to have her here with us today for her first earnings call as CFO.

Eva? Thanks, Bob, good morning, everyone.

It's a pleasure to join the call today, and I look forward to engaging with the investor community in the coming weeks and months. Since joining Cencora in June, I've spent time with leaders across the enterprise and deepened my understanding of the strength of our businesses, the durability of our pharmaceutical-centric strategy, and the financial discipline that underpins our long-term growth algorithm. Today, I'll provide an overview of our consolidated fiscal 2026 third quarter results and segment-level results before turning to our updated guidance. Unless otherwise stated, my remarks will focus on our adjusted non-GAAP financial results. For further discussions of our GAAP results, please refer to our earnings press release and presentation. Our third quarter performance reflects the strength of our pharmaceutical-centric strategy, the breadth of our specialty platform, and our disciplined capital deployment.

Adjusted operating income grew 17%, driven by strong execution in our U.S. Healthcare Solutions segment, including the performance of our OneOncology acquisition and continued growth in our international segment. While share repurchases also contributed to the 12% adjusted earnings per share growth. Based on our year-to-date performance and confidence in continued execution, we are raising our adjusted EPS guidance for fiscal 2026 to a range of $17.75-$17.95. Turning now to consolidated revenue. Revenue was $84.8 billion, up 5%, driven by growth in both reportable segments and in other, which I will describe in more detail when discussing segment-level results. Moving to gross profit, consolidated adjusted gross profit was $3.5 billion, up 23%, primarily due to growth in the U.S. Healthcare Solutions segment. In the quarter, consolidated gross profit margin expanded by 61 basis points to 4.16%, largely due to our acquisition of OneOncology in February.

Consolidated adjusted operating expenses were $2.3 billion, an increase of 27%, which again reflects the impact of the February 2026 acquisition of OneOncology. Excluding both MSOs, operating expenses grew 5% on a constant currency basis. Turning now to operating income, consolidated adjusted operating income was $1.2 billion, an increase of 17% compared to the prior year, driven by double-digit growth across both reportable segments and other. Moving now to our net interest expense and effective tax rate for the third quarter. Net interest expense was $141 million, an increase of $59 million compared to the prior year quarter, primarily due to the debt raised in February to finance the OneOncology acquisition. We have made significant progress on our debt repayment commitments and have fully paid off our RCA financing related term loan balance of $800 million.