Q2 2026 Earnings Call Transcript

Hello, everyone, and thank you for joining us, and welcome to Cencora Inc. Q2 2026 Earnings Call. After today's prepared remarks, we'll host a question-and-answer session. [Operator Instructions] I will now hand the conference over to Bennett Murphy, Senior Vice President, Head of Investor Relations and Enterprise Productivity. Please go ahead.

Good morning, good afternoon. Thank you all for joining us for this conference call to discuss Cencora's fiscal 2026 second quarter results. I am Ben Murphy, Senior Vice President, Investor Relations and Enterprise Productivity. Joining me today are Bob Match, President and CEO; and Jim Mary, 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 in today's press release, which is available on our website, investor.cencora.com. We have 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 today's press release and our SEC filings, including our most recent 10-K. Cencora assumes no obligation to update forward-looking statements, and this call cannot be your broadcast without the express permission of the company. And you will have the opportunity to ask questions after today's remarks by management.

We ask that you limit your questions to 1 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 Second Quarter Earnings Call. In our fiscal second quarter, we saw operating income growth in both our U.S. and International Healthcare Solutions segments and delivered adjusted diluted EPS growth of 7.5%. These results reflect the resilience of our business, and we remain confident in our full year fiscal 2026 guidance.

Building upon that confidence, today, we announced the resumption of opportunistic share repurchases. Today, I'll focus on how our growth priorities and performance drivers support continued long-term growth. Specifically, building upon the critical role we play within the pharmaceutical supply chain through digital transformation, strengthening our position in specialty pharmaceuticals across channels. and optimizing our portfolio to focus on our pharmaceutical-centric strategy. I'll start with building on the critical role we play within the pharmaceutical supply chain through digital transformation.

We serve as the backbone of the pharmaceutical supply chain, ensuring the safe and secure delivery of medications from the manufacturers who develop them to the sites of care supporting patients. Every day, our teams move millions of medications through the supply chain to thousands of health care sites, creating significant efficiency for our manufacturer and provider partners through advanced technology and a network of highly automated fulfillment centers we help simplify ordering and inventory processes, providing centralized access to products, ranging from over-the-counter treatments to highly complex specialty pharmaceuticals.

Our services streamline the industry's logistics and working capital needs, provide data and insights and drive reliable patient access, ultimately lowering costs. Given our critical role, we continuously invest to strengthen our physical and digital infrastructure, driving enhanced customer visibility, accelerated issue resolution and improvements, depending on the value we provide. We are seeing positive impact from these efforts, recently launching AI-supported tools, improving consistency and quality across our customer support operations benefiting both our customers and team members. We're excited to continue deeply embedding these capabilities across our enterprise.

Second, we are strengthening our position in specialty pharmaceuticals across channels. I've spoken extensively about the investments we've made in management services organizations that provide physician practices with the tools needed to thrive. But MSOs are just one example of how we're supporting the growth of specialty pharmaceuticals across Cencora. In our global specialty logistics business, the efforts we've taken to improve performance have yielded results and we're pleased to report our second consecutive quarter of operating income growth.

We're winning new contracts in areas like cell and gene therapies and laboratory logistics as well as executing productivity initiatives to drive sustained success. As manufacturers increasingly develop products targeting smaller patient populations, our global reach and ability to support complex specialty products positions us uniquely as a trusted partner. Health systems represent another area where specialty pharmaceuticals have seen continued growth and our teams have worked to build comprehensive solutions designed to provide end-to-end support to these customers. Through our Accelerate Pharmacy Solutions portfolio, we offer services aimed at streamlining the complexity of health systems operations from specialty strategy enablement to freight management optimization.

This offering has been well received in the market with health systems increasingly seeking to deepen and form new partnerships with us due to our differentiated consultative approach. The breadth of our specialty solutions and market-leading customer portfolio allow us to capitalize on the growing specialty pharmaceutical market. And finally, we're optimizing our portfolio to provide focus. During the quarter, we took key steps in our ongoing work to focus our portfolio, including the agreement to merge MWI Animal Health with Covetrus and the sale of our U.S. hub consulting services positioning these businesses for success with strategically aligned partners.

Optimizing our portfolio supports focus on our investments in MSOs and ongoing integration efforts. While it's still early days, we are encouraged by our initial progress in building shared capabilities across OneOncology and RCA that will drive growth across our MSO platform. We've established joint teams to share best practices in key areas like research and clinical trials, back-office services and physician recruitment and retention, so we can leverage what is working well across the platform. Before turning to my closing remarks, I'll now pass the call to Jim for a discussion of our financial results and updated fiscal 2026 guidance.

Jim?

Thanks, Bob. Good morning and good afternoon, everyone. Cencora delivered solid performance in our second quarter, demonstrating the resilience of our business and our team members' execution to serve our customers and partners. In the quarter, we delivered adjusted diluted EPS of $4.75, reflecting growth of 7.5% and which puts us on track to achieve our increased EPS guidance of $17.65 to $17.90. During my remarks today, I'll provide an overview of our consolidated results before turning to our segment level results and updated guidance.

As a reminder, unless otherwise stated, my remarks will focus on our adjusted non-GAAP financial results. For further discussion of our GAAP results, please refer to our earnings press release and presentation. Turning now to consolidated revenue. Consolidated revenue was $78.4 billion, up 4%, 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 gross profit was $3.4 billion, up 16% primarily due to growth in the U.S. Healthcare Solutions segment. Consolidated gross profit margin was 4.31%, an increase of 45 basis points, largely driven by the February 2026 acquisition of OneOncology.

Consolidated operating expenses were $2.1 billion, up 22.5%, which included the impact of the February 2026 acquisition of OneOncology, excluding both MSOs operating expenses grew 5% on a constant currency basis. In the second half of the year, we expect our core expense growth will moderate particularly in the fourth quarter with an easier comparison for the U.S. Healthcare Solutions segment, excluding OneOncology. Turning now to operating income.

Consolidated operating income was $1.3 billion, an increase of 6% compared to the prior year quarter, driven by solid growth in both our U.S. and International Healthcare Solutions segments more than offsetting the slight decline in other. Moving now to our interest expense and effective tax rate for the second quarter. Net interest expense was $140 million an increase of $36 million versus the prior year quarter, primarily due to debt raised in February to finance the OneOncology acquisition. We expect third quarter net interest expense to be roughly the same as our second quarter interest expense.

Our effective income tax rate was 18.9% and compared to 20.8% in the prior year quarter as we benefited from discrete tax items in the current year quarter. Finally, diluted share count was 195.4 million shares a 0.1% increase compared to the prior year second quarter. Regarding our cash balance and adjusted free cash flow, we ended March with $2.2 billion of cash reflecting $1.1 billion of free cash flow generated in the March quarter. Our full year adjusted free cash flow guidance of approximately $3 billion remains unchanged as we expect to continue to generate cash in the back half of the fiscal year.

This completes the review of our consolidated results. Now I'll turn to our segment results for the second quarter. U.S. Healthcare Solutions revenue was $68.8 billion, up 3% and in the quarter, we saw continued volume growth, including specialty sales to health systems and physician practices and in sales of GLP-1s, which increased $1.9 billion year-over-year.

Despite these trends, our revenue growth was tempered by 3 main factors, 2 of which were fully contemplated. The 2 factors that were fully contemplated were: first, manufactured list price reductions, which represented a $2 billion revenue headwind in the quarter; and second, the previously disclosed fiscal 2025 loss of an oncology customer and a grocery customer. The third factor, which was not fully contemplated was the speed of brand conversions for our large mail order pharmacy customer. These sales are low margin, which concentrates their impact to our revenue line.

The increase in brand conversions is a meaningful contributor to our reduced revenue growth expectations for the fiscal year but results in higher margins for Cencora overall. Moving now to operating income. U.S. Healthcare Solutions segment operating income increased 6% to $998 million.

In the quarter, we saw good trends across much of our business. However, there were a few items that impacted our growth. First, we have not yet lapped the loss of an oncology customer that began to hit our numbers in July 2025 due to its acquisition. This headwind was larger than the contribution we recognized from our February 2026 acquisition of OneOncology.

Second, many physician offices had lower volumes due to missed patient appointments as a result of inclement weather across the U.S. And given our leading presence in this channel, we saw some lighter volumes in late January and early February. We were encouraged to see a rebound in patient appointments and specialty product volumes in March. Overall, we estimate that weather represented a $10 million headwind to U.S. segment operating income growth in the quarter.

And finally, as we noted on our earnings call last May, we had a $15 million contribution from COVID-19 vaccines in the fiscal 2025 second quarter. This quarter, COVID vaccines represented a $10 million operating income headwind for the segment. Taking a step back, if we exclude the OneOncology acquisition and the 2025 loss of the oncology customer the U.S. Healthcare Solutions segment growth would have been approximately 7% in line with our long-term guidance in spite of the transitory weather and COVID items.

Turning now to our International Healthcare Solutions segment. International Healthcare Solutions revenue was $7.6 billion, up 13% on an as-reported basis and up 7% on a constant currency basis primarily driven by growth in our European distribution business. In the quarter, International Healthcare Solutions operating income was $176 million, up approximately 14% on an as-reported basis and up 13% on a constant currency basis. In the quarter, our European distribution business benefited from the shift in timing of manufacturer price adjustments in a developing market country, as I called out last quarter and the continued rebound of our global specialty logistics business, where we saw a second consecutive quarter of operating income growth.

We are very pleased with this rebound of our global specialty logistics business. Moving to other. Revenue in Other was $2.1 billion, up 5% and largely due to growth at Pro Pharma and MWI Animal Health, partially offset by an expected revenue decline in our legacy U.S. hub consulting services, which was divested on April 30. Operating income was $92 million, down 1% due to a decline in operating income in our U.S. hub consulting service business resulting from the fiscal 2025 loss of a manufacturer program partially offset by operating income growth at MWI Animal Health. That completes the review of our segment level results.

I will now discuss our updated fiscal 2026 guidance expectations. As a reminder, we do not provide forward-looking guidance for certain metrics on a GAAP basis, so the following information is provided on an adjusted non-GAAP basis, except with respect to revenue. I will start with adjusted diluted earnings per share. We are pleased to raise our full year guidance range to $17.65 to $17.9 and up from $17.45 to $17.75. The updated guidance reflects our strong full year fiscal 2026 operating income growth expectations for the U.S. and International Healthcare Solutions segments and our updated expectations in other.

I will now turn to updates to our revenue guidance. On a consolidated basis, we now expect revenue growth to be in the range of 4% to 6%, down from the previous expectations of 7% to 9%. This is driven by our lower expectations for revenue growth in the U.S. Healthcare Solutions segment, where we now expect revenue growth of 4% to 6%.

As a reminder, our guidance for fiscal 2026 has always contemplated the impact of manufacturer WACC price reductions. However, our updated guidance reflects the faster-than-expected branded conversions at our large mail order customer and slower anticipated GLP-1 growth than we had been expecting. In the International Healthcare Solutions segment, we now expect revenue growth to be in the range of 8% to 10% on an as-reported basis to reflect changes in foreign exchange rates. Our International Healthcare Solutions segment constant currency revenue growth expectations remain unchanged at 6% to 8% growth.

Our revenue growth expectations for other remain unchanged. Moving to operating income. We expect consolidated operating income growth to be in the range of 12% to 14%, up from our previous guidance of 11.5% to 13.5%. This is driven by our updated full year expectations for other to show operating income growth in the high single-digit percent range due to MWI now being accounted for as an asset held for sale and as a result, depreciation expenses suspended.

Our full year operating income expectations of 14% to 16% growth for the U.S. Healthcare Solutions segment remain unchanged, but as you think about our second half cadence, we continue to expect to see our strongest growth of the fiscal year in the fourth quarter after we lapped the loss of the oncology customer that occurred on July 1, 2025, and as OneOncology accretion ramps. Our expectations for International Healthcare Solutions segment operating income growth remains unchanged at growth of 5% to 8%. Moving now to interest expense.

We expect interest expense to be approximately $485 million compared to our previous range of $480 million to $500 million reflecting progress on debt paydown and incrementally better-than-expected rates on our senior notes that we priced in February. As you look at your models, in the third quarter, we anticipate net interest expense will be at a similar level as this quarter before modestly stepping down in the fourth quarter, given working capital dynamics. Finally, turning to share count. We expect our full year diluted shares outstanding to be under 195.5 million shares as we resume opportunistic share repurchases and -- as we indicated in our press release, we expect to repurchase $1 billion worth of shares by calendar year-end.

That concludes our updated full year guidance assumptions. As it relates to quarterly cadence, I would point out that we expect third quarter adjusted diluted EPS growth to be in the high single digits, partly as a result of our net interest expense remaining at that $140 million level in the quarter. To close, I am proud of our teams who worked diligently to support our customers and partners guided by our purpose and pharmaceutical-centric strategy. As we continue to prioritize a balanced approach to capital deployment, we are pleased to be resuming opportunistic share repurchases that will support value creation.

Despite noise today, given some transitory items causing our results to be below expectations, we remain on track to deliver strong guidance for fiscal 2026 and I'll now turn the call back to Bob for some closing remarks before moving to Q&A. Bob?

Thank you. As Jim said, today's results are impacted by transitory items and our full year guidance remains strong. reflecting the strength of our business and execution to drive sustainable long-term growth. The critical role we play in the pharmaceutical supply chain and the investments we are making allow us to capitalize on growth opportunities. As we look to the balance of the fiscal year and beyond, our focused strategy guided by our purpose, growth priorities and performance drivers positions us to continue creating value for all our stakeholders.

Before opening the call for Q&A, I want to take a moment to acknowledge that today is Jim's final earnings call before his retirement as CFO in June and from the company in December. On behalf of all of us at Cencora, I thank Jim for his many years of service. His leadership and expertise have shaped our company and performance, and Jim has been a terrific partner to me. I wish him all the best.

[Operator Instructions] Your first question comes from the line of Lisa Gill at JPMorgan.

Jim, I wish you the best in your retirement. I just really wanted to understand and Jim, I appreciate you kind of laying out that the core underlying growth was about 7%. But when we look at stripping out WAC, IRA changes, the lost business, everything you talked about. How do we think about the impact to operating profit from those changes as well as the shift in the mail channel that you talked about, generally, that's going to be lower margin.

And how -- when we put this all together, how do we think about -- does this have an impact on your long-term growth rates on either revenue or operating profit as we see these changes, especially on WACC and IRA moving forward? .

Sure. Thank you very much for the question, Lisa. And what I'll do is I'll go through our revenue and our operating income and the key drivers in Q2. And so as you know, our revenue growth was 4% during the quarter and in the U.S. health care segment, it was 3%, and I'll go through some of the growth drivers and the growth headwinds. First of all, with regard to growth drivers, we saw continued volume growth, including specialty sales to health systems and physician practices.

We also saw $1.9 billion of growth from GLP-1s and we're still seeing growth in GLP-1s, of course, but at a slower pace than we expected, which is contributing to our lower revenue guidance. And then we saw some growth headwinds on the revenue front. For instance, we saw $2 billion from IRA WACC reductions. And so that had a 3% impact to U.S. revenue growth during the quarter.

And then as previously disclosed, there's a loss of an oncology customer and a grocery customer that impacted growth in the quarter. And then there were also faster-than-anticipated brand conversions at a large mail order customer that meaningfully contributes to the reduced revenue growth. Of course, in international, we saw a 13% revenue growth, primarily due to Alliance Healthcare, but also saw growth in global specialty logistics. And then in other, we saw 5% growth driven by MWI and pro forma and so you ask kind of what is driving the operating income growth during the quarter.

And so let me go through those factors. Operating income up 6% in the quarter and in U.S. operating income up 6%. And we continue to have the headwind related to the loss of an oncology customer due to its acquisition, and this headwind during the quarter was larger than the contribution we recognized from the February acquisition of OneOncology. And if we exclude the impact of the oncology customer loss and our February 2026 acquisition of OneOncology our growth would have been approximately 7% in line with our long-term guidance.

And we were able to achieve this in spite of 2 headwinds. And the 2 headwinds where we saw a $10 million operating income headwind related to weather and specialty practices due to some patient visit cancellations and delays and we did see the business rebound in March and saw good trends in April as well. And we also had a $10 million operating income headwind related to COVID-19 vaccines. And as a reminder, we had $15 million of COVID-19 contributions in the second quarter of fiscal year '25. And then I'll say to address your question as we talk about the things that impacted operating income in the quarter, we haven't called out the faster-than-anticipated brand conversions, which are lower margin, and we haven't called out the IRA WACC reductions when we're talking about the quarter.

In international, we had good growth of operating income in the quarter, 14% driven by growth in our European distribution business and also we benefited from a shift in the timing of manufacturer price adjustments in a developing market country, which was mentioned on our February call. And we also saw the second consecutive quarter at growth of our global specialty logistics business. We were very pleased to see this business continue to rebound. And so that's really kind of a driver of our revenue growth during the quarter and our operating income growth.

And you asked about our long-term guidance, and we continue to have confidence in our long-term guidance, which is, of course, 7% to 10% organic operating income growth, another 3% to 4% from capital deployment and 10% to 14% EPS growth. So thanks a lot for the question, Lisa.

So I'll just -- I'll follow on to Jim's excellent answer and just summarize by -- and reinforcing the last point that Jim just made, which is while there are times where there'll be revenue pressure. They are generally -- these are lower margin activities in the case of WACC decreases as you know, we've been able to recoup the value of those changes. And we guide on operating income for the long term, and it's for that very reason because there can be some variability in revenue, especially as we cycle through some of the policy initiatives and other things that we'll see in the U.S. market, but our confidence in maintaining our operating income growth is high. [Operator Instructions]

Your next question comes from the line of Michael Cherny at Leerink Partners.

And yes, I'll echo Lisa's comments, Jim. Congratulations and good luck in retirement. Lisa kind of hit on some of the longer-term dynamics, I want to dive in, if I can, on the second half of the year. As I understand, as I think through the moving pieces, obviously, you have some comp dynamics, you have some deals.

But as we think about the acceleration of growth, can you kind of risk weight where you have the most confidence versus the most potential variability in terms of the U.S. AOI build, in particular, into the back half of the year, both because of comp dynamics, but also because of what you're seeing in the market relative to customer behavior and other key factors.

Yes. Thank you very much for that question. And Michael, what I'll do is I'll start by describing our guidance update and some of the key drivers. And then I'll finish up with what really gives us confidence in our growth acceleration in the balance of the fiscal year.

And so first of all, with regard to our guidance update and drivers, as you know, we are increasing our EPS guidance to a range of $17.65 to $17.90 up from the previous range of $17.45 to $17.75 and this reflects our strong fiscal 2026 guidance and growth in both the U.S. and International Healthcare Solutions segments, it also reflects the increase in expectations for other as a result of MWI being classified as an asset held for sale and excluding this asset held for sale benefit, our full year fiscal 2026 EPS guidance would have remained largely unchanged with the incrementally lower interest expense and share count moving EPS up modestly.

Our revenue growth guidance for the fiscal year is now 4% to 6% down from the previous range. And in the U.S. Healthcare segment, growth is also 4% to 6% for revenue down from the previous range and this is driven by a reduction in growth expectations for GLP-1s. That's one of the few things that's driving it.

And given the size of this product class, a 5% delta in growth year-over-year represents approximately $2 billion in annual revenue. It's also driven by the faster-than-expected brand conversions at our large mail order pharmacy customer and updated expectations for mix, including slower growth in lower-margin categories. In International, we're now guiding to growth of 8% to 10%, up from the previous range of 7% to 9%, and this reflects updates to foreign exchange rates and constant currency guidance remains unchanged. Now talking about operating income growth, we've increased our operating income growth guidance of 12% to 14%, up from the previous range of growth of 11.5% to 13.5% in and U.S. health care and international Healthcare Solutions guidance remains unchanged for operating income, and our guidance now calls for high single-digit growth, up from flat and this reflects MWI now being classified as an asset held for sale, as I previously discussed.

So what's giving us confidence in our growth acceleration in the balance of the year, I'd really like to address that. And we do have high confidence in our full year fiscal 2026 guidance that contemplates operating income growth of 12% to 14% and strong growth across both reportable segments and other and there are a few factors that support the growth ramp in the balance of the year. In U.S. health care, there's the lapping of the loss of the oncology customer due to its acquisition in July 2025. We also see, as we talked about in the past, OneOncology accretion ramping over the fiscal year, and we also see an easier expense comparison for our U.S.

Healthcare Solutions segment in the fourth quarter. Also in the International Healthcare Solutions segment, our global specialty logistics business is seeing continued growth, and it also has easier comps in the balance of the year. And then another, of course, we have the benefit of MWI asset held for sale accounting treatment. And so those are some of the key things that give us confidence in growth acceleration in the balance of the year and give us confidence in our guidance for the fiscal year.

Thank you for the question.

Your next question comes from the line of Glen Santangelo at Barclays.

I also have a longer-term operating profit growth question. it seems to me that investors, they're obviously aware of the increasing generics and biosimilar pipeline that is emerging here over the next couple of years. And -- and while I think the traditional generics opportunity is well understood, I think especially the biosimilar conversion is much less understood. And we saw it perhaps have an impact on revs this quarter with your mail order customer. But more importantly, we're hearing concerns from investors that the lower-priced biosimilars could potentially have a negative impact on some of the profit pools in your specialty.

And so what I was hoping you'd do is just spend a minute and talk about these biosimilar conversions and maybe the longer-term impact do you think they'll have on your long-term operating profit growth in your distribution business.

Thanks, Glen. I'll take that. Terrific question. And it's -- I think it's probably best to start by taking a step back just with a little context.

And separating the biosimilar market in the Part D mail market and then the biosimilar market in the Part B space. And I think if we go down the Part D path for a second, I think that's where people would rightly assume that as a product moves from brand to biosimilar that it's very likely to move away from the wholesaler, which is exactly what happened in oral generics. And so that's part of the model that we have with our customers currently. So that's not surprise.

And then on the kind of revenue and profit side, but again, just to reiterate that. So that's a revenue hit, but it's not a meaningful profit hit. So to the extent that the mail order pharmacies and PBMs have selection choice over the biosimilar, and that could go around the wholesaler. I think that is -- that's going to be true in many cases, but that's part of the model today.

So that's not incremental pressure. And then next to that, it's important to talk about how the Part B space is not that. So the Part B space, which is where we have an important presence both with our GPO distribution and with MSOs and that as a product converts from the brand to the biosimilar in that space, it actually is incrementally beneficial to to the practice and to Cencora. So I think those are good things for us to watch over time.

There are all things that we have contemplated in our planning. But again, there's not unknown pressure out there as biosimilars grow in the Part D space, and there is actually benefit as biosimilars grow in the Part B space. Thank you for the question.

Your next question comes from the line of Elizabeth Anderson at Evercore ISI.

Jim, congrats on your retirement. My question is about U.S. oncology. I heard your call out about some of the transitory issues sorry, OneOncology. I heard some of your transitory issues about weather and stuff in the first quarter.

My question is sort of how are you thinking about that business and its performance on a run rate business basis? Can you talk to us a little bit more about sort of the synergy acquisition? How is the rest of it tracking versus your expectations minus obviously, the transitory issues?

Yes. Thanks, Elizabeth, for the question. We couldn't be happier with being able to acquire OneOncology in February. We have now full ownership of that business.

And what's exciting is having the opportunity for RCA and OneOncology to now collaborate. As I said in my prepared remarks, we're really starting to see the benefits of that collaboration. And as we signaled over several quarters as we were kind of awaiting this full acquisition at some point was that we -- there are best practices that exist within both of those MSO platforms that are transferable to the other. So there are strengths within one that are different than the strength in the other.

And now we're able to all get in a room together and those teams are formed and they're working on making sure that we can deliver the value to the practices, which is value to the patients, ultimately, and it's going really well. And as you mentioned, I think this is a new phenomenon for Cencora where a significant storm could have some pressure on office visits, but it's -- as Jim said, the volume comes back, which we've seen already, and we're very happy with the acquisition. We're very happy with the integration progress to date. And I would say most importantly, we're really happy that OneOcology and RCA are now able to work more closely together along with the expertise that we have within Cencora to make sure that we're driving long-term value. .

Bob, and I'll just add one thing, if I may. And that's that OneOncology and RCA have both been significant contributors to our specialty growth for several years. And so it's, of course, wonderful to have the MSO presence now, which we're very pleased with both platforms. But I also wanted to call out that they've been significant contributors to our very important specialty growth for many years. .

Your next question comes from the line of Eric Percher, Nephron Research. .

A question relative to some of the pressures that you faced from price reductions. And I'd like to better understand when you sit across from a manufacturer and you have a discussion whether it has been AMP or where we are this year with the price reductions and also as we think about GLP-1 reductions coming 1/1/2027. What is the basis for the discussion of value? Is it simply pick-pack and ship? Is it receivables or capital put to work?

And how confident are you that you continue to be able to maintain absolute margin on lower prices?

Yes. Eric, thank you for the question. It's an important question, and I'll begin with the end of your question, which is we're very confident that we can maintain that dollar profit through these discussions and it's really because of the scope and scale and quality of the services that we provide to the manufacturers and the providers. And you listed a few of them, and you know them well.

But our ability to run provide the quality and efficiency that we do as an industry, frankly, with the massive investments that we have in the distribution networks. And so that's the technology for ordering. It's the highly automated distribution that's there. It's the secure handling of those products across the board that is very efficient, very low cost and very high value and frankly, would be impossible to replicate outside of the system that exists here in particular, in the United States.

We often are able to talk about a study that the health care distribution alliance updates every few years, but it's probably worth mentioning that those services contribute about $80 billion a year to the health care system. In other words, without those services, the cost would be that much higher within the system. So Eric, it's not an automatic, right? And we do have to go in and we have to have a real conversation with a partner that has to see the value in what we do.

But we are confident that manufacturers will continue to see the value in what we do for all of the reasons that I just described. And of course, those are -- that's the base case, and we're always working to innovate to create new services and new solutions and new data and analytics opportunities that provide value. So again, it's a commercial relationship. It's something that we have to demonstrate our value all the time, but because of the investments that we've made over decades, we feel confident that, that will continue.

Your next question comes from the line of Charles Rhyee at Cowen. .

Jim, good luck to your retirement and best wishes. I guess maybe first to follow up a little bit on Glenn's question. Bob, I appreciate that Part B is the real focus, particularly when we think about specialty, but we -- and that in the Part D side, it's pretty much more of a revenue hit. But is it fair to think that we're still making some margin on these revenues.

And certainly, when we think about your large mail order customer shifting and then moving that volume to their own sort of distribution business. When we think about sort of that impact in that faster conversion, was that -- how do we understand that kind of speed of conversion that might have been sort of outside your expectations? And then when we think about the pipeline of future drugs, is that something that you are contemplating when you're in your long-term guide of what products you think will continue to be through your channel versus what might go through some of your customers' own internal channels?

And then secondly, just real quickly, Jim, you talked about sort of the lots of the big OneOncology contract last year as well as the grocery store chain. Were there any other kind of movements? I know there are some other M&A activity going on in the space over the last year or so, and some of that work oncology. Just curious if the ones that you called out is the only one that's been sort of a headwind for you.

Charles, I'll take the biosimilar part of your question first. And so there's 2 or 3 things happening. One that we called out is the speed of conversion from the brand to the biosimilar was something that we hadn't necessarily planned for. So that's not something we'll always know.

And as you know, traditionally, the speed from brand to generic within the PBML space hadn't always been quick. There have been products that, that transition took longer. So something that we weren't really aware that would happen that quickly. That's one.

Two, is, yes, we would have a small part of the margin, if that biosimilar stayed with the wholesaler, but I think it's important to say that, that would not be the norm. That's not what would normally happen. And again, if you go back over the models between the wholesalers and the PBMs and mail pharmacies over time is when a product went from brand to generic that was then in-sourced. So the wholesaler wasn't then generally going to be providing that generic, whether that was an oral solid generic or a biosimilar.

So what we're seeing is what would be expected within the model. What we've called out here was that the pace of conversion was faster than we had anticipated. .

Great. And Bob, I'll take the last part of that question. And first of all, with regard to the brand conversion to the biosimilar at the large mail order customer. As you know, brand sales to this customer are low margin.

And so the impact of the shift is impactful to the revenue line, but not a meaningful driver at all of operating income. And then with regard to the last part of your question, of course, we have called out the loss of the oncology customer in July of last year and then the grocery customer. And there's really nothing else size that would be meaningful for us to call out. And with regard to the oncology customer, of course, we've indicated that, that does have an impact on operating income.

And of course, we disclosed that in the past. And then the grocery customer -- it's not something that we've called out as having an impact on operating income. .

Yes, Charles, I would just add from time to time, there are smaller customers who would be acquired or who would move that wouldn't be material enough for us to call out. And that's exactly what Jim is saying. And so any of those smaller activities have been contemplated in our guidance, but not anything to call out. .

next question comes from the line of Allen Lutz at Bank of America. .

First, Jim, congrats on your retirement. A clarification question here. On the 7% U.S. Healthcare Solutions EBIT growth, excluding OneOncology and the loss of an oncology customer.

Can you also mention that there's a 1% headwind from COVID-19 and another 1% headwind from weather. So is it fair to assume that the starting point, excluding those would be 9% and then more broadly on the GLP-1 growth, you said that grew $1.9 billion in the quarter. How much lower are GLP-1s growing relative to your expectations? And I know they're not a big driver of profitability.

But as that mix shift changes from injectable to oral, are you seeing or expecting any change in profitability there?

Yes, sure. So let me first say, the answer is yes to the first part of your question. We saw the $10 million operating income headwind related to weather and specialty practices due to some patient visit cancellations and delays. And as I said, have seen a rebound from that in March and April.

So you're absolutely right. Our operating income growth would have been higher if it were not for that headwind and then the same thing as it relates to a headwind from COVID-19 vaccines That's, again, a $10 million headwind. And as a reminder, we had $15 million of COVID-19 vaccine contributions in the second quarter fiscal in 2025, and we were $10 million down from there. And so if you add back for both of those things, our operating income would have been $20 million higher during the quarter.

And of course, our growth rate would have been higher. And so thank you very much for asking the question.

Your next question comes from the line of Daniel Grosslight at CITI.

I'd like to focus on the international business and really the solid quarter that you the World Courier. You mentioned some nice new contract wins. And it looks like the overall just the macro environment for biotech is a bit better. As we look to the remainder of the fiscal year, I'm curious how sustainable that growth is.

And I get that comps get easier in the second half of the year. But on a sequential basis throughout the year, do you think you'll continue to see World Courier growth?

Thanks for the question. Yes, we're really pleased with the progress that World Courier is making. And it's a combination of -- yes, I think the market is -- it's not getting significantly better, but it's not getting worse. And so I think that's a positive for us.

And we've also been working hard at the business. We've been working hard at making sure that we're commercially rightsized. So that's sales process and pricing and making sure that we're as efficient as we can possibly be in the business. And as we said, we're really happy to see multiple quarters now of operating income growth and also volume growth within the business, which is an important thing that we track.

So yes, we're excited and I'll pass it to Jim for the second part of your question. .

Sure. And so I'll just say that we have good confidence in our guidance for the fiscal year in our international business. We've been very pleased as Bob talked about with World Courier and we've been very pleased with our distribution business and our 3PL business and the international market also. And so thank you. It is nice to see growth in that business and our optimism for future growth.

Your next question comes from the line of Kevin Caliendo at UBS. .

Jim, it's been a pleasure knowing you over all this time even back to the MWI Day. So good luck with everything going forward. I want to focus a little bit on -- you made a comment ex all the onetimers and weather and everything else. Your EBIT growth would have fallen within your LRP, it would have been roughly 7%.

That's still a core sort of ex all one-timers, a pretty material slowdown in core growth from what we've seen over the last several years. And so I just wanted to know sort of what exactly changed this quarter that you saw? And two, these changes in pricing and changes in GLP-1s and everything else. We would have expected to see a decline in gross margin, but that actually wasn't the issue.

It was more that the G&A leverage was worse than what we had anticipated. And can you maybe -- is there anything in that occurred? Anything that changed there? I'd just love to get some additional color on that aspect as well as the core growth. .

Yes. Let me address both those things. First of all, to the first part of your question, and we were pleased to see the core operating income growth aligned with our long-term guidance despite the weather-related softness and despite the lower demand for COVID-19 vaccines. And so we were within that long-term guide rate before those headwinds.

And so if you add back those headwinds, it would move us up within the long-term guidance range. And then with regard to your question about gross margin and operating expenses. We had high operating expense growth in the quarter. And it's important to look at our business, excluding MSOs so the shape of the MSO income statement is very different than the shape of the core distribution income statement.

And if you back out the MSO business, our operating expense growth rate in the quarter on a constant currency basis was about 5%. And so that is a kind of -- it is important to think about the business that way also, and I did mention that in my prepared remarks. Now I'll also say that the MSOs really bring up our gross margin, and they bring up our operating margin also. And so you saw a nice increase in operating margin during the quarter.

And the biggest reason for that was the MSO business. But I think it's important as you're looking at our operating leverage, gross margin to operating expenses to think about the business without the MSOs. Thank you for the question.

Your next question comes from the line of Erin Wright at Morgan Stanley.

Great -- and Jim and I want to echo it's been great working with you. Yes, also going back to the MWI days, but appreciate all the support and insights over the years. On capital deployment, you mentioned you'll be back in the market potentially buying back shares. Do you still see the longer-term opportunities across the MSO assets that are out there I know you did the more recent South deal, but how do you think about that in the context of also the timing and magnitude of share repurchases? .

Yes. So we'll continue to have balanced capital deployment, which will, as it always had, include investments in the business and CapEx, which always have very good returns for us. It will include strategic M&A. It will include opportunistic share repurchases, and it will include growing our dividend and having a reasonable growing dividend over time, which we've been growing within our long-term guidance range for EPS growth.

And we really are getting back into opportunistic share repurchases, we had paused for a while because of the acquisitions, but we've been very successful in paying down some of the term loans. We paid down $500 million so far this fiscal year, and our plan is to pay down $1.3 billion of term loans during the fiscal year. And we've had good success there, and we anticipate that we'll hit our guidance of $3 billion in free cash flow. So that gives us the opportunity to do these important opportunistic share repurchases, and we're planning on doing $1 billion between now and the end of the calendar year.

And with regard to the MSO business, we're very pleased to have announced the South acquisition, and we see very good bolt-on opportunities for our MSO businesses over time and feel that our strong platforms will be very attractive to physicians. So -- thank you very much for the question.

Your next question comes from the line of George Hill at Deutsche Bank. .

And Jim, I will echo everybody's well wishes we've been great to work with. Mine's pretty simple, Jim. Just as we think about pro forma for the acquisition of iSouth, is there any change you would give us what portion of the AOI in the U.S. segment now comes from physician administered or I'll call them Part B businesses versus the key businesses? And just because if we look back at the last year, I mean, I always talked about the loss of the grocery customers.

There's been some smaller losses. We talked about what's going on with the big mail customer just been lots of acquisitions. Just trying to get a good sense of the apportionment of the business from an earnings perspective at this point.

And so I think what the question is kind of the earnings from Part B versus the earnings from Part D. And that's not the way that we present the financials now, but it's something that we're always evaluating what is the best way to talk about our business and present our business over time so that we can give the best visibility. So -- thank you very much for the question. .

Yes. And George, just to be clear, the current FY '26 guidance does not include any contribution from iSouth, as we stated in the press release announcing that deal -- and then we've given some of the pieces to disclose what the relative size of the different MSOs would be, obviously, we've lapped the RCA 1-year annualization and we're beginning on the OneOncology side, which will continue to ramp in the balance of the year. .

Thank you, Bennett. .

We've reached the end of the Q&A session. I will now turn the call back to Bob March for closing remarks.

Thank you, everyone, for your thoughtful questions and continued interest in Cencora. As we've emphasized today, we have conviction on our fiscal 2026 guidance, reflecting the strength and resilience of our pharmaceutical-centric strategy powered by a purpose, we're executing on our growth priorities and performance drivers positioning our business to deliver sustainable long-term value creation. Thanks, everyone.

This concludes today's call. Thank you for attending. You may now disconnect.