Q4 2025 Earnings Call Transcript

Welcome to McKesson's Fourth Quarter Fiscal 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. At this time, I'd like to turn the call over to Jeni Dominguez, VP of Investor Relations. Please go ahead.

Good afternoon. And welcome everyone to McKesson's fourth quarter fiscal 2025 earnings call. Today I'm joined by Brian Tyler, our Chief Executive Officer; and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we'll move into a question-and-answer session.

Today's discussion will include forward-looking statements, such as forecasts about 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 more 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.

Presentation slides also include a summary of our results for the quarter and guidance assumptions. With that, let me turn it over to Brian.

Thank you, Jeni. Good afternoon, everyone. Thanks for joining our call. Today, we reported fiscal fourth quarter results, marking a strong finish to fiscal 2025. Thanks to the collective efforts of our 45,000 employees, Team McKesson delivered on a really tremendous year.

We continued significant momentum in advancing our strategy as reflected in the fiscal fourth quarter and full-year financial results. Full-year consolidated revenues grew 16% from the prior year, reaching a record level of $359 billion. Adjusted earnings per diluted share was $33.05, exceeding our expectations. We delivered year-over-year EPS growth of 20%, which is above long-term growth targets of 12% to 14% EPS growth.

We also generated strong cash flow and returned $3.5 billion of cash to shareholders. Underpinning the strong financial performance is our successful execution of our company priorities. I want to take a few minutes and highlight some examples of the incredible work Team McKesson has achieved this year. First, we made strategic acquisitions that will accelerate our strategy in Oncology and other specialties, including in a completed acquisition of a controlling interest in PRISM Vision and the pending acquisition of a controlling interest in Community Oncology Revitalization Enterprise Ventures or Core Ventures.

These additions mark an important step as we continue our efforts to empower community-based providers and improve care experiences for patients. I'll share more about these acquisitions in just a moment. Secondly, we strengthened our core distribution capabilities through targeted investments in technology and infrastructure. Our team continues to deliver on operational excellence and quality customer service.

Our differentiated customer value proposition is reflected in the successful onboarding of several new customers, including a new strategic partner during fiscal 2025. The last thing I'll mention is initiatives that we launched, that will accelerate and modernize the enterprise. Throughout the company, our teams are identifying and capturing opportunities, including the use of technology, automation, and AI that will allow us to strengthen the business platform, improve operational efficiencies, and enhance our financial profile, all while better serving our customers. This exceptional execution and growth are a testament to the hard work of our employees, and I'm grateful for their dedication, their passion, and their unwavering focus to advance our mission.

The continuous advancement and successful execution of our strategy, along with our strong performance in fiscal 2025, has ensured a foundation for success as we look forward. Today, we initiated our fiscal 2026 guidance, reflecting our confidence to extend the momentum, further enhance our differentiated capabilities, execute on our strategy, and ultimately advance health outcomes for all. I want to focus my comments today on the strategies that have been, and we believe will continue to be, the center of our company's focus. And then I'm going to turn it over to Britt for more of the financial details, including the fiscal 2026 outlook itself.

As always, let me start with our focus on people and culture, which underpins all of our success. We operate in an ever-evolving healthcare landscape where change, quite frankly, happens fast. It's important to me that we empower our employees with the right tools and the resources to drive innovation and improve efficiency. We provide training and skill development designed for employees at all levels of the organization, individual contributors, frontline managers, people leaders.

We cover a range of skills, from managing and leading teams, to performance development, to technology and AI. Developing our talent creates an environment where our teams can better serve our customers, our customers' patients, and each other. We will continue this investment in our people as we invest to grow our future. Moving on to our two strategic growth pillars, Oncology and Biopharma Services.

We continue to enhance our differentiated capabilities in our Oncology platform. In the past year, the U.S. Oncology Network welcomed two new practices, Illinois Cancer Center and Tennessee Cancer Specialists, growing the total provider count to over 2,700 across 645 sites in 31 states. Through these community-based oncology sites, more than 1.4 million patients receive high-quality care close to home every year.

This past year, we announced an agreement to acquire a controlling interest in Core Ventures, a business and administrative services organization established by Florida Cancer Specialists & Research Institute. I'm pleased to share that we have cleared regulatory approval and expect to complete the acquisition on June 2, 2025, subject to customary closing conditions. After completion, Florida Cancer Specialists, along with its 530 providers, will become a member of the U.S. Oncology Network.

One of the rising challenges of the cancer care experience is managing the sustainability of healthcare costs. In the past decade, we've invested in and we've supported the community-based oncology providers. We believe the community-based setting is an important channel that provides high-quality and lower-cost options to patients, including those in underserved communities. We have been a proponent of policies and reforms that will improve access to treatment in local communities and increase financial sustainability for patients.

A good example of this is our participation in value-based care programs. The practices within the U.S. Oncology Network are leading the way in finding opportunities to reduce the treatment costs and enhance quality in oncology. 70% of the physicians in the U.S. Oncology Network participate in the Enhancing Oncology Model.

At the network level, we support practices with the necessary resources and transformational strategies to excel in this initiative. In the recently reported first performance period, over 90% of the participating practices reduce cost versus benchmark, driving meaningful savings to patients and advancing the cancer care experience. Beyond opportunities in oncology, we're also building capabilities in other specialties where we see the opportunity for us to create differentiated platforms as we have done in oncology over the past decade. In April, we closed the acquisition of a controlling interest in PRISM Vision, a provider of general ophthalmology and retina management services.

This is a quite logical expansion for us when we think about community-based care. We'll be able to build on the recent capabilities we've developed around the GPO and other value-added services in the ophthalmology and retina space. Our team is working diligently on integrating the business, and we look forward to this new growth opportunity for McKesson and supporting more practices to provide world-class eye care. Moving on to our Biopharma Services platform, the Prescription Technology Solutions segment delivered a strong year with double-digit growth in adjusted operating profit.

Business growth was supported by continued strong demand for our access and affordability solutions, new business wins, and a growing network of digital connections to providers and pharmacies. In the past year alone, we helped patients save more than $10 billion on brand and specialty medications. We helped to prevent an estimated 12 million prescriptions from being abandoned due to affordability challenges, and we helped patients access their medicine more than 100 million times. Fiscal fourth quarter is typically the busiest time of year as we support patients with their annual verifications.

This year, we delivered a particularly strong season, supporting a record number of 3 million patients in their journey to access the medicines they need. Our team achieved high levels of efficiency by leveraging technology to optimize processes and streamline the operation. As an example, in this past season, we were able to leverage our CoverMyMeds virtual assistant to automate more than 20% of chats within the patient support center, while importantly maintaining customer satisfaction scores equivalent to those of live agent interactions. As I reflect on our progress in enhancing our Oncology and Biopharma platforms, it's hard not to be proud of what Team McKesson has achieved.

These two strategic growth pillars continue to represent attractive market opportunity, and we will continue to drive our mission forward with innovation, speed, and focus. Now, let me move on to our next strategic priority centered around, Disciplined Portfolio Management. We have a portfolio of differentiated assets, and as part of our continuous practice to evaluate the businesses for strategic alignment, which enabled us, in turn, have more focus and investment in our growth pillars and allows us to efficiently deploy capital. In the past, this has led to several actions like the spinoff of Change Healthcare, the divestiture of our European businesses, and most recently, the divestiture of the Canadian retail business.

These actions have unlocked value for the business and created significant value for our shareholders. Today, we are announcing our intent to separate the medical surgical segment into an independent company. Over these past years, we have built a really great medical business focused on what we think are the most attractive markets in the alternate sites of care. We have a dedicated and experienced team that works closely with customers to provide the best quality of service.

Since we started reporting this segment in fiscal ‘19, the business has delivered consistent and solid growth. As we continue to enhance our strategic focus, a separation transaction is an important step to focus capital deployment on opportunities that align with the long-term enterprise strategies and further invest in strategic growth areas like Oncology and Biopharma Services. We believe this action will unlock significant value for the medical business and for McKesson. It will result in two well-capitalized, at scale, world class companies that are well positioned to pursue their respective strategies and growth priorities.

We expect the medical surgical business will continue to deliver exceptional value to its customers and patients as a differentiated medical surgical supply and solutions company. We have started the process to explore the right transactions. We anticipate providing you with additional information, including timeline and structure when appropriate. Britt will also share more details with you on the assumptions in the fiscal 2026 guidance.

Moving on to our core distribution businesses, the U.S. pharmaceutical segment delivered strong performance with double-digit growth in revenue and adjusted operating profits. Our team demonstrated exceptional execution to support the significant growth of the business. We saw broad-based strength across the segment and stable market fundamentals, including solid pharmaceutical utilization trends. Our scaled capabilities in specialty distribution and our deep-channel expertise continue to position us well to support this fast-growing category of pharmaceuticals.

The strength of our business is also a reflection of the strength of our customers. They are at the center of everything we do, and we're pleased to serve them as a pharmaceutical distributor and long-term strategic partner in enabling quality patient care. Our Canadian business, which makes up the majority of our international segment, also had a year of strong operational growth, led by the pharmaceutical distribution business. In the medical surgical segment, we finished the year in line with our expectations.

We took effective actions to better align our service model and our capabilities with customer needs and the market demand. These actions delivered meaningful savings in fiscal 2025 and positioned this business for sustainable growth in the years ahead. As we look out and we look forward, we face a dynamic market environment with uncertainties in policies and the macroeconomic conditions. We continue to evaluate any potential impact to our company and make business planning decisions based on current policy and regulation.

We're positioned with a strong sourcing program through a broad supplier base across the pharmaceutical and medical surgical businesses. The disciplined execution of our sourcing programs has delivered great value to our customers and allows us to remain focused on driving cost efficiencies and maintaining consistent product availability. Let me sum things up before I hand it over to Britt. We delivered a strong fiscal year results with record revenue growth and meaningful strategic advancement.

We have a large and diversified portfolio of assets and driving 20% adjusted earnings per diluted share growth at the enterprise level takes tremendous focus, dedication, and disciplined execution. Thanks to the commitment of each and every member of Team McKesson, we're making remarkable progress in advancing our strategy and improving healthcare in every setting. Looking out, we have strong conviction in our strategy and our ability to consistently execute and deliver long-term value. Team McKesson is excited and committed to fulfill our mission and continue that momentum in fiscal ‘26 and beyond.

With that, Britt, I'll hand it to you.

Thank you, Brian, and good afternoon. Fiscal 2025 represents another year of outstanding financial results. As Brian talked about in his opening comment, we're executing against all pillars of our enterprise strategy. This includes disciplined portfolio management.

Today's announcement of our intent to separate our medical surgical solution segment into an independent company aligns with our commitment to maximizing shareholder value. We anticipate a separation will allow McKesson and the new company to better focus on their strategies and more effectively deploy capital. The creation of these two world-class, well-capitalized companies that are well-positioned to pursue their respective strategic growth opportunities is a positive development and will unlock significant value for both companies. Turning now to our financial performance, my comments today will refer to our adjusted results.

I'll start by discussing our fourth quarter and full year fiscal 2025 results, then provide an overview of our fiscal 2026 outlook. McKesson delivered a strong fourth quarter, and as a result, we're exiting the year with significant momentum. We delivered earnings per diluted share of $10.12 in the fourth quarter and $33.05 for the full year, which exceeded the guidance range that we provided on our third quarter earnings call. Our fourth quarter results reflect continued strong execution as we work to advance our company priorities.

Consolidated revenue in the quarter increased 19% to $90.8 billion, led by growth in the U.S. pharmaceutical segment due to increased prescription volumes from retail national account customers and growth in the distribution of specialty products, including higher volumes in oncology and other specialty provider settings. Gross profit was $3.4 billion, an increase of 2%, a result of specialty distribution and provider growth within the U.S. pharmaceutical segment, and growth in the prescription technology solution segment driven by our access and affordability solutions, partially offset by lower contributions in our international segment, a result of the divestiture of our Canada-based Rexall and Well.ca businesses at the end of the third quarter of fiscal 2025. Operating expenses decreased 10% to $1.9 billion, driven by divestitures in the Canadian business and cost optimization initiatives in the medical surgical solution segment.

To support future growth and create greater alignment across the medical segment and with its customers, we previously announced cost optimization actions in our medical segment. These actions have streamlined the infrastructure, increased focus, and driven operational efficiency, resulting in approximately $100 million of cost savings in the second half of fiscal 2025, with a higher proportion realized in the fourth quarter. These savings were in line with guidance previously provided. Operating profit was $1.6 billion, an increase of 24%.

Year-over-year results benefited from growth across all operating segments, including strong oncology and other specialty provider volumes, the onboarding of a new strategic customer in the second quarter, and increased demand for access solutions in our prescription technology solution segment. Interest expense was $40 million, a decrease over the prior year, resulting from effective cash and portfolio management, including our derivative portfolio. The effective tax rate in the fourth quarter was 13%, compared to 28% in the prior year, driven by the recognition of discrete tax benefits in the quarter.

For the full year, the effective tax rate was within the guidance previously provided. Fourth quarter diluted weighted average shares outstanding was $125.9 million, a decrease of 4%. The fourth quarter earnings per diluted share increased 64% to $10.12. Year-over-year growth was driven by a lower effective tax rate and strong operational growth across the business. Turning to fourth quarter segment results, which can be found on Slides 8 through 12, and starting with U.S.

Pharmaceutical. Revenues were $83.2 billion, an increase of 21%, driven by increased prescription volumes from retail national account customers and growth in the distribution of specialty products, including higher volumes in oncology and other specialty provider settings. Revenues from GLP-1 medications were $10.9 billion in this quarter, an increase of approximately $3.5 billion, or 46%, when compared to the prior year. On a sequential basis, GLP-1 revenue was flat.

Segment operating profit increased 17% to $1.1 billion, driven by higher volumes from retail national account customers. This growth was further supported by the successful onboarding of a new strategic customer in our fiscal second quarter. Additionally, the distribution of specialty products, to oncology and other specialty providers and health systems contributed to growth. In the prescription technology solution segment, revenues increased 13% to $1.3 billion, and operating profit increased 34% to $285 million.

Fourth quarter results reflect increased prescription transaction volumes, which drove higher demand for our access solutions, including prior authorization services for GLP-1 medications and our third-party logistics business. Additionally, a strong annual verification season, as Brian mentioned, contributed to these positive results. Total initiated prior authorization volume increased by 15% in the quarter compared to prior year. Turning to Medical Surgical solutions, the overall fiscal 2025 illness season was below the average of the past five non-COVID seasons.

In the fiscal fourth quarter, illness season severity levels were moderately above those experienced in the prior quarter. Increased illness severity levels at the beginning of our fiscal fourth quarter peaked in early February. In the fourth quarter, revenues were $2.9 billion, an increase of 1% driven by higher volumes of specialty pharmaceuticals, partially offset by lower primary care volume, customer mix, and product demand shifts across the primary care channel. Operating profit increased 15% to $285 million, reflecting the benefits and operational efficiencies from the cost optimization initiative announced in the first quarter.

We're pleased with the results of these cost actions, enhancing financial performance and positioning the business to better serve our stakeholders and achieve sustainable growth. Next, let me address our international results. Revenues were $3.5 billion, a decrease of 2% resulting from the divestiture of our Canada-based Rexall and Well.ca businesses completed at the end of the third quarter of fiscal 2025. Operating profit was $102 million, an increase of 9% driven by higher pharmaceutical distribution volumes in the Canadian business. Wrapping up our segment review with corporate.

Corporate expenses were $165 million, a decrease of 15%. As a reminder, in the fourth quarter of fiscal 2024, we recorded a $0.09 per share reserve for environmental matters for increased remediation costs related to McKesson's former chemical business, which we disposed of several years ago. In the fourth quarter of fiscal 2025, we also had higher interest income resulting from higher cash balances on average during the quarter and lower opioid related expenses. Let me turn to cash and capital deployment, which can be found on Slide 13. We ended the quarter with $5.7 billion in cash and cash equivalent and total liquidity of approximately $10 billion.

During the fiscal fourth quarter, we delivered robust free cash flow, $7.5 billion. These results were driven by strong fourth quarter operating results and a timing shift from our fiscal third quarter to our fiscal fourth quarter drove the cash flow performance. Free cash flow included $278 million of capital expenditures, primarily related to investments in new and existing distribution centers, as well as investments in technology, data and analytics to support our growth priorities. In the fourth quarter, we returned $391 million of cash to shareholders, which included $300 million in share repurchases and $91 million in dividend payments.

Let me take a moment and summarize our outstanding full year fiscal 2025 results, which exceeded our initial guidance. Additional details, including segment results, can be found in our press release. Fiscal 2025 revenues increased 16% to $359.1 billion, reflecting broad-based operational strength across the business, including the onboarding of a new strategic customer in our U.S. pharmaceutical segment. Operating profit of $5.6 billion increased 15% above the prior year, led by double digit growth in the U.S. pharmaceutical and prescription technology solution segment and our Canadian business within international.

Operating profit also included $101 million in net gains related to the McKesson Ventures equity investment, compared to a loss of $24 million in fiscal 2024. Excluding the impact of net gains related to McKesson Ventures, operating profit increased 12% compared to the prior year, well above our long-range target. As a result of the strong operational growth across the business, combined with a lower share count, full year fiscal 2025 earnings per diluted share increased 20% to $33.05, exceeding our expectations. We continued our focus on cash flow generation, working capital management and capital deployment throughout fiscal 2025. This execution resulted in generating $5.2 billion in free cash flow, which included $859 million of capital expenditures, primarily related to investments to accelerate growth and modernize the business.

We returned $3.5 billion to shareholders, including $3.1 billion through share repurchases and $345 million in dividends. Since the beginning of fiscal 2020, we've returned approximately $18 billion of cash to shareholders through share repurchases and dividends. Of this amount, over $16 billion has been returned through share repurchases, reducing our total shares outstanding by 34%. Moving now to our fiscal 2026 outlook.

Our strong finish in the fourth quarter and performance throughout the course of fiscal 2025 gives us confidence in our ability to continue the momentum and deliver strong results in fiscal 2026. The breadth of our capabilities and the leading portfolio of assets across oncology and biopharma services, along with our strong pharmaceutical distribution businesses, have led to value creation for our customers, partners, and shareholders over the last several years. We enter fiscal 2026 with a strong balance sheet, financial position, and significant liquidity, positioning us for continued growth.

For fiscal 2026, we anticipate revenue growth of 11% to 15%, and operating profit growth of 8% to 12% compared to the prior year. For fiscal 2026, we anticipate earnings for diluted share of $36.75 to $37.55. This outlook represents approximately 11% to 14% growth year-over-year, which is 13% to 16% growth when excluding the net gain from the cuts and ventures in fiscal 2025, exceeding our long-range growth target of 12% to 14%. And today, we're reaffirming the long-term adjusted earnings growth target rate of 12% to 14%. Let me start with a review of our segment.

In the U.S. pharmaceutical segment, we anticipate revenue and operating profit to increase 12% to 16%. As a reminder, we onboarded a new strategic customer at the beginning of fiscal 2025 in our second quarter. We now project total annual revenue of approximately $46 billion from this customer. As mentioned earlier, we anticipate continued growth to the GLP-1 category of medication, however, with variability from quarter-to-quarter.

In fiscal 2025, GLP-1 revenues were $41 billion, an increase of 41% over fiscal 2024. We anticipate continued momentum in our core pharmaceutical distribution business, powered by the growth of specialty products, including continued growth in the distribution of specialty products to community providers. In fiscal 2025, we saw net additions of approximately 160 providers to the U.S. Oncology Network. Over the past three fiscal years, we've added approximately 725 providers to the U.S.

Oncology Network. In fiscal 2026, we anticipate continued growth across our oncology and other specialty platforms, building on the growth of the U.S. Oncology Network, Ontada, and SCRI. Our fiscal 2026 outlook also includes the contribution from two recently announced acquisitions.

On April 2, we completed the acquisition of a controlling interest in PRISM Vision Holdings, a premier provider of general ophthalmology and retina management services. McKesson has an approximate 80% ownership interest and will consolidate the results of operations within our U.S. pharmaceutical segment. We estimate PRISM will contribute $0.20 to $0.30 of adjusted earnings per share in fiscal 2026. The transaction to acquire a controlling interest in Core Ventures, an internal business and administrative services organization established by Florida Cancer Specialists and Research Institute, remains subject to customary closing conditions.

The addition of Core Ventures will add approximately 530 providers to the U.S. Oncology Network, bringing the total number of providers to approximately 3,300. As a reminder, McKesson will purchase a controlling interest in Core Ventures for approximately $2.49 billion, which will represent approximately 70% ownership. We've made substantial progress and our outlook assumes that we will close this transaction in June of 2025. We estimate the acquisition of Core Ventures will contribute $0.40 to $0.60 of adjusted EPS in fiscal 2026. We expect to fund this transaction with permanent financing of approximately $2 billion and use cash to fund the remainder of the transaction.

McKesson remains committed to maintaining its current investment grade rated status. We anticipate the acquisitions of Prism and Core Ventures will contribute approximately 6% to 7% to the fiscal 2026 operating profit growth in the U.S. pharmaceutical segment. As a result of the continued strength exhibited in fiscal 2025 and our confidence in this segment, we're raising the long term adjusted operating profit growth target from 5% to 7% to a new range of 6% to 8%. In the prescription technology solution segment, we anticipate revenues to increase by 4% to 8% and operating profits increased by 9% to 13%.

This strong growth reflects the differentiated portfolio of solutions and is evident to strong market demand for our access and affordability solutions. It includes organic growth across the segment as we expand relationships with biopharma manufacturers and bring new brands to our platform. We anticipate the fiscal 2026 revenue growth rate to be slightly lower than the fiscal 2025 revenue growth rate driven by a slower rate of growth for third party logistics volumes. As a reminder, 3PL revenues contribute approximately 50% of the segment volume, and can vary from quarter-to-quarter driven by timing and the trajectory of new drug launches and the addition of new programs, which we serve. 3PL contributes less than approximately 5% to the segment operating profit.

We anticipate continued contribution from prior authorization services. The GLP-1 medications drive an increased demand for our access and affordability solutions, contributing to the growth of the segment. We anticipate increased investment to support expanded access solutions, which include enhanced prior authorization capabilities for pharmacy and medical benefits. We're pleased with the consistent strength and performance in this segment.

We'll continue to invest in the segment to develop new and adjacent solutions, and we're reaffirming the long term adjusted operating profit growth target for this segment of 11% to 12%. In the Medical Surgical Solution segment, we anticipate revenues and operating profit to increase 2% to 6% in fiscal 2026. We remain well positioned across all alternate sites of care, with a market leading breadth of services and solutions across medical, surgical, pharmaceutical, lab and home health solutions. As we've previously discussed, in fiscal 2025, we observed generally softer volumes in the primary care market, which included the impact of overall lower severity levels for the fiscal 2025 illness season.

As we've previously discussed, each illness season is unique and the timing and severity level of each illness season can drive variability from quarter-to-quarter and year-to-year. Additionally, we're pleased with the focus and discipline to accelerate the business and accelerate comprehensive cost optimization set of initiatives. These initiatives are driving operational efficiency, delivering improved focus and performance and greater alignment across the business and with our customers. As Brian and I have already discussed today, we've announced our intention to separate the medical segment into an independent company.

This strategic decision is designed to enhance operational focus and further enhance strategic operations and opportunities of both companies. This decision is designed to unlock significant value for both companies. The new company would be a differentiated Medical Surgical Supply company with a compelling leadership position, attractive margins and potential for growth acceleration across all alternate sites of care. The separation is consistent with McKesson's disciplined portfolio management approach and will further focus capital deployment priorities for both companies.

We're committed to exploring all opportunities to execute the separation in a manner that maximizes shareholder value. Our fiscal 2026 outlook assumes 100% ownership of the medical segment. We'll provide more information as appropriate on the form and timing as the process progressing. In the international segment, we anticipate revenues to be approximately a 2% decline to 2% growth and operating profits be flat to 5% decline.

The segment outlook reflects continued growth in the Canadian distribution business, partially offset by the impact of the divestiture of our Canada-based Rexall and Well.ca businesses at the end of the third quarter in fiscal 2025. As a reminder, fiscal 2025 includes $25 million resulting from the held for sale accounting, related to the sale of our Canada-based Rexall and Well.ca businesses, which was completed on December 30, 2024. Our fiscal 2026 outlook contemplates contributions related to operations in Norway through calendar 2025. As a reminder, Norway remains the only operating country remaining in Europe.

We remain committed to exit and fully divest our European business and have entered into an active sale process for our Norwegian business. We will, however, be disciplined and focused on maximizing shareholder values throughout the sale process. In the corporate segment, we anticipate expenses to be in the range of $570 million to $630 million. We continue to invest across the business to modernize and accelerate the enterprise to deliver growth.

This includes significant investments in data and analytics, including several investments in cloud networking and infrastructure. Additionally, we anticipate accelerating the use of automation, including AI, to unlock the potential to deliver customer and foundational enhancement. Now, moving below the line. We anticipate interest expense to be approximately $255 million to $275 million, an income attributable to non-controlling interest to be in the range of $215 million to $235 million.

The increase in the interest expense guidance range is compared to fiscal 2025, reflecting anticipated financing impact related to the acquisition of a controlling interest in core ventures. An income attributable to non-controlling interest guidance incorporates the full year impact from our controlling interest in PRISM Vision Holdings, and the estimated impact from the acquisition of a controlling interest in core ventures, as discussed earlier. We anticipate the full year effective tax rate will be in the range of 17% to 19%, and as a reminder, the timing and amount of discrete tax items are difficult to predict.

Therefore, we do not provide quarterly effective tax rate guidance. Turning now to cash flow and capital deployment. We anticipate free cash flow of approximately $4.4 billion to $4.8 billion. Our working capital metrics and results in free cash flow will vary from quarter-to-quarter, and are impacted by timing, including the day of the week that marks the close of a quarter.

Our outlook reflects plans to repurchase approximately $2.5 billion of shares in fiscal 2026, and as a result of the share repurchase activity, we estimate weighted average diluted shares outstanding to be in the range of approximately $124 million to $125 million. Our focus on portfolio management, including disciplined capital deployment, is reflected by the improvements in our return on invested capital. Over the past five years, return on invested capital has more than doubled to 26% to the end of fiscal 2025. This performance is a result of a clear and consistent enterprise strategy, operational execution against that strategy, and disciplined management of our portfolio of businesses.

We'll continue to focus capital deployment on the growth strategies of oncology and biopharma solutions to create enhanced value for our shareholders. In summary, we delivered outstanding performance in fiscal 2025. The strength and stability in the underlying fundamentals across our businesses, combined with robust cash flow generation and disciplined capital deployment, have led to a strong outlook for fiscal 2026. Our sustained financial performance over the past several years has been bolstered by the strength of our financial position and the consistent operating execution, leading to compelling value creation for our customers, partners, and shareholders.

I also want to take a moment to thank McKesson and McKesson's team of outstanding associates for the outstanding results that we had in fiscal 2025. I'm confident in our ability to deliver another strong year in 2026 with growth acceleration, margin expansion, and value creation. With that, we should move to the Q&A session.

Thank you. [Operator Instructions] The first question comes from Kevin Caliendo with UBS.

Thanks. There's so much to unpack here. I guess I'll be the bad guy and ask the MFN question, since it’s impacted the stock so much today. Can you help us just sort of understand that risk, meaning if there is some sort of Medicare Part B MFN impact to ASPs, which is kind of what the headlines have proposed?

Could you just sort of help us understand, because it's 95% of all the questions I've got today? To understand how it would impact both the core distribution business and your specialty clinics business, if at all. I mean, a lot of us just don't really understand how the economics or the math work, and I think it would provide a ton of clarity if you can help us understand it.

Thank you, Kevin. I'll go first. And my understanding, and admittedly, I haven't checked social media for a couple of hours, is that nothing has really been announced. It’s all kind of rumored at this point.

And as history as our guide, there will probably be plenty of legal challenges, and so I think we'll have time to deal with this as actual facts emerge and not speculate on it. I will say, about the specialty providers. Our fundamental belief is, and I think this is definitely true. Community-based care is the most accessible.

It is high quality and it is a low cost setting of care. So it is going to be a critical part of this country's ability to manage the overall accessibility, affordability and quality of care, particularly oncology care. And so our advocacy and our belief is that community-based care needs to be and will be fairly compensated in totality for the services that they provide. Whether that's through drug pricing structures or other service fees that are provided, it's absolutely essential that we have a vibrant community-based care setting.

Otherwise, these patients, if they can get care, are going to be getting that care in a higher cost setting to the system overall. In terms of the distribution side of the business, I mean, I think we've always said, and we have successfully illustrated over the years, our ability to get paid fair value for the services that we provide, and that would be our expectation in this case as well.

Next question, please.

And our next question comes from Lisa Gill with JP Morgan.

Thanks very much. Brian, just a comment to what you just said. I think if you look back at 2018, Trump proposed something kind of similar to shifting around potential payment on Part B and never came to fruition. So again, I think we're all watching this. Want to try to better understand this. Just two things – I'm sorry, go ahead.

I was going to say it was definitely a time warp moment.

It is. I feel like déjà vu if I have to keep writing these same research notes. But if we think about some of the other areas, I just want to make sure we also understand the tariff side on both sides of your business, so both, one on the branded as well as the generic side of the pharmaceutical. And then I know that ultimately you won't have the medical supply business.

But in fiscal ‘26, can you talk about what you potentially have in your guidance around any tariffs, and if you'll have any impact on that side.

Sure, we can put [ph] nice and tag team this one. Obviously, we're closely monitoring the tariff landscape. And I'm sure everyone saw even as earlier today, the UK – a new UK agreement was announced. So it is pretty dynamic.

I would, point back to our primary model. Let's start in the pharmaceutical business. We source from the brand. We have a reimbursement mechanism based on the price.

Then we have a sell forward mechanism based on the price. Manufacturers are going to make the pricing decisions that they think they need to do. We don't think overall it's going to be material, and our assessment of the landscape has been considered in the guidance that we provided to you based on the policies that we're aware of and we know today. On the generic side, we're sourcers in the NorthStar program and we don't have fixed capital deployed in any country.

You think about our sourcing program and even coming out of the COVID experience, we have been over time working to diversify, create a reliable, predictable supply chain, and we think we are pretty well positioned. We are not over rotated toward any one particular country, so I think we'll be okay there. And then on the medical surgical side, I would just say we have a similar sourcing strategy. I mean, we try to be diversified, resilient, have redundancy in that.

We don't have a fixed plant anywhere. So we – as tariffs settle themselves out and we can move sourcing around to what would then be the most advantageous source. And then the last thing I would say is, by nature of our customer base in the markets that we serve, we tend to have flexibility around pricing. Our goal is always to provide the low cost best value that we can, but we have that as a lever.

I would just add, I’d just maybe put a highlight on what Brian said. We do not anticipate this is going to have a material impact on our fiscal ‘26 guidance. It's our understanding of the tariff situation today. Obviously, it's evolving, but our understanding of it today, we have that incorporated into our guidance.

And I would just also emphasize what Brian said, that in the medical business, as an example, we source the largest spend of products in the U.S. So we've continued for a number of years now to continue to diversify and focus on responsible sourcing. And in doing that, I think we have remediated a lot of the risks that we may have had several years ago.

Next question, please.

The next question comes from Allen Lutz with Bank of America.

Good afternoon, and thanks for taking the questions. One for Brian. With the separation of medsurge, clearly you guys are doubling down in U.S. pharma and prescription technology solutions. It feels like there's more urgency today to accelerate capital deployment in biopharma services.

Can you just talk about the urgency that McKesson has here to focus on MSOs and building out McKesson's platform? Is that urgency that you are feeling bigger than it was, maybe one or two years ago? And then how big is the opportunity to continue to invest in this space? Thanks.

Yeah, great question. I mean, the first thing I'll say is that capital deployment for us is always driven by alignment to our strategy and financial discipline and executing those transactions. And I would say personally, the urgency hasn't changed for me at all. We've had the same level of urgency maybe earlier, you know a few years if I rolled the clock back, we had a difficult time finding valuations that we thought made financial sense and cleared our financial hurdles.

We stay in those conversations. In this world, oftentimes these conversations go for years before they become actionable. So the urgency is always there to invest prudently against our strategy in a way that we're confident and will accelerate and continue our growth and to create shareholder value. It's really a matter of when you can execute on the opportunities.

A - Britt Vitalone: One thing I would add is, this is very consistent with the way that we've operated for several years. Again, to Brian's point, it's always started with strategy. So where we're deploying capital today is very consistent with our strategy. If you go back several years, we've continued to look at the portfolio and reallocate capital where it has the highest returns, where it has the highest opportunities, and it leverages our differentiated assets. We divested the Change Healthcare asset, we divested our European businesses, and most recently Rexall and Well.ca, all to get better alignment to our strategy and deploy our capital to differentiated assets with higher returns. This is very consistent with what we've done for several years.

Next question, please.

The next question will come from Eric Percher with Nephron Research.

Thank you. Big picture question first on the pharma growth rate, long-term guidance moving up here. I would expect that relative to two years ago, the macro environment has been a real tailwind. And I'm curious to hear if the step-up in guidance reflects that you believe the macro environment stays that strong or if it is more to do with the opportunities that you are seeing based on the expansion of the platform and what you were just speaking about on capital deployment.

And then Britt, I would ask you, pharma guidance for this coming year, 12% to 16%, that's a pretty large range. It sounds like core is in that. Help us understand what drives you from the bottom to the top in that range.

So in terms of the macro environment, you know look, we feel really good about the value propositions we have for the customers we serve. We feel like we've onboarded some strategic customers over the last couple of years consecutively or we will. As we help them be successful, their growth will help us be successful. We've seen solid utilization trends.

We think we've got a differentiated growth platform in oncology, and all these things can contribute to our view. I mean, the external environment today is probably – there's more moving parts than typically we would see. But if you step back further, healthcare is a pretty resilient industry. You know, the underlying core fundamentals continue to support growth, and we think the innovation will continue in the pharmaceutical segment and we'll be positioned to benefit from that.

And Eric, before I answer your second question, this is the second time in the last few years that we've raised a long term guidance range for this segment. We started out at 4% to 6% and went to 5% to 7% and now 6% to 8%, and it's really a reflection of the things that Brian talked about. We're in a more stable environment for prescription utilization, and we've continued to build the platforms that we've been focused on in oncology and now other specialties. So I think it's a natural evolution of the way we've deployed capital in a very successful way to generate additional growth.

If you think about the range for next year, as I mentioned in my comments, we've included two acquisitions into the growth of the segment for next year, which we anticipate will generate 6% to 7% of that growth, which means at the core, our assumption for next year is going around 6% to 9%, which is very consistent with the new range that we've provided on the long term growth rate. Again, I think that's continuing to add customers and getting operational efficiency in some of the investments that we've made to generate some operating leverage around automation, and we feel very comfortable that the business now is going to run at that 6% to 8% level.

Next question, please.

And the question comes from Stephen Baxter with Wells Fargo.

Yeah, hi, just a couple of questions on the face of the P&L for this quarter. If we look at the, I guess the SG&A decline pretty substantially year-over-year, wondering if you could comment a little bit on the efficiencies there and what's driving that. And I guess also, looking at the gross profit side of things, maybe a little bit slower growth this quarter than you've seen kind of throughout the balance of the year. Also hoping you could potentially expand a little bit on the trends that we're seeing on those lines.

Thank you.

Yeah, thanks for the question, Stephen. On the expenses, one of the things that's really driving that is the divestiture that we have in our Canadian business. We divested the Rexall and Well.ca businesses in our third fiscal quarter. So that's having an impact on the year-over-year comparison there.

From a gross profit perspective, I think that's more of a mix, as well as the divestitures that we had in our international segment. Overall, we're really proud and pleased with the operating leverage that we're generating in the business and that's showing up at the adjusted operating profit line.

Question, please.

And the question comes from Daniel Grosslight with Citi.

Hi, guys. Thanks for taking the question. I'd like to focus on your expectations around GLP-1 access programs in the near term. I think you mentioned for ‘26, you still expect that to be a strong contributor to growth in RxTS.

It seems like there's a few puts and takes here, perhaps a little more onerous PA terms from an employer plan perspective on the insured side of things. But also Lilly and Novo seem to be really expanding their cash pay GLP-1 programs via LillyDirect to NovoCare, which obviates the need for PA. So just curious to get your thoughts on some of the puts and takes as we think about GLP-1s in your CoverMyMeds.

I'll start. So we, as you know, we provide prior authorization and other access solutions, quite frankly. So it's not just all about prior authorizations. And our expectation is that as more and more patients become clinically appropriate for these, to get started on these products, we will continue to benefit from that growth.

Right now, the cash pay component, which we would not participate in is relatively small. We think it's a subset of the population that's eligible for it. And then the last thing I would say is, obviously the services we provide will vary depending on decisions that payers make in terms of how long they want to go between requiring prior authorizations, how frequently you have to have your prior authorization updated. And so as payers change their policies, as some employers choosing for the first time to start to cover weight loss, those are all the dynamics that go into it.

When we step back and blend it all together, it delivers the kind of growth that Britt talked about.

Yeah, just to add on to that, again, we finished the year with some very strong momentum, and we feel very confident that our programs continue to resonate. We support all the major GLP-1 products and we feel good about the momentum going into FY’26.

Next question, please.

Our next question comes from Eric Coldwell with Baird.

Thanks very much. Good afternoon. So I'm curious on prescription tech. It's very clear from your AOI growth, that the revenue growth slowdown forecast in fiscal ‘26 really is the 3PL.

That's obvious. You normally talk about 3PL being around 50% of revenue. I'm just curious, what kind of a revenue slowdown are you seeing in 3PL, i.e., could we get a better sense on the growth forecast for the higher margin access affordability adherence businesses? That's it for me.

Thanks.

Thanks, Eric, for that question. You know, we still see good growth in the 3PL business year-over-year. The rate of growth is what I was referring to. So we had a stronger rate of growth in our fiscal ‘25 for the 3PL business.

So that rate of growth we do anticipate will slow, although we expect it to be more consistent with what we've seen historically. Overall, we are really feeling good about the access solutions and the growth rate that we're seeing there, particularly as we come out of a very strong fourth quarter in fiscal 2025. But it's really the rate of growth, the rate of growth is still, we believe solid, but it's just a slower rate of growth than we had in FY’25, which was a very strong year. As we've talked about before, it's really the timing of programs, the launch of products, all of those things go in and drive some variability with our 3PL revenue.

Question, please.

And the next question comes from Elizabeth Anderson with Evercore ISI.

Hi, guys. Thanks so much for the question and congrats on the next quarter and outlook. I was wondering, you guys obviously have a big role in helping independent pharmacies in a variety of ways, including some of their PBM negotiations. Given some of the changing reimbursement models we're hearing about from the national change, has that kind of conversation percolated down to sort of the independent pharmacy customer base or is it not yet?

And sort of what are they mostly focused on and asking you from the reimbursement perspective? Thanks.

Yes, so as you know, through our Health Mart program, we include service around reimbursement. We certainly continue to evaluate and understand the specifics and the mechanics of how some of these alternative reimbursement models work. As of yet, I wouldn't say there's been a big behavioral shift, but it's something that we're certainly tracking on. In terms of what our customers ask us for, they ask us to help them attract patients, marketing programs, etc.

Help make sure their pharmacy is operationally as efficient as can be. Help make sure they have consistency of supply and competitive costs. Help them stay abreast of trends that are happening in the marketplace that they can manage their business as best they can, for example, by sharing best practices and growth strategies and drivers that we see throughout the portfolio of our 4,500 plus independent pharmacies.

We have time for one more question.

And that question will come from Charles Rhyee with TD Cowen.

Oh yeah, thanks for squeezing me in here. I guess, Britt, maybe just on the guidance, free cash flow guide down from last year, can you help us bridge one of the pieces there? Is it just cash going out for Corp Ventures and Florida Cancer?

A - Britt Vitalone: Yeah, the cash flow guidance is still strong. Historically, it's above where we've trended over the last several years, so we feel really good about the cash flow generation. As I've talked about before, this is really a relation of timing, including the day that the quarter ends on or the year ends on. We did have a few non-operational cash flow items that came through at the end of our fiscal 2025. Not really material, but that will also impact the year-over-year. But we think that $4.4 billion to $4.8 billion of free cash flow is still very strong.

Great, thank you. Thank you, everyone, for joining our call and really appreciate your thoughtful questions. Thanks Justin for helping facilitate this call. McKesson delivered a strong fourth quarter and fiscal 2025. We are committed to build on this momentum, drive sustainable growth and deliver attractive shareholder returns in the years ahead of us.

I certainly don't want to end this call without expressing my deep gratitude to our team of over 45,000 McKesson employees. It's their dedication to excellence and their care for our customers and each other that allow us to deliver these kinds of results, and I look forward to delivering more with them in the quarters ahead. Thanks, everybody. Hope you have a terrific evening.

Thank you. Thank you for joining today's conference call. You may now disconnect and have a great day!