01—Abstract
Summary
Summary of the 8-K filed August 7, 2024. Cited figures are marked; the original filing is the authoritative source.
McKesson (MCK) reported preliminary fiscal 2025 first-quarter results (quarter ended June 30, 2024) with revenues of $79.3 billiona, up 6%, driven primarily by U.S. Pharmaceutical volume growth including specialty products, retail national accounts, and GLP-1 medications.
GAAP diluted EPS was $7.00b, essentially flat versus $7.02 a year ago, while Adjusted EPS rose 8% to $7.88. The adjusted gain was flattered by $110 million of pre-tax gains tied to McKesson Ventures' equity investments; management's fiscal 2025 Adjusted EPS guidance was nonetheless raised to $31.75–$32.55 from $31.25–$32.05, and the guidance includes roughly $0.62 from year-to-date Ventures gains, so investors should look through that contribution when judging underlying growth. The quarter had mixed underlying operating trends.
Segment performance was uneven: Prescription Technology Solutions adjusted operating profit was flat as lower access-program contributions offset affordability growth, and Medical-Surgical Solutions adjusted operating profit fell 15% on weaker primary care volumes and customer mix. International adjusted operating profit rose 13% on Canadian distribution volumes. GAAP net income attributable to McKesson fell 4% to $915 millionc, and a $112 million claims and litigation charge tied to opioid-related claims from third-party payors weighed on GAAP results.
Free cash flow was negative $1.5 billiond, reflecting working capital investment in new customer onboarding and inventory build, with cash falling to $2.3 billion. Capital returns remained a focus. The Board raised the quarterly dividend 15% to $0.71 per share, the eighth consecutive annual increase, and added $4.0 billion to the buyback authorization for a total of $9.9 billion.
In the quarter, McKesson repurchased $527 million of stock and paid $82 million in dividends, and diluted weighted-average shares fell 4% year over year to 130.7 million. The release is preliminary and furnished rather than filed under the Exchange Act, so investors should weigh the non-GAAP framing alongside the GAAP figures.
02—Key points
Key Highlights
- Revenue rose 6% to $79.3 billion, led by U.S. Pharmaceutical (up 7% to $71.7 billion) on specialty, retail national account, and GLP-1 volumes.
- GAAP diluted EPS was $7.00 versus $7.02 a year ago; Adjusted EPS grew 8% to $7.88, aided by $110 million of pre-tax gains from McKesson Ventures equity investments.
- FY2025 Adjusted EPS guidance raised to $31.75–$32.55 (from $31.25–$32.05), implying 16%–19% growth, but including about $0.62 from year-to-date Ventures gains.
- Medical-Surgical Solutions adjusted operating profit fell 15% on lower primary care volumes and customer mix; Prescription Technology Solutions was flat as access-program contributions declined.
- Free cash flow was negative $1.5 billion, driven by $1.4 billion of operating cash outflow tied partly to onboarding new customers and inventory build (inventories up about $4.4 billion).
- Board raised the quarterly dividend 15% to $0.71 per share (eighth straight annual increase) and added $4.0 billion to the buyback, bringing total authorization to $9.9 billion.
- GAAP results included a $112 million pre-tax claims and litigation charge for opioid-related claims from a nationwide group of third-party payors.
03—Questions
Frequently Asked Questions
Why did Adjusted EPS grow faster than GAAP EPS this quarter?
GAAP EPS was flat at $7.00 versus $7.02, while Adjusted EPS rose 8% to $7.88. The gap reflects non-GAAP adjustments, most notably a $112 million opioid-related claims charge that is excluded from adjusted results, partly offset by $110 million of pre-tax gains from McKesson Ventures equity investments that were included in adjusted results. A lower share count also supported adjusted EPS.
How much of the raised fiscal 2025 guidance comes from investment gains rather than operations?
The guidance includes approximately $0.62 per share related to year-to-date gains on McKesson Ventures equity investments. Because these gains are not part of core distribution operations, investors may want to adjust the guidance raise, which was $0.50 at both ends of the range, to reflect their non-recurring nature.
Why was free cash flow negative $1.5 billion?
Operating cash outflow of $1.4 billion reflected a large increase in inventories (about $4.4 billion) and receivables growth, partly offset by a $4.6 billion increase in drafts and accounts payable. Management attributed part of the cash use to onboarding new customers, and capital expenditures were modest at $167 million. Quarterly cash flow is seasonal and timing-sensitive, so the full-year picture is more meaningful.
Is the dividend increase sustainable given the buyback and cash flow trends?
The dividend rose 15% to $0.71 per share, a modest cash outlay of roughly $82 million in the quarter. Buybacks were $527 million in the quarter, and the company has $9.9 billion of total authorization. Quarterly free cash flow was negative, so sustainability depends on full-year cash generation, which the company did not guide to on a GAAP basis in this release.
What weakened within the segments this quarter?
Medical-Surgical Solutions adjusted operating profit fell 15% on lower primary care volumes, customer mix, and product demand shifts. Prescription Technology Solutions was flat, with growth in affordability solutions offset by lower access-program contributions and higher expenses supporting future growth. U.S. Pharmaceutical and International were the strongest contributors, with adjusted segment operating profit up 6% and 13%, respectively.
04—Continue