Why did GAAP EPS fall so sharply while Adjusted EPS grew?

GAAP EPS of $1.87 was hurt by a $643 million pre-tax remeasurement loss tied to the planned sale of McKesson's Canadian retail businesses, plus a $227 million business rationalization charge. McKesson excludes these items, along with amortization, LIFO effects, and other adjustments, to arrive at Adjusted EPS of $7.07, which grew 13%. Investors should evaluate both measures, since the excluded charges are real cash-economic costs of restructuring and divestiture activity.

How much of the raised guidance reflects core operating improvement?

The guidance was raised by $0.25 at the midpoint, from $31.75–$32.55 to $32.40–$33.00. However, the Adjusted EPS guidance includes $0.53 of year-to-date gains from McKesson Ventures equity investments, which are non-operating. Excluding that contribution, the guidance would imply a lower underlying operating outlook than the headline range suggests, so investors should look for further detail on the earnings call.

What drove the 21% revenue growth?

Growth was primarily driven by U.S. Pharmaceutical, where revenue increased 23% to $85.7 billion. Contributors included onboarding a new strategic partner, higher prescription volumes including from retail national account customers, specialty products, and GLP-1 medications. Medical-Surgical Solutions grew 4%, Prescription Technology Solutions grew 11%, and International grew 7%.

Did the Rite Aid bankruptcy affect results this quarter?

Yes, favorably on a GAAP basis. McKesson recorded a $203 million pre-tax credit in U.S. Pharmaceutical as it reversed part of the prior-year bad-debt provision related to Rite Aid, which emerged from bankruptcy in August 2024. McKesson excluded this credit from Adjusted results, so it boosted GAAP EPS but not Adjusted EPS.

What is the status of the Canadian divestiture and the oncology acquisition?

Both transactions were announced in this quarter and remain subject to customary closing conditions, including required regulatory clearance; the filing does not state expected closing timing. The sale of Rexall and Well.ca is already reflected in held-for-sale classifications on the balance sheet, and the company stopped recording depreciation and amortization on those assets. The Core Ventures acquisition would give McKesson a controlling interest in a practice with more than 530 providers that will remain independent and join The US Oncology Network.

MCK 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed November 6, 2024. Cited figures are marked; the original filing is the authoritative source.

McKesson (MCK) reported fiscal Q2 2025 (quarter ended September 30, 2024) results that were strong at the top line and on Adjusted EPS, but GAAP results were weak due to a large one-time charge tied to the planned sale of its Canadian retail businesses.

Consolidated revenue rose 21% to $93.7 billion^a, driven mainly by U.S. Pharmaceutical (revenue up 23% to $85.7 billion) on higher prescription volumes, specialty products, GLP-1 medications, and a new strategic partner. GAAP diluted EPS fell 62% to $1.87 from $4.92, reflecting a $643 million fair-value remeasurement loss on the Canadian divestiture and a $227 million charge for business rationalization, partly offset by a $203 million credit tied to the Rite Aid bankruptcy reserve reversal. Adjusted diluted EPS rose 13% to $7.07, aided by growth in U.S. Pharmaceutical and a 4% lower share count.

Management raised its fiscal 2025 Adjusted EPS guidance to $32.40^b–$33.00 from $31.75–$32.55, implying 18%–20% growth. The company noted that the raised guidance includes $0.53 of year-to-date gains from McKesson Ventures equity investments, so part of the increase is non-operating in nature. Management also raised its full-year share repurchase target to $3.2 billion from $2.8 billion.

Year-to-date free cash flow was $335 million^c, a sharp improvement from negative $351 million a year earlier, though cash from operations of $720 million was still modest relative to earnings and reflected heavy working-capital investment in receivables and inventories. Investors should weigh the strong Adjusted results against the GAAP earnings decline, the Canadian divestiture and its pending regulatory closing, and the quality of the guidance raise. The filing also disclosed two pending transactions: an agreement to acquire a controlling interest in Core Ventures (Florida Cancer Specialists & Research Institute), which expands McKesson's oncology platform, and an agreement to sell its Canada-based Rexall and Well.ca retail businesses.

Both are subject to customary closing conditions, including regulatory clearance. Note that this 8-K furnishes the earnings release under Item 2.02 and is not deemed filed for Exchange Act Section 18 purposes.

02—Key points

Key Highlights

Consolidated revenue rose 21% year over year to $93.7 billion, led by U.S. Pharmaceutical revenue growth of 23% to $85.7 billion.
GAAP diluted EPS fell 62% to $1.87 from $4.92, driven by a $643 million Canadian divestiture remeasurement loss and a $227 million business rationalization charge.
Adjusted diluted EPS rose 13% to $7.07 from $6.23, supported by U.S. Pharmaceutical growth and a 4% reduction in diluted share count.
Fiscal 2025 Adjusted EPS guidance raised to $32.40–$33.00 from $31.75–$32.55, though it includes $0.53 of one-time gains from McKesson Ventures investments.
Full-year share repurchase target increased to $3.2 billion from $2.8 billion; year-to-date buybacks were $2.0 billion.
Year-to-date free cash flow of $335 million improved from negative $351 million, but operating cash flow of $720 million was weighed down by growth in receivables and inventories.
Pending transactions include acquiring a controlling interest in Core Ventures (Florida Cancer Specialists) and selling Canadian Rexall and Well.ca retail businesses, both subject to regulatory clearance.

03—Questions

Frequently Asked Questions

Why did GAAP EPS fall so sharply while Adjusted EPS grew?
GAAP EPS of $1.87 was hurt by a $643 million pre-tax remeasurement loss tied to the planned sale of McKesson's Canadian retail businesses, plus a $227 million business rationalization charge. McKesson excludes these items, along with amortization, LIFO effects, and other adjustments, to arrive at Adjusted EPS of $7.07, which grew 13%. Investors should evaluate both measures, since the excluded charges are real cash-economic costs of restructuring and divestiture activity.
How much of the raised guidance reflects core operating improvement?
The guidance was raised by $0.25 at the midpoint, from $31.75–$32.55 to $32.40–$33.00. However, the Adjusted EPS guidance includes $0.53 of year-to-date gains from McKesson Ventures equity investments, which are non-operating. Excluding that contribution, the guidance would imply a lower underlying operating outlook than the headline range suggests, so investors should look for further detail on the earnings call.
What drove the 21% revenue growth?
Growth was primarily driven by U.S. Pharmaceutical, where revenue increased 23% to $85.7 billion. Contributors included onboarding a new strategic partner, higher prescription volumes including from retail national account customers, specialty products, and GLP-1 medications. Medical-Surgical Solutions grew 4%, Prescription Technology Solutions grew 11%, and International grew 7%.
Did the Rite Aid bankruptcy affect results this quarter?
Yes, favorably on a GAAP basis. McKesson recorded a $203 million pre-tax credit in U.S. Pharmaceutical as it reversed part of the prior-year bad-debt provision related to Rite Aid, which emerged from bankruptcy in August 2024. McKesson excluded this credit from Adjusted results, so it boosted GAAP EPS but not Adjusted EPS.
What is the status of the Canadian divestiture and the oncology acquisition?
Both transactions were announced in this quarter and remain subject to customary closing conditions, including required regulatory clearance; the filing does not state expected closing timing. The sale of Rexall and Well.ca is already reflected in held-for-sale classifications on the balance sheet, and the company stopped recording depreciation and amortization on those assets. The Core Ventures acquisition would give McKesson a controlling interest in a practice with more than 530 providers that will remain independent and join The US Oncology Network.

04—Continue

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