Why did GAAP EPS decline even though revenue and adjusted earnings grew?

GAAP diluted EPS fell 11% to $6.25 mainly because of a $189 million pre-tax bad debt provision in U.S. Pharmaceutical related to the Rite Aid bankruptcy. Management excluded this charge from Adjusted EPS, so adjusted results rose 5% to $8.26. Investors should consider whether they view this as a non-recurring item or a sign of ongoing credit risk in the customer base.

Is McKesson's free cash flow a concern this quarter?

Free cash flow was negative $1.1 billion, driven by an operating cash outflow of $918 million, largely from working capital changes including higher receivables and inventories. Quarterly cash flow is seasonal and timing-sensitive for a distributor, so the figure should be assessed over a full year. The $3.4 billion of acquisition spending was funded partly by $1.99 billion of new long-term debt, which raised long-term debt to $6.5 billion from $4.5 billion.

What does the guidance raise mean for investors?

Adjusted EPS guidance was raised by $0.20 at both ends to $37.10-$37.90, implying 12%-15% growth, or 14%-17% excluding fiscal 2025 McKesson Ventures gains. Roughly $0.20 of the increase comes from accounting for the Norway divestiture as held for sale, so it is not purely operational improvement. The company does not guide GAAP EPS because it cannot reliably forecast items such as LIFO adjustments and litigation contingencies.

What are the implications of the Norway sale and the Medical-Surgical separation?

The agreement to sell the Norwegian retail and distribution businesses to NorgesGruppen is subject to regulatory approval, and its closing timing and proceeds were not disclosed in this filing. The release also references management's intent to separate Medical-Surgical Solutions into an independent company, though no timeline or details were provided here. Investors should look for specifics at the September 23, 2025 Investor Day.

Are the new acquisitions contributing to growth?

Yes. PRISM Vision (80% controlling interest, ophthalmology and retina management) closed April 1, 2025, and Core Ventures (70% controlling interest, tied to Florida Cancer Specialists, bringing The US Oncology Network to about 3,300 providers) closed June 2, 2025. Both support the Oncology and Specialty growth cited by management, and both contributed to revenue growth in the quarter. Because the deals closed mid-quarter, their full impact will show in later periods.

MCK 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed August 6, 2025. Cited figures are marked; the original filing is the authoritative source.

McKesson (MCK) reported fiscal 2026 first-quarter results (quarter ended June 30, 2025) with revenue of $97.8 billion^a, up 23% year over year, driven mainly by U.S. Pharmaceutical volume growth from retail national accounts and growth in oncology and specialty distribution, including acquisitions.

GAAP diluted EPS fell 11% to $6.25^b from $7.00, primarily because of a $189 million pre-tax bad debt provision tied to the Rite Aid bankruptcy. Adjusted diluted EPS rose 5% to $8.26 from $7.88, supported by strong operating growth across segments and partly offset by a higher tax rate and the absence of a prior-year $110 million McKesson Ventures gain. Management raised its fiscal 2026 Adjusted EPS guidance to $37.10-$37.90 from $36.90-$37.70, implying 12%-15% growth, with about $0.20 of the increase attributed to held-for-sale accounting for the pending Norway divestiture.

Cash generation was weak in the quarter. Operating cash flow was negative at $918 million^c, capital expenditures were $189 million, and free cash flow was negative $1.1 billion. The company spent $3.4 billion on acquisitions, including PRISM Vision (80% stake, closed April 1, 2025) and Core Ventures (70% stake, closed June 2, 2025), which added to the Oncology and Specialty platform.

Cash returned to shareholders totaled $671 million^d, comprising $581 million in buybacks and $90 million in dividends. The Board raised the quarterly dividend 15% to $0.82 per share, the ninth consecutive annual increase. Investors will likely focus on whether the Rite Aid exposure is contained, the sustainability of free cash flow after acquisitions, and the strategic updates expected at the September 23, 2025 Investor Day.

The filing also disclosed an August 4, 2025 agreement to sell McKesson's Norwegian retail and distribution businesses to NorgesGruppen, which is subject to regulatory approval, and reiterated management's stated intent to separate the Medical-Surgical Solutions segment into an independent company. Segment performance was mixed: U.S. Pharmaceutical adjusted operating profit grew 17%, Prescription Technology Solutions rose 21%, and Medical-Surgical Solutions rose 22% on cost optimization, while International adjusted profit declined 3% after the Canadian retail divestiture. GAAP-based figures excluded the Rite Aid charge from adjusted results, which is a key judgment investors should weigh when assessing earnings quality.

02—Key points

Key Highlights

Revenue rose 23% to $97.8 billion, led by U.S. Pharmaceutical (+25%) on retail national account volumes and oncology/specialty growth, including acquisitions.
GAAP diluted EPS fell 11% to $6.25 due to a $189 million pre-tax Rite Aid bankruptcy bad debt provision, which was excluded from Adjusted EPS.
Adjusted diluted EPS grew 5% to $8.26; Adjusted Earnings rose 1% to $1,037 million, with a higher tax rate and the prior-year $110 million McKesson Ventures gain as headwinds.
FY2026 Adjusted EPS guidance raised to $37.10-$37.90 (from $36.90-$37.70), implying 12%-15% growth; about $0.20 of the raise reflects held-for-sale accounting for the Norway sale.
Free cash flow was negative $1.1 billion as operating cash flow was -$918 million, while $3.4 billion was spent on acquisitions (PRISM Vision and Core Ventures).
Quarterly dividend increased 15% to $0.82 per share, the ninth consecutive annual increase; the company repurchased $581 million of stock in the quarter.
Agreed on August 4, 2025 to sell its Norwegian retail and distribution businesses to NorgesGruppen, pending regulatory approvals; Investor Day is set for September 23, 2025.

03—Questions

Frequently Asked Questions

Why did GAAP EPS decline even though revenue and adjusted earnings grew?
GAAP diluted EPS fell 11% to $6.25 mainly because of a $189 million pre-tax bad debt provision in U.S. Pharmaceutical related to the Rite Aid bankruptcy. Management excluded this charge from Adjusted EPS, so adjusted results rose 5% to $8.26. Investors should consider whether they view this as a non-recurring item or a sign of ongoing credit risk in the customer base.
Is McKesson's free cash flow a concern this quarter?
Free cash flow was negative $1.1 billion, driven by an operating cash outflow of $918 million, largely from working capital changes including higher receivables and inventories. Quarterly cash flow is seasonal and timing-sensitive for a distributor, so the figure should be assessed over a full year. The $3.4 billion of acquisition spending was funded partly by $1.99 billion of new long-term debt, which raised long-term debt to $6.5 billion from $4.5 billion.
What does the guidance raise mean for investors?
Adjusted EPS guidance was raised by $0.20 at both ends to $37.10-$37.90, implying 12%-15% growth, or 14%-17% excluding fiscal 2025 McKesson Ventures gains. Roughly $0.20 of the increase comes from accounting for the Norway divestiture as held for sale, so it is not purely operational improvement. The company does not guide GAAP EPS because it cannot reliably forecast items such as LIFO adjustments and litigation contingencies.
What are the implications of the Norway sale and the Medical-Surgical separation?
The agreement to sell the Norwegian retail and distribution businesses to NorgesGruppen is subject to regulatory approval, and its closing timing and proceeds were not disclosed in this filing. The release also references management's intent to separate Medical-Surgical Solutions into an independent company, though no timeline or details were provided here. Investors should look for specifics at the September 23, 2025 Investor Day.
Are the new acquisitions contributing to growth?
Yes. PRISM Vision (80% controlling interest, ophthalmology and retina management) closed April 1, 2025, and Core Ventures (70% controlling interest, tied to Florida Cancer Specialists, bringing The US Oncology Network to about 3,300 providers) closed June 2, 2025. Both support the Oncology and Specialty growth cited by management, and both contributed to revenue growth in the quarter. Because the deals closed mid-quarter, their full impact will show in later periods.

04—Continue

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