Why did GAAP EPS decline while adjusted EPS grew 20%?

GAAP net income attributable to McKesson fell 22% to $614 million, largely because of a $293 million remeasurement charge to redemption value of redeemable noncontrolling interests in Medical-Surgical Solutions following Apollo's investment. McKesson excludes this and other items such as amortization, transaction costs, and restructuring charges to arrive at adjusted results, which rose to $1.18 billion.

Is the company's cash flow a concern?

Operating cash flow was negative $220 million and free cash flow was negative $372 million in the quarter. Quarterly working capital swings are common for a distributor, and the figure improved from negative $1.1 billion a year earlier, but investors should monitor whether cash generation normalizes given the large buybacks and debt-funded capital return.

What does the raised guidance mean for investors?

Fiscal 2027 Adjusted EPS guidance rose by $0.40 at both ends of the range to $44.20-$45.00, implying 13%-15% growth. Management cited strong first-quarter performance and sustainable operational momentum. McKesson does not provide GAAP EPS guidance because it cannot reliably forecast items such as LIFO adjustments, litigation, and restructuring charges.

How is the Medical-Surgical Solutions separation affecting the company?

McKesson sold an approximately 13% minority interest to Apollo Funds for $1.25 billion on June 1, 2026, and raised a $2.25 billion Term Loan B on June 9, 2026. The business has been named Wellverse. The separation is subject to conditions and may not be completed on the current terms or timeline. Its segment profit fell 20% on an adjusted basis, and its noncontrolling interest accounting is a major source of GAAP earnings volatility.

How did the company's balance sheet change?

Long-term debt increased to $8.4 billion from $5.3 billion, cash rose to $5.2 billion from $4.0 billion, and redeemable noncontrolling interests grew to $2.6 billion from $0.9 billion. Total deficit widened to $(3.9) billion, reflecting share repurchases and the separation-related equity transactions. Leverage and the stockholders' deficit merit ongoing attention.

MCK 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed August 5, 2026. Cited figures are marked; the original filing is the authoritative source.

McKesson (MCK) reported fiscal 2027 first-quarter results for the quarter ended June 30, 2026, with revenue up 8% to $105.4 billion^a and Adjusted Earnings per Diluted Share up 20% to $9.93, while GAAP diluted EPS fell 18% to $5.15.

The GAAP decline is driven mainly by a $293 million^b remeasurement charge to redemption value of redeemable noncontrolling interests tied to the Apollo Funds' purchase of an approximately 13% stake in the Medical-Surgical Solutions business, which lifted noncontrolling interest income to $418 million from $47 million. Management attributes the adjusted growth to North American Pharmaceutical and Oncology & Multispecialty, plus a lower share count (diluted shares down 5% to 119.2 million). Oncology & Multispecialty revenue grew 33% and adjusted segment operating profit grew 41%, while Medical-Surgical Solutions adjusted profit fell 20%.

Cash generation was weak in the quarter: operating cash flow was negative $220 million^c and free cash flow was negative $372 million, versus negative $1.1 billion a year earlier. Capital return remained heavy at $2.6 billion, including $2.5 billion of buybacks, of which $2.25 billion was an accelerated share repurchase, and the quarterly dividend was raised 15% to $0.94. Total debt rose meaningfully, with long-term debt increasing to $8.4 billion from $5.3 billion, and stockholders' deficit widened to $(4.2) billion, reflecting the buyback and separation-related activity.

Management raised fiscal 2027 Adjusted EPS guidance to $44.20^d-$45.00 from $43.80-$44.60, implying 13%-15% growth, and no GAAP EPS forecast is provided. The planned separation of Medical-Surgical Solutions, now named Wellverse, remains in progress and is a key driver of both the ownership changes and the upcoming GAAP volatility. Investors should weigh the strong adjusted earnings momentum against the negative free cash flow, rising leverage, and the reliance on non-GAAP adjustments to present results.

02—Key points

Key Highlights

Revenue rose 8% to $105.4 billion, led by North American Pharmaceutical (+5% to $86.8 billion) and Oncology & Multispecialty (+33% to $14.2 billion).
Adjusted EPS grew 20% to $9.93, while GAAP diluted EPS fell 18% to $5.15, mainly due to a $293 million noncontrolling interest redemption value charge tied to Medical-Surgical Solutions.
Fiscal 2027 Adjusted EPS guidance was raised to $44.20-$45.00 from $43.80-$44.60, implying 13%-15% growth; no GAAP guidance is provided.
Free cash flow was negative $372 million (operating cash outflow of $220 million), though this improved from negative $1.1 billion a year earlier.
Shareholder returns totaled $2.6 billion, including $2.5 billion in buybacks (of which $2.25 billion was an accelerated repurchase) and a 15% dividend increase to $0.94 per quarter.
Long-term debt increased to $8.4 billion from $5.3 billion, and the stockholders' deficit widened to $(4.2) billion, with the $2.25 billion Term Loan B supporting the separation.
The Medical-Surgical Solutions separation is advancing: Apollo bought a 13% minority stake for $1.25 billion, and the business was renamed Wellverse; Medical-Surgical adjusted operating profit fell 20%.

03—Questions

Frequently Asked Questions

Why did GAAP EPS decline while adjusted EPS grew 20%?
GAAP net income attributable to McKesson fell 22% to $614 million, largely because of a $293 million remeasurement charge to redemption value of redeemable noncontrolling interests in Medical-Surgical Solutions following Apollo's investment. McKesson excludes this and other items such as amortization, transaction costs, and restructuring charges to arrive at adjusted results, which rose to $1.18 billion.
Is the company's cash flow a concern?
Operating cash flow was negative $220 million and free cash flow was negative $372 million in the quarter. Quarterly working capital swings are common for a distributor, and the figure improved from negative $1.1 billion a year earlier, but investors should monitor whether cash generation normalizes given the large buybacks and debt-funded capital return.
What does the raised guidance mean for investors?
Fiscal 2027 Adjusted EPS guidance rose by $0.40 at both ends of the range to $44.20-$45.00, implying 13%-15% growth. Management cited strong first-quarter performance and sustainable operational momentum. McKesson does not provide GAAP EPS guidance because it cannot reliably forecast items such as LIFO adjustments, litigation, and restructuring charges.
How is the Medical-Surgical Solutions separation affecting the company?
McKesson sold an approximately 13% minority interest to Apollo Funds for $1.25 billion on June 1, 2026, and raised a $2.25 billion Term Loan B on June 9, 2026. The business has been named Wellverse. The separation is subject to conditions and may not be completed on the current terms or timeline. Its segment profit fell 20% on an adjusted basis, and its noncontrolling interest accounting is a major source of GAAP earnings volatility.
How did the company's balance sheet change?
Long-term debt increased to $8.4 billion from $5.3 billion, cash rose to $5.2 billion from $4.0 billion, and redeemable noncontrolling interests grew to $2.6 billion from $0.9 billion. Total deficit widened to $(3.9) billion, reflecting share repurchases and the separation-related equity transactions. Leverage and the stockholders' deficit merit ongoing attention.

04—Continue

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