Industry Overview - The Zacks Medical - Dental Supplies industry is experiencing weakness due to rising U.S. tariffs on trading partners, particularly China, which are expected to impact sales through 2025 [1] - Demand for elective procedures in the U.S. is declining, affecting sales across various product lines, including CAD/CAM and imaging products [2] - The global dental industry is projected to reach $610.4 billion with a CAGR of 4.5% from 2023 to 2032, indicating long-term growth potential despite current challenges [2] Major Trends - The aging population in the U.S. is a significant driver for the dental equipment market, with 55.8 million people aged 65 and above reported in 2020 [5] - Technological innovations such as CAD/CAM systems and AI diagnostics are enhancing treatment efficacy and expanding product use [6] - There is a growing emphasis on preventive care, leading to increased consumption of preventive dental products [6] - Trends towards minimally invasive and cosmetic dentistry are expanding market segments for specialized dental consumables [7] - Emerging markets, particularly in Asia-Pacific, are experiencing faster growth rates due to rising healthcare expenditure and improved access to care [8] Economic Impact - U.S. tariffs have significantly increased costs on essential imported dental items, with tariffs ranging from 10% to over 50%, leading to higher operational costs for manufacturers and distributors [10] - The industry is gradually shifting supply chains towards domestic production to mitigate tariff exposure, while dental associations are advocating for tariff exemptions [10] Industry Performance - The Zacks Medical Dental Supplies industry has underperformed compared to the broader sector and the S&P 500, with a collective decline of 0.4% over the past year [13] - The industry is currently trading at a forward P/E of 16.05X, lower than the S&P 500's 22.7X and the sector's 18.4X [16] Company Insights - West Pharmaceutical is expected to sustain growth momentum through 2025, with projected revenues between $3.04 billion and $3.06 billion, reflecting an organic growth of 3-3.75% [22] - McKesson is experiencing strong operational momentum, with a projected revenue gain of 13.3% for fiscal 2025 [31] - Cardinal Health anticipates adjusted EPS in the range of $8.05-$8.15 for fiscal 2025, despite facing pricing pressures and inflationary impacts [37] - Cooper Companies expects revenue growth of approximately 5.7% for 2025, supported by strong demand in both CooperVision and CooperSurgical segments [43]

Core Viewpoint - Investor sentiment is highly pessimistic, and U.S. pharmaceutical stocks are facing the most severe challenges in decades [1][3]. Group 1: Market Performance - Major biopharmaceutical companies experienced significant sell-offs during the recent earnings season, leading to a weak overall performance of the sector [1][3]. - The healthcare sector's weight in the S&P 500 index has dropped to its lowest point in decades [1][9]. - Vertex Pharmaceuticals and Eli Lilly faced substantial declines, with Vertex dropping 20.6% on August 4 due to setbacks in its pain medication project, while Eli Lilly recorded its largest drop since the dot-com bubble [4][7]. Group 2: Stock Volatility - The average volatility of healthcare stocks during this earnings season reached ±6%, marking one of the highest volatility records in history [3][9]. - Other major healthcare stocks, including Novo Nordisk, McKesson Corp, and UnitedHealth Group, saw declines of 10% to 20% post-earnings [3][7]. Group 3: Policy Uncertainty - Policy uncertainties, particularly regarding the Trump administration's Most Favored Nation pricing proposal and potential tariffs on the pharmaceutical industry, are major challenges for pharmaceutical stocks [8][9]. - Analysts are closely monitoring the potential announcement of pharmaceutical tariffs, expected in mid-August, which could further impact the sector [8][9]. Group 4: Company-Specific Developments - Despite the overall weak performance, some companies like Johnson & Johnson and Gilead Sciences showed strong results, with Gilead's stock rising 6% last week and a year-to-date increase of 30% due to robust HIV business growth [7]. - The weight loss drug sector has been particularly hard hit, with Eli Lilly losing $100 billion in market value due to disappointing data on its oral weight loss medication [7].

Group 1 - The core viewpoint of the article highlights McKesson's financial performance, showing a significant increase in revenue but a decline in net profit [1][2] - As of June 30, 2025, McKesson reported total revenue of $97.827 billion, representing a year-over-year growth of 23.39% [1] - The company's net profit attributable to shareholders was $784 million, which reflects a year-over-year decrease of 14.32% [1] Group 2 - On August 6, McKesson announced a cumulative share repurchase amounting to $581 million for the first quarter of 2025 [2] - McKesson is recognized as a global leader in healthcare supply chain management solutions, retail pharmacy, community oncology, specialty care, and healthcare information technology [2] - The company operates through three segments: U.S. Pharmaceutical and Specialty Solutions, European Pharmaceutical Solutions, and Medical-Surgical Solutions [2]

Core Insights - McKesson Corporation reported first-quarter fiscal 2026 adjusted EPS of $8.26, exceeding estimates and reflecting a 4.8% year-over-year growth driven by strong operational performance [2][8] - The company plans to spin off its Medical-Surgical Solutions segment to enhance strategic focus and operational efficiency [12][20] Financial Performance - GAAP EPS was $6.25, a decline of 10.7% year-over-year due to increased provisions for bad debts related to Rite Aid's bankruptcy [3] - Revenues reached $97.83 billion, surpassing estimates by 1.8% and showing a 23.4% year-over-year increase, primarily from higher prescription volumes and oncology product distribution [4][8] - Adjusted gross profit was $3.26 billion, up 6.7% year-over-year, while adjusted operating income rose 16.6% to $1.56 billion [14] Segment Analysis - U.S. Pharmaceutical segment revenues totaled $89.95 billion, a 25% increase year-over-year, driven by higher prescription volumes and specialty products [6][9] - International segment revenues were $3.74 billion, up 1% year-over-year, with growth in Canadian pharmaceutical distribution [10] - Medical-Surgical Solutions segment revenues reached $2.7 billion, a 2% increase year-over-year, supported by higher specialty pharmaceutical volumes [11] Strategic Initiatives - The company made two strategic acquisitions, PRISM Vision and Core Ventures, to expand its multi-specialty platform and enhance its provider network [18] - Investments in automation and technology services are expected to improve operational leverage and meet evolving supply-chain requirements [20][21] Future Outlook - McKesson raised its EPS guidance for fiscal 2026 to a range of $37.10-$37.90, reflecting confidence in continued growth despite not providing specific sales outlooks due to the planned spin-off [16] - The upcoming Investor Day in September is anticipated to clarify long-term capital deployment and growth priorities [21]

Core Insights - McKesson reported $97.83 billion in revenue for the quarter ended June 2025, a year-over-year increase of 23.4% [1] - The EPS for the same period was $8.26, compared to $7.88 a year ago, with a surprise of +0.36% over the consensus estimate [1] Revenue Breakdown - U.S. Pharmaceutical revenue was $89.95 billion, exceeding the average estimate of $87.36 billion, with a year-over-year change of +25.4% [4] - Prescription Technology Solutions revenue reached $1.43 billion, surpassing the $1.35 billion estimate, reflecting a +15.6% year-over-year change [4] - International revenue was $3.74 billion, slightly above the $3.67 billion estimate, representing a +1.3% change year-over-year [4] - Medical-Surgical Solutions revenue was $2.7 billion, matching the estimate, with a +2.5% year-over-year change [4] Adjusted Operating Profit - Adjusted Operating Profit for U.S. Pharmaceutical was $950 million, below the average estimate of $965.96 million [4] - Adjusted Operating Profit for International was $99 million, slightly below the $100.22 million estimate [4] - Adjusted Operating Profit for Medical-Surgical Solutions was $244 million, exceeding the estimate of $215.97 million [4] - Adjusted Operating Profit for Prescription Technology Solutions was $269 million, above the $249.95 million estimate [4] - Adjusted Operating Profit for Corporate was -$138 million, worse than the average estimate of -$108.6 million [4] Stock Performance - McKesson shares returned -2% over the past month, while the Zacks S&P 500 composite increased by +0.5% [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating potential outperformance in the near term [3]

Core Viewpoint - McKesson reported quarterly earnings of $8.26 per share, exceeding the Zacks Consensus Estimate of $8.23 per share, and showing an increase from $7.88 per share a year ago, indicating a positive earnings surprise of +0.36% [1][2] Financial Performance - The company achieved revenues of $97.83 billion for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 1.82%, and up from $79.28 billion in the same quarter last year [2] - Over the last four quarters, McKesson has exceeded consensus EPS estimates three times and topped revenue estimates two times [2] Stock Performance - McKesson shares have increased approximately 24.5% since the beginning of the year, significantly outperforming the S&P 500's gain of 7.1% [3] Future Outlook - The company's earnings outlook is crucial for investors, with current consensus EPS estimates at $8.61 for the coming quarter and $37.26 for the current fiscal year, alongside projected revenues of $103.81 billion and $406.16 billion respectively [7] - The Zacks Rank for McKesson is currently 2 (Buy), indicating expectations for the stock to outperform the market in the near future [6] Industry Context - The Medical - Dental Supplies industry, to which McKesson belongs, is currently in the top 25% of over 250 Zacks industries, suggesting a favorable environment for stock performance [8]

Financial Data and Key Metrics Changes - The company reported record consolidated revenues of $97.8 billion, an increase of 23% over the prior year [5][30] - Adjusted operating profit increased by 9% to $1.4 billion, with three segments delivering double-digit growth [6][34] - The full-year guidance was raised to a range of $37.1 to $37.9 from a previous range of $36.9 to $37.7 [6][44] Business Line Data and Key Metrics Changes - In the U.S. Pharmaceutical segment, revenues were $90 billion, an increase of 25%, driven by increased prescription volumes and growth in oncology and specialty products [37] - The Prescription Technology Solutions segment saw revenues increase by 16% to $1.4 billion, with operating profit up 21% to $269 million [39] - Medical Surgical Solutions revenues were $2.7 billion, an increase of 2%, with operating profit rising 22% to $244 million [39] Market Data and Key Metrics Changes - Revenues in the international segment were $3.7 billion, an increase of 1%, with higher pharmaceutical distribution volumes in Canada [40] - The company anticipates revenue growth of 11% to 15% for fiscal 2026, with operating profit growth of 9% to 13% [44][52] Company Strategy and Development Direction - The company focuses on two strategic growth pillars: oncology and biopharma services, with recent acquisitions aimed at expanding capabilities in these areas [11][12] - The company is committed to enhancing its distribution network and investing in automation technologies to improve operational efficiency [20][32] - A strategic decision was made to separate the Medical Surgical segment into an independent company to enhance operational focus [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate a dynamic market and policy environment while delivering strong results [24][25] - The company remains engaged with policymakers to evaluate potential impacts on business and customers [25][101] - Management highlighted the importance of community settings for healthcare delivery and the need to keep them vibrant and healthy [100] Other Important Information - The company completed the acquisition of a controlling interest in Core Ventures and Prism Vision, which are expected to contribute significantly to growth [12][46] - The company announced a definitive agreement to sell its retail and distribution businesses in Norway, marking the exit from European operations [23][27] Q&A Session All Questions and Answers Question: Insights on RxTS performance and guidance - Management noted the consistency of operating performance in the RxTS segment, driven by utilization and program success, while acknowledging the challenges in predicting future upside [56][57] Question: Impact of Rite Aid's bankruptcy on operations - Management indicated that the impact of Rite Aid's second bankruptcy on operations and profit growth is immaterial and does not expect it to affect fiscal 2026 [61][62] Question: Changes in pharmaceutical market dynamics - Management stated that brand pricing and generic pricing are in line with expectations, and there are no unusual impacts from tariffs at this time [73][75] Question: Discussion on biosimilar adoption and its impact - Management highlighted that while biosimilars are a steady contributor to earnings, they do not expect material gains in the short term [81][84] Question: Trajectory of operating expenses and automation initiatives - Management discussed ongoing efforts in automation and efficiency improvements, which are expected to positively impact operating expenses over time [87][89]

[PART I—FINANCIAL INFORMATION](index=2&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents McKesson Corporation's unaudited condensed consolidated financial statements for Q1 FY26 and Q1 FY25, including key financial statements and comprehensive notes [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (in millions, except EPS) | Metric | Three Months Ended June 30, 2025 (in millions) | Three Months Ended June 30, 2024 (in millions) | Change (%) | | :----- | :--------------------------------------------- | :--------------------------------------------- | :--------- | | Revenues | $97,827 | $79,283 | 23% | | Cost of sales | $(94,548) | $(76,131) | 24% | | Gross profit | $3,279 | $3,152 | 4% | | Operating income | $1,036 | $1,029 | 1% | | Income before income taxes | $1,051 | $1,084 | (3)% | | Net income | $831 | $960 | (13)% | | Net income attributable to McKesson Corporation | $784 | $915 | (14)% | | Diluted EPS | $6.25 | $7.00 | (11)% | | Basic EPS | $6.28 | $7.04 | (11)% | | Weighted-average common shares outstanding (Diluted) | 125.5 | 130.7 | (4)% | [Condensed Consolidated Statements of Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Statements of Comprehensive Income (in millions) | Metric | Three Months Ended June 30, 2025 (in millions) | Three Months Ended June 30, 2024 (in millions) | | :----- | :--------------------------------------------- | :--------------------------------------------- | | Net income | $831 | $960 | | Other comprehensive income (loss), net of tax | $34 | $(32) | | Comprehensive income | $865 | $928 | | Comprehensive income attributable to McKesson Corporation | $818 | $883 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in millions) | Metric (in millions) | June 30, 2025 | March 31, 2025 | | :------------------- | :------------ | :------------- | | Total assets | $81,311 | $75,140 | | Cash and cash equivalents | $2,418 | $5,691 | | Receivables, net | $28,158 | $25,643 | | Inventories, net | $25,065 | $23,001 | | Goodwill | $11,365 | $10,022 | | Intangible assets, net | $4,272 | $1,464 | | Total current liabilities | $64,331 | $61,604 | | Drafts and accounts payable | $57,861 | $55,330 | | Long-term debt | $6,528 | $4,463 | | Redeemable noncontrolling interests | $725 | $— | | Total McKesson Corporation stockholders' deficit | $(1,967) | $(2,074) | [Condensed Consolidated Statements of Stockholders' Deficit](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Deficit) Condensed Consolidated Statements of Stockholders' Deficit (in millions) | Metric (in millions) | Balance, March 31, 2025 | Issuance of shares | Share-based compensation | Repurchase of common stock | Net income | Other comprehensive income | Cash dividends declared | Payments to noncontrolling interests | Other | Balance, June 30, 2025 | | :------------------- | :---------------------- | :----------------- | :----------------------- | :------------------------- | :--------- | :------------------------- | :---------------------- | :----------------------------------- | :---- | :--------------------- | | Common Stock (Shares) | 279 | 1 | — | — | — | — | — | — | — | 280 | | Common Stock (Amount) | $3 | $— | $— | $— | $— | $— | $— | $— | $— | $3 | | Additional Paid-in Capital | $8,373 | $22 | $55 | $— | $— | $— | $— | $— | $(1) | $8,449 | | Retained Earnings | $17,921 | — | — | — | $784 | — | $(89) | — | — | $18,616 | | Accumulated Other Comprehensive Loss | $(932) | — | — | — | — | $34 | — | — | — | $(898) | | Treasury Common Shares (Shares) | (154) | — | — | (1) | — | — | — | — | — | (155) | | Treasury Common Shares (Amount) | $(27,439) | $(106) | $— | $(592) | $— | $— | $— | $— | $— | $(28,137) | | Noncontrolling Interests | $380 | — | — | — | $47 | — | — | $(47) | $(1) | $379 | | Total Deficit | $(1,694) | $(84) | $55 | $(592) | $831 | $34 | $(89) | $(47) | $(2) | $(1,588) | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in millions) | Activity (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :--------------------- | :------------------------------- | :------------------------------- | :----------- | | Net cash used in operating activities | $(918) | $(1,380) | $462 (decrease in cash used) | | Net cash used in investing activities | $(3,564) | $(87) | $(3,477) (increase in cash used) | | Net cash provided by (used in) financing activities | $1,176 | $(809) | $1,985 (shift to cash provided) | | Effect of exchange rate changes on cash, cash equivalents, and restricted cash | $33 | $(5) | $38 | | Net decrease in cash, cash equivalents, and restricted cash | $(3,273) | $(2,281) | $(992) (larger decrease) | | Cash and cash equivalents at end of period | $2,418 | $2,302 | $116 | [Note 1 - Significant Accounting Policies](index=8&type=section&id=Note%201%20-%20Significant%20Accounting%20Policies) - McKesson Corporation is a diversified healthcare services leader, reporting financial results in four segments: U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International[22](index=22&type=chunk) - The company adopted Accounting Standards Update (ASU) 2023-09, Income Taxes, in the first quarter of fiscal 2026, which will increase disclosures but had **no impact on consolidated financial statement results**[32](index=32&type=chunk) - ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures, is effective for fiscal years beginning after December 15, 2026, and the company is currently evaluating its impact on disclosures[33](index=33&type=chunk) [Note 2 - Business Acquisitions and Divestitures](index=9&type=section&id=Note%202%20-%20Business%20Acquisitions%20and%20Divestitures) - On April 1, 2025, McKesson acquired an **80% controlling interest in PRISM Vision Holdings, LLC for $874 million in cash**, with financial results included in the U.S. Pharmaceutical segment[35](index=35&type=chunk) - On June 2, 2025, McKesson acquired a **70% controlling interest in Community Oncology Revitalization Enterprise Ventures, LLC (Core Ventures) for $2.5 billion in cash**, with financial results included in the U.S. Pharmaceutical segment[40](index=40&type=chunk)[41](index=41&type=chunk) - The company completed the sale of its Rexall and Well.ca businesses in Canada (Canadian retail disposal group) on December 30, 2024, for **$9 million cash and a $120 million note**, divesting net assets of $741 million[45](index=45&type=chunk) - On August 4, 2025, the company entered into an agreement to sell its retail and distribution businesses in Norway, expecting to classify these assets and liabilities as held for sale[48](index=48&type=chunk) [Note 3 - Restructuring, Impairment, and Related Charges, Net](index=12&type=section&id=Note%203%20-%20Restructuring,%20Impairment,%20and%20Related%20Charges,%20Net) Restructuring, Impairment, and Related Charges, Net (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | | Restructuring, impairment, and related charges, net | $47 | $10 | - During Q2 FY25, the company approved enterprise-wide initiatives to modernize technology and streamline the organization, anticipating total charges of **$650 million to $700 million by fiscal 2028**[51](index=51&type=chunk) - For the three months ended June 30, 2025, **$38 million in charges** were recorded related to these initiatives, primarily for facility exit, severance, and other employee-related costs[51](index=51&type=chunk) [Note 4 - Income Taxes](index=13&type=section&id=Note%204%20-%20Income%20Taxes) Income Tax Expense and Rate (in millions, except rates) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | | Income tax expense | $220 million | $124 million | | Reported income tax rate | 20.9% | 11.4% | - Fluctuations in income tax rates were primarily due to changes in the mix of earnings between various taxing jurisdictions and discrete items[58](index=58&type=chunk) - Q1 FY26 recognized a net discrete tax benefit of **$23 million**, primarily from share-based compensation, while Q1 FY25 recognized **$125 million in benefits** from a foreign affiliate tax status change, share-based compensation, and reduction in unrecognized tax benefits[59](index=59&type=chunk) [Note 5 - Redeemable Noncontrolling Interests and Noncontrolling Interests](index=13&type=section&id=Note%205%20-%20Redeemable%20Noncontrolling%20Interests%20and%20Noncontrolling%20Interests) - During Q1 FY26, the company recognized redeemable noncontrolling interests of **$25 million** related to the PRISM Vision acquisition and **$700 million** related to the Core Ventures acquisition[62](index=62&type=chunk) Redeemable Noncontrolling Interests and Noncontrolling Interests (in millions) | Metric (in millions) | June 30, 2025 | March 31, 2025 | | :------------------- | :------------ | :------------- | | Redeemable Noncontrolling Interests | $725 | $— | | Noncontrolling Interests | $379 | $380 | - Net income attributable to noncontrolling interests was **$47 million** for Q1 FY26 and **$45 million** for Q1 FY25[66](index=66&type=chunk) [Note 6 - Earnings Per Common Share](index=15&type=section&id=Note%206%20-%20Earnings%20Per%20Common%20Share) Earnings Per Common Share (in millions, except EPS and share counts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | | Net income attributable to McKesson Corporation | $784 million | $915 million | | Diluted EPS | $6.25 | $7.00 | | Basic EPS | $6.28 | $7.04 | | Weighted-average diluted common shares outstanding | 125.5 million | 130.7 million | | Weighted-average basic common shares outstanding | 124.9 million | 129.8 million | - The decrease in weighted-average diluted common shares outstanding was primarily due to the cumulative effect of share repurchases[217](index=217&type=chunk) [Note 7 - Goodwill and Intangible Assets, Net](index=16&type=section&id=Note%207%20-%20Goodwill%20and%20Intangible%20Assets,%20Net) Goodwill and Intangible Assets, Net (in millions) | Metric (in millions) | June 30, 2025 | March 31, 2025 | | :------------------- | :------------ | :------------- | | Goodwill | $11,365 | $10,022 | | Intangible assets, net | $4,272 | $1,464 | - Goodwill increased by **$1,277 million** in Q1 FY26, primarily due to acquisitions of PRISM Vision (**$432 million**) and Core Ventures (**$806 million**)[36](index=36&type=chunk)[41](index=41&type=chunk)[74](index=74&type=chunk) - Amortization expense of intangible assets was **$50 million** for Q1 FY26, down from $63 million in Q1 FY25[76](index=76&type=chunk) [Note 8 - Debt and Financing Activities](index=18&type=section&id=Note%208%20-%20Debt%20and%20Financing%20Activities) Debt and Financing Activities (in millions) | Metric (in millions) | June 30, 2025 | March 31, 2025 | | :------------------- | :------------ | :------------- | | Total debt | $7,777 | $5,654 | | Total long-term debt | $6,528 | $4,463 | - On May 30, 2025, the company completed a public debt offering of **$2.0 billion** (net proceeds) through 2030, 2032, and 2035 Notes, used to fund the Core Ventures acquisition[46](index=46&type=chunk)[83](index=83&type=chunk) - The company entered into a new **$1.0 billion 364-Day senior unsecured credit facility** in May 2025, maturing in May 2026, and extended its **$4.0 billion 5-Year facility** to November 2029[87](index=87&type=chunk)[89](index=89&type=chunk) [Note 9 - Hedging Activities](index=20&type=section&id=Note%209%20-%20Hedging%20Activities) - McKesson uses derivatives (cross-currency swaps, interest rate swaps, foreign currency forward contracts) to hedge interest rate and foreign currency exchange rate risks, not for speculative purposes[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk) - The company expanded its net investment hedging program in fiscal 2025, with **C$6.5 billion in cross-currency swaps** outstanding at June 30, 2025[98](index=98&type=chunk) - Executed **$1.4 billion in forward-starting interest rate swap locks** in fiscal 2025 and Q1 FY26 to hedge upcoming financing activities, which were terminated upon a public debt offering[101](index=101&type=chunk) [Note 10 - Fair Value Measurements](index=22&type=section&id=Note%2010%20-%20Fair%20Value%20Measurements) - Cash and cash equivalents include **$242 million in money market funds** at June 30, 2025, which are reported at fair value using Level 1 inputs[105](index=105&type=chunk) - Fair values of derivatives (interest rate swaps, cross-currency swaps, foreign currency forward contracts) are determined using Level 2 inputs[106](index=106&type=chunk)[107](index=107&type=chunk) - Fair value assessments for acquisitions (PRISM Vision, Core Ventures) and goodwill impairment tests are considered Level 3 measurements due to significant unobservable inputs and company-specific information[111](index=111&type=chunk)[116](index=116&type=chunk) Long-term Debt Fair Value (in millions) | Metric (in millions) | June 30, 2025 | March 31, 2025 | | :------------------- | :------------ | :------------- | | Long-term debt, including current maturities (Carrying Value) | $7,777 | $5,654 | | Long-term debt, including current maturities (Fair Value) | $7,798 | $5,598 | [Note 11 - Commitments and Contingent Liabilities](index=25&type=section&id=Note%2011%20-%20Commitments%20and%20Contingent%20Liabilities) - The estimated accrued liability for opioid-related claims of U.S. governmental entities, Native American tribes, and certain non-governmental plaintiffs was **$6,377 million** at June 30, 2025[133](index=133&type=chunk) Litigation Liabilities (in millions) | Metric (in millions) | June 30, 2025 | March 31, 2025 | | :------------------- | :------------ | :------------- | | Current litigation liabilities | $776 | $776 | | Long-term litigation liabilities | $5,601 | $5,601 | | Total litigation liabilities | $6,377 | $6,377 | - The company has paid approximately **$2.0 billion** to Settling Governmental Entities as of June 30, 2025, with up to $5.9 billion more through 2038[123](index=123&type=chunk) - The City of Baltimore verdict against the company was remitted, reducing compensatory damages to **$37 million**[126](index=126&type=chunk) - Received **$28 million** from the State of New York to settle the Opioid Stewardship Act matter and **$8 million** from antitrust settlements in Q1 FY26[144](index=144&type=chunk)[145](index=145&type=chunk) [Note 12 - Stockholders' Deficit](index=29&type=section&id=Note%2012%20-%20Stockholders%27%20Deficit) - On July 29, 2025, the Board of Directors raised the quarterly dividend from **$0.71 to $0.82 per share** of common stock[147](index=147&type=chunk)[189](index=189&type=chunk)[261](index=261&type=chunk) - The company repurchased **0.8 million shares of common stock for $581 million** in Q1 FY26, with an average price of $709.84 per share[152](index=152&type=chunk)[189](index=189&type=chunk)[243](index=243&type=chunk)[249](index=249&type=chunk) - The total remaining authorization for common stock repurchases at June 30, 2025, was **$6.9 billion**[152](index=152&type=chunk)[189](index=189&type=chunk)[249](index=249&type=chunk) [Note 13 - Segments of Business](index=31&type=section&id=Note%2013%20-%20Segments%20of%20Business) - McKesson reports financial results in four segments: U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International[161](index=161&type=chunk)[179](index=179&type=chunk) Segment Revenues (in millions) | Segment | Q1 FY26 Revenues (in millions) | Q1 FY25 Revenues (in millions) | Change (%) | | :------ | :----------------------------- | :----------------------------- | :--------- | | U.S. Pharmaceutical | $89,954 | $71,715 | 25% | | RxTS | $1,434 | $1,241 | 16% | | Medical-Surgical Solutions | $2,701 | $2,636 | 2% | | International | $3,738 | $3,691 | 1% | | Total Revenues | $97,827 | $79,283 | 23% | Segment Operating Profit (in millions) | Segment | Q1 FY26 Operating Profit (in millions) | Q1 FY25 Operating Profit (in millions) | Change (%) | | :------ | :----------------------------------- | :----------------------------------- | :--------- | | U.S. Pharmaceutical | $727 | $781 | (7)% | | RxTS | $253 | $203 | 25% | | Medical-Surgical Solutions | $221 | $188 | 18% | | International | $92 | $90 | 2% | - The company announced its intention to separate the Medical-Surgical Solutions segment into an independent company during Q1 FY26[166](index=166&type=chunk)[189](index=189&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on McKesson's financial condition and results of operations for Q1 FY26, covering key highlights, trends, and liquidity [General](index=35&type=section&id=General) - This Financial Review assists in understanding significant changes and trends related to McKesson's operations and financial position[176](index=176&type=chunk) - The company's fiscal year begins on April 1 and ends on March 31[177](index=177&type=chunk) - The report contains forward-looking statements, subject to risks and uncertainties[177](index=177&type=chunk) [Overview of our Business](index=35&type=section&id=Overview%20of%20our%20Business) - McKesson is a diversified healthcare services leader focused on advancing health outcomes for patients[178](index=178&type=chunk) - The company reports financial results in four segments: U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International[179](index=179&type=chunk) - Recent acquisitions include PRISM Vision Holdings, LLC (**$874 million**) and Community Oncology Revitalization Enterprise Ventures, LLC (Core Ventures) (**$2.5 billion**), both integrated into the U.S. Pharmaceutical segment[182](index=182&type=chunk)[183](index=183&type=chunk) - McKesson announced its intention to separate the Medical-Surgical Solutions segment into an independent company[185](index=185&type=chunk) [Executive Summary](index=37&type=section&id=Executive%20Summary) Key Financial Highlights | Metric | Q1 FY26 vs. Prior Year Change | | :----- | :---------------------------- | | Revenues | +23% | | Gross profit | +4% | | Total operating expenses | +6% | | Other income, net | -51% | | Diluted EPS attributable to McKesson Corporation | $6.25 (from $7.00) | | Net income attributable to McKesson Corporation | $(14)% | - Completed acquisitions of PRISM Vision for **$874 million** and Core Ventures for **$2.5 billion**[189](index=189&type=chunk) - Recorded a **$189 million provision for bad debts** related to the bankruptcy of Rite Aid Corporation[189](index=189&type=chunk) - Returned **$671 million to shareholders** through $581 million in common stock repurchases and $90 million in dividend payments[189](index=189&type=chunk) [Trends and Uncertainties](index=37&type=section&id=Trends%20and%20Uncertainties) - Opioid-related litigation and claims continue to pose potential material adverse impacts on financial position, cash flows, or results of operations[187](index=187&type=chunk) - Rite Aid's second voluntary Chapter 11 petition led to an additional **$189 million provision for bad debts** in Q1 FY26 for remaining trade accounts receivable[192](index=192&type=chunk) - Previously, a **$725 million provision for bad debts** was recorded in fiscal 2024 related to Rite Aid, with a $206 million reversal in fiscal 2025[188](index=188&type=chunk) [Overview of Consolidated Results](index=38&type=section&id=Overview%20of%20Consolidated%20Results) Consolidated Financial Performance (in millions, except per share data) | Metric (in millions, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (%) | | :---------------------------------------- | :------------------------------- | :------------------------------- | :--------- | | Revenues | $97,827 | $79,283 | 23% | | Gross profit | $3,279 | $3,152 | 4% | | Gross profit margin | 3.35% | 3.98% | (63) bp | | Total operating expenses | $(2,243) | $(2,123) | 6% | | Other income, net | $64 | $130 | (51)% | | Income before income taxes | $1,051 | $1,084 | (3)% | | Net income attributable to McKesson Corporation | $784 | $915 | (14)% | | Diluted earnings per common share | $6.25 | $7.00 | (11)% | - Revenues increased primarily due to market growth in the U.S. Pharmaceutical segment, including higher volumes from retail national account customers and growth in specialty pharmaceuticals[196](index=196&type=chunk) - Gross profit was impacted by a decrease in net cash proceeds from antitrust legal settlements (**$8 million in Q1 FY26 vs. $90 million in Q1 FY25**)[197](index=197&type=chunk)[198](index=198&type=chunk) - Total operating expenses included a **$189 million provision for bad debts** related to Rite Aid and increased restructuring charges (**$47 million in Q1 FY26 vs. $10 million in Q1 FY25**)[200](index=200&type=chunk)[205](index=205&type=chunk) [Overview of Segment Results](index=42&type=section&id=Overview%20of%20Segment%20Results) Segment Revenues (in millions) | Segment | Q1 FY26 Revenues (in millions) | Q1 FY25 Revenues (in millions) | Change (%) | | :------ | :----------------------------- | :----------------------------- | :--------- | | U.S. Pharmaceutical | $89,954 | $71,715 | 25% | | Prescription Technology Solutions | $1,434 | $1,241 | 16% | | Medical-Surgical Solutions | $2,701 | $2,636 | 2% | | International | $3,738 | $3,691 | 1% | Segment Operating Profit (in millions) | Segment | Q1 FY26 Operating Profit (in millions) | Q1 FY25 Operating Profit (in millions) | Change (%) | | :------ | :----------------------------------- | :----------------------------------- | :--------- | | U.S. Pharmaceutical | $727 | $781 | (7)% | | Prescription Technology Solutions | $253 | $203 | 25% | | Medical-Surgical Solutions | $221 | $188 | 18% | | International | $92 | $90 | 2% | - U.S. Pharmaceutical operating profit decreased primarily due to a **$189 million provision for bad debts** related to Rite Aid and lower antitrust legal settlements[229](index=229&type=chunk) - Prescription Technology Solutions operating profit increased due to increased volumes from third-party logistics and higher technology services revenues[221](index=221&type=chunk)[230](index=230&type=chunk) [New Accounting Pronouncements](index=44&type=section&id=New%20Accounting%20Pronouncements) - The company refers to Financial Note 1 for details on recently adopted and issued accounting pronouncements, including ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures)[234](index=234&type=chunk) [Financial Condition, Liquidity, and Capital Resources](index=45&type=section&id=Financial%20Condition,%20Liquidity,%20and%20Capital%20Resources) Cash Flow Activities (in millions) | Activity (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change | | :--------------------- | :------------------------------- | :------------------------------- | :----- | | Net cash provided by (used in) operating activities | $(918) | $(1,380) | $462 | | Net cash used in investing activities | $(3,564) | $(87) | $(3,477) | | Net cash provided by (used in) financing activities | $1,176 | $(809) | $1,985 | | Net change in cash, cash equivalents, and restricted cash | $(3,273) | $(2,281) | $(992) | - Investing activities included **$3.4 billion of net cash payments for acquisitions**, primarily Core Ventures (**$2.5 billion**) and PRISM Vision (**$874 million**)[239](index=239&type=chunk) - Financing activities provided cash primarily due to **$2.0 billion in proceeds from public debt offerings**, used to fund the Core Ventures acquisition[244](index=244&type=chunk) Working Capital and Debt to Capital Ratio | Metric | June 30, 2025 | March 31, 2025 | | :----- | :------------ | :------------- | | Working capital | $(7,530) | $(6,206) | | Debt to capital ratio | 115.9% | 125.3% | [Cautionary Notice About Forward-Looking Statements](index=49&type=section&id=Cautionary%20Notice%20About%20Forward-Looking%20Statements) - This report contains forward-looking statements that involve risks and uncertainties, which could cause actual results to differ materially from projections[266](index=266&type=chunk) - Readers are cautioned not to place undue reliance on these statements, and the company undertakes no obligation to publicly release revisions, except as required by federal securities laws[266](index=266&type=chunk) [Available Information](index=49&type=section&id=Available%20Information) - McKesson routinely posts material information on its company website (www.mckesson.com) and social media channels (@McKesson on X) for investors[267](index=267&type=chunk) - Content on external websites or social media is not incorporated by reference into this report unless expressly noted[267](index=267&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes in McKesson's exposure to market risks, specifically those related to fluctuations in interest rates and foreign currency exchange rates, since the disclosures made in the Annual Report on Form 10-K for the fiscal year ended March 31, 2025 - No material change in exposure to risks associated with fluctuations in interest and foreign currency exchange rates compared to the Annual Report on Form 10-K for fiscal year ended March 31, 2025[268](index=268&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures) McKesson's CEO and CFO confirmed the effectiveness of disclosure controls and procedures as of June 30, 2025, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[269](index=269&type=chunk) - No material changes in internal control over financial reporting were identified during the three months ended June 30, 2025[270](index=270&type=chunk) [PART II—OTHER INFORMATION](index=50&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference detailed information on McKesson's legal proceedings, commitments, and contingent liabilities from relevant financial notes - Information on legal proceedings is incorporated by reference from Financial Note 11 of this report and Financial Note 17 of the 2025 Annual Report[272](index=272&type=chunk) - Disclosure of environmental proceedings with a governmental agency is generally included if monetary sanctions are expected to exceed **$1 million**[272](index=272&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) This section indicates that there have been no material changes to the risk factors previously disclosed in Part I, Item 1A of McKesson's Annual Report on Form 10-K for the fiscal year ended March 31, 2025, beyond the factual updates provided within this Quarterly Report on Form 10-Q - No material changes to risk factors disclosed in the Annual Report on Form 10-K for fiscal year ended March 31, 2025, other than factual updates in this Quarterly Report[273](index=273&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details McKesson's Board-authorized common stock repurchase program, including methods, influencing factors, and a summary of Q1 FY26 activity - The Board of Directors has authorized the repurchase of common stock, which may occur through open market transactions, privately negotiated transactions, or accelerated share repurchase programs[274](index=274&type=chunk) Common Stock Repurchase Activity (in millions, except price per share) | Metric (in millions, except price per share) | Q1 FY26 | | :----------------------------------------- | :------ | | Total Number of Shares Purchased | 0.8 | | Average Price Paid Per Share | $709.84 | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Programs | $6,879 | | Excise taxes accrued for shares repurchased | $2 | [Item 3. Defaults Upon Senior Securities](index=51&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section explicitly states that McKesson Corporation has not experienced any defaults upon senior securities during the reported period - There were no defaults upon senior securities[278](index=278&type=chunk) [Item 4. Mine Safety Disclosures](index=51&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that the disclosures related to mine safety are not applicable to McKesson Corporation's operations - Mine Safety Disclosures are not applicable to the company[279](index=279&type=chunk) [Item 5. Other Information](index=51&type=section&id=Item%205.%20Other%20Information) This section reports on a pre-arranged Rule 10b5-1 trading plan adopted by LeAnn Smith, Executive Vice President and Chief Human Resources Officer, on June 8, 2025, for the sale of up to 2,506 shares of the company's common stock - LeAnn Smith, EVP and Chief Human Resources Officer, adopted a Rule 10b5-1 trading arrangement on June 8, 2025[280](index=280&type=chunk) - The plan is for the sale of up to **2,506 shares of common stock**, with a duration until June 8, 2026[280](index=280&type=chunk) [Item 6. Exhibits](index=52&type=section&id=Item%206.%20Exhibits) This section lists comprehensive exhibits filed with the SEC, including legal documents, corporate governance materials, and financial data in iXBRL format - Exhibits include Officer's Certificate, Management Incentive Plan, CEO/CFO Certifications, and financial statements formatted in Inline Extensible Business Reporting Language (iXBRL)[283](index=283&type=chunk) [Signatures](index=53&type=section&id=Signatures) This section formally concludes the Quarterly Report on Form 10-Q with signatures from McKesson's EVP and CFO, and SVP and Controller, dated August 6, 2025 - The report is signed by Britt J. Vitalone (Executive Vice President and Chief Financial Officer) and Napoleon B. Rutledge Jr. (Senior Vice President and Controller)[288](index=288&type=chunk) - The signing date is August 6, 2025[288](index=288&type=chunk)

Financial Data and Key Metrics Changes - The company reported record consolidated revenues of $97.8 billion, an increase of 23% over the prior year [4] - Adjusted operating profit increased by 9% to $1.4 billion, with three segments delivering double-digit growth [5][27] - Gross profit was $3.3 billion, a 7% increase, driven by specialty distribution and provider growth [28] - Earnings per diluted share increased by 5% to $8.26, with a 14% increase when excluding gains from McKesson Ventures investments [33] Business Line Data and Key Metrics Changes - In the U.S. Pharmaceutical segment, revenues increased by 25% to $90 billion, driven by increased prescription volumes and growth in oncology and specialty products [35] - Prescription Technology Solutions segment revenues increased by 16% to $1.4 billion, with operating profit up 21% to $269 million [37] - Medical Surgical Solutions revenues were $2.7 billion, a 2% increase, with operating profit rising 22% to $244 million [38] - International segment revenues were $3.7 billion, a 1% increase, with operating profit down 3% to $99 million due to divestitures [38] Market Data and Key Metrics Changes - The company anticipates revenue growth of 11% to 15% and operating profit growth of 9% to 13% for fiscal 2026 [41] - The U.S. Pharmaceutical segment is expected to see revenue increases of 12% to 16% [42] - The Prescription Technology Solutions segment anticipates revenue growth of 8% to 12% [45] - The Medical Surgical Solutions segment expects revenue and operating profit growth of 2% to 6% [46] Company Strategy and Development Direction - The company is focused on oncology and biopharma services as strategic growth pillars, with recent acquisitions enhancing its capabilities [10][11] - A definitive agreement to sell the retail and distribution businesses in Norway marks the final phase of divesting European operations [21][25] - The company is investing in automation and technology to improve operational efficiency and productivity across its distribution network [30][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to sustain growth and deliver shareholder value despite market challenges [22][23] - The company remains engaged with policymakers to evaluate potential impacts on its business and customers [22] - Management highlighted the importance of community pharmacies and their role in the healthcare landscape [16][17] Other Important Information - The company plans to host an Investor Day on September 23 to provide updates on strategic priorities and business outlook [24] - The Board of Directors approved a 15% increase in the quarterly dividend, reflecting confidence in the company's strength [49] Q&A Session Summary Question: Impact of Norway sale on guidance - Management confirmed that the guidance increase is primarily tied to the sale of Norway and does not reflect changes in segment guidance for Medical or Rx Technology Solutions [108] Question: Core Pharma performance and Rite Aid impact - Management indicated that the impact of Rite Aid's bankruptcy on operations is immaterial and does not affect fiscal 2026 operations [58][59] Question: Biosimilar adoption and its impact - Management noted that recent biosimilar launches are contributing steadily to earnings, particularly in the Part B oncology channel [78][80] Question: Changes in pharmaceutical market dynamics - Management stated that brand pricing and generic pricing are in line with expectations, with no unusual impacts observed [72][73] Question: Operating expenses and automation initiatives - Management highlighted ongoing improvements in operating expense leverage due to automation and efficiency initiatives [84]

Financial Performance - Revenues reached $97.8 billion, a 23% increase year-over-year[11] - Adjusted Earnings per Diluted Share increased by 5% to $8.26[11] - The company is raising its Fiscal 2026 Adjusted Earnings per Diluted Share outlook to a range of $37.10 to $37.90[11] Segment Results - U.S Pharmaceutical revenues increased by 25% to $89.954 billion, with adjusted segment operating profit up by 17% to $950 million[15] - Prescription Technology Solutions revenues grew by 16% to $1.434 billion, and adjusted segment operating profit increased by 21% to $269 million[16] - Medical-Surgical Solutions revenues increased by 2% to $2.701 billion, with adjusted segment operating profit up by 22% to $244 million[17] Capital Allocation - The Board of Directors approved a 15% increase in the quarterly dividend[11] - Approximately $2.5 billion is anticipated for share repurchases in Fiscal Year 2026[27]