McKesson(MCK) - 2026 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements 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 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 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 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 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 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 - 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] - 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] - 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] Note 2 - Business Acquisitions and Divestitures - 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] - 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][41] - 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] - 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] Note 3 - Restructuring, Impairment, and Related Charges, Net 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] - 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] Note 4 - Income Taxes 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] - 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] Note 5 - Redeemable Noncontrolling Interests and Noncontrolling Interests - 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] 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] Note 6 - Earnings Per Common Share 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] Note 7 - Goodwill and Intangible Assets, Net 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][41][74] - Amortization expense of intangible assets was $50 million for Q1 FY26, down from $63 million in Q1 FY25[76] Note 8 - Debt and Financing Activities 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][83] - 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][89] Note 9 - Hedging Activities - 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][93][94] - 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] - 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] Note 10 - Fair Value Measurements - 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] - Fair values of derivatives (interest rate swaps, cross-currency swaps, foreign currency forward contracts) are determined using Level 2 inputs[106][107] - 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][116] 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 - 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] 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] - The City of Baltimore verdict against the company was remitted, reducing compensatory damages to $37 million[126] - 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][145] Note 12 - Stockholders' Deficit - On July 29, 2025, the Board of Directors raised the quarterly dividend from $0.71 to $0.82 per share of common stock[147][189][261] - 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][189][243][249] - The total remaining authorization for common stock repurchases at June 30, 2025, was $6.9 billion[152][189][249] Note 13 - Segments of Business - McKesson reports financial results in four segments: U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International[161][179] 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][189] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 - This Financial Review assists in understanding significant changes and trends related to McKesson's operations and financial position[176] - The company's fiscal year begins on April 1 and ends on March 31[177] - The report contains forward-looking statements, subject to risks and uncertainties[177] Overview of our Business - McKesson is a diversified healthcare services leader focused on advancing health outcomes for patients[178] - The company reports financial results in four segments: U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International[179] - 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][183] - McKesson announced its intention to separate the Medical-Surgical Solutions segment into an independent company[185] Executive Summary 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] - Recorded a $189 million provision for bad debts related to the bankruptcy of Rite Aid Corporation[189] - Returned $671 million to shareholders through $581 million in common stock repurchases and $90 million in dividend payments[189] Trends and Uncertainties - Opioid-related litigation and claims continue to pose potential material adverse impacts on financial position, cash flows, or results of operations[187] - 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] - 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] Overview of Consolidated Results 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] - 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][198] - 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][205] Overview of Segment Results 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] - Prescription Technology Solutions operating profit increased due to increased volumes from third-party logistics and higher technology services revenues[221][230] New Accounting Pronouncements - 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] Financial Condition, Liquidity, and Capital Resources 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] - Financing activities provided cash primarily due to $2.0 billion in proceeds from public debt offerings, used to fund the Core Ventures acquisition[244] 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 - This report contains forward-looking statements that involve risks and uncertainties, which could cause actual results to differ materially from projections[266] - 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] Available Information - McKesson routinely posts material information on its company website (www.mckesson.com) and social media channels (@McKesson on X) for investors[267] - Content on external websites or social media is not incorporated by reference into this report unless expressly noted[267] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - No material changes in internal control over financial reporting were identified during the three months ended June 30, 2025[270] PART II—OTHER INFORMATION Item 1. Legal Proceedings 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] - Disclosure of environmental proceedings with a governmental agency is generally included if monetary sanctions are expected to exceed $1 million[272] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] 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 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] Item 4. Mine Safety Disclosures 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] Item 5. Other Information 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] - The plan is for the sale of up to 2,506 shares of common stock, with a duration until June 8, 2026[280] Item 6. Exhibits 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] 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] - The signing date is August 6, 2025[288]