Exchange: NYSE | Sector: Healthcare | Industry: Medical Distribution
Q1 2025
Published: Aug 7, 2024
Earnings Highlights
Revenue of $79.28B up 6.4% year-over-year
EPS of $7.00 decreased by 0.3% from previous year
Gross margin of 3.7%
Net income of 915.00M
"Earlier today, we reported first quarter company revenues of $79.3 billion, reflecting 6% growth year-over-year. Adjusted earnings per diluted share increased 8% to $7.88 above our original expectation. As a result of our performance in the first quarter, we're raising our guidance for full year adjusted earnings per diluted share from $31.25 to $32.05 to a new range of $31.75 to $32.55." - Brian Tyler
McKesson Corporation (MCK) QQ1 2025 Earnings Review: US Pharmaceutical Momentum, Oncology Platform Strength, and Guidance Uplift
Executive Summary
McKesson reported QQ1 2025 results with consolidated revenue of $79.3 billion, up 6% year-over-year, and adjusted diluted EPS of $7.88, up 8% vs. prior year. Management raised full-year adjusted EPS guidance to $31.75–$32.55, reflecting confidence in continued performance across core platforms and ongoing optimization initiatives. The quarter showcased a differentiated mix: robust US Pharmaceutical growth driven by specialty and GLP-1 medications, steady progress in international pharma distribution led by Canada, and notable strength in the oncology ecosystem (US Oncology Network, Ontada, SCRI). These positives were tempered by softer Medical-Surgical demand in core primary care channels and near-term headwinds in Prescription Technology Solutions (RxTS) from product-launch delays and service mix shifts. The board-approved capital allocation actions—15% dividend increase to $0.71 and an additional $4 billion in share repurchases—underscore the visibility McKesson sees in its long-term growth trajectory and cash-generative profile. Management reiterated a disciplined investment plan focused on people, sustainable core growth, oncology/biopharma services, and technology-enabled efficiency. The outlook implies 2025 revenue growth of roughly mid-teens for the company, with second-half earnings contributions expected to be meaningfully stronger as on-ramp costs unwind and efficiency improvements mature.
Key Performance Indicators
Revenue
79.28B
QoQ: 3.83% | YoY:6.44%
Gross Profit
2.96B
3.73% margin
QoQ: -14.64% | YoY:-2.18%
Operating Income
1.06B
QoQ: -22.67% | YoY:-3.55%
Net Income
915.00M
QoQ: 15.68% | YoY:-4.49%
EPS
7.05
QoQ: 16.53% | YoY:-0.28%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $79.283B, up 6% YoY; QoQ growth 3.83% (4Q1 2024–Q1 2025 data context).
Diluted EPS: $7.88; adjusted EPS per guidance range $7.88 as reported; shares outstanding ~130.7M.
Financial Highlights
Consolidated metrics (QQ1 2025 vs QQ1 2024):
- Revenue: $79.283B, up 6% YoY; QoQ growth 3.83% (4Q1 2024–Q1 2025 data context).
- Gross profit: $2.956B; gross margin 3.73%.
- Operating income: $1.061B; operating margin 1.34%.
- Net income: $0.915B; net margin 1.15%.
- Diluted EPS: $7.88; adjusted EPS per guidance range $7.88 as reported; shares outstanding ~130.7M.
- Segment highlights: US Pharmaceutical revenue $71.7B (+7%); GLP-1 meds $8.8B (+26% YoY; +17% sequential); RxTS revenue ~$1.2B; Medical-Surgical revenue $2.6B (+1%); International revenue $3.7B (+6%).
- Cash flow and leverage: Free cash flow negative at $(1.547)B; net cash provided by operating activities $(1.38)B; capex $(0.167)B; cash end-of-period $2.304B; total debt $7.397B; net debt $5.093B.
- Capital allocation: share repurchases $527M; dividends paid $82M; 15% dividend increase to $0.71 per share and up to $4B additional buybacks approved in July 2024.
- Outlook (FY2025): adjusted EPS guidance raised to $31.75–$32.55; US Pharma revenue growth 13–16%; RxTS revenue growth 14–18% with 11–15% operating profit growth; Medical-Surgical 3–7% revenue with margins at the low end of 6–8% guidance; International 4–8% revenue with 8–12% operating profit growth; Free cash flow guidance $4.8–$5.2B; share repurchases ~=$2.8B; FYE weighted-average diluted shares ~128–130M; non-GAAP guidance assumes a stronger second half contribution.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
79.28B
6.44%
3.83%
Gross Profit
2.96B
-2.18%
-14.64%
Operating Income
1.06B
-3.55%
-22.67%
Net Income
915.00M
-4.49%
15.68%
EPS
7.05
-0.28%
16.53%
Key Financial Ratios
currentRatio
0.93
grossProfitMargin
3.73%
operatingProfitMargin
1.34%
netProfitMargin
1.15%
returnOnAssets
1.28%
returnOnEquity
-52.1%
debtEquityRatio
-4.21
operatingCashFlowPerShare
$-10.63
freeCashFlowPerShare
$-11.92
dividendPayoutRatio
8.96%
priceToBookRatio
-43.37
priceEarningsRatio
20.79
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management insights and quotes from the QQ1 2025 earnings call:
- Strategy and execution: Brian Tyler emphasized the four-priority framework and the breadth of the oncology/cancer care platform, noting the onboarding of a large new distribution customer in July as a testament to execution excellence. Quote: “The on-boarding of a large distribution customer this past July... an example of the terrific execution McKesson is known for.â€
- Financial outlook and shareholder value: Britt Vitalone highlighted that adjusted EPS increased 8% to $7.88 and that the board approved a 15% dividend increase to $0.71 and $4B of additional share repurchase, bringing total authorization to ~$10B as of July 2024. Quote: “Board of Directors approved a 15% increase to the quarterly dividend and additional share repurchase authorization up to $4 billion.â€
- Growth mix and margin dynamics: Management called out strong US Pharmaceutical growth, particularly in oncology and GLP-1s, but acknowledged slower growth in Medical-Surgical and some RxTS headwinds from product-launch delays and mix shifts. Quote: “RxTS adjusted operating profit was unchanged year-over-year, driven by growth in affordability solutions, offset by lower contributions due to the mix of the services within our access programs and higher expenses to support future growth.â€
- Oncology and biopharma strategy: Brian highlighted the integration of oncology assets (US Oncology Network, Ontada, SCRI) under one organization to accelerate go-to-market and create a seamless customer experience. Quote: “During the first quarter, we aligned all the oncology related assets and teams... into one organization to further align our oncology platform.â€
- AI and technology investments: Brianna emphasized AI and automation to improve forecasting, patient access, and order fulfillment, including a chatbot for prior authorization and AI-driven demand forecasting. Quote: “We continue to explore more use cases for technology and AI... AI to improve internal forecasting of customer demand.â€
- Specific program updates and risk factors: Britt cited product-launch delays (e.g., Icodec) and prior authorization program maturities (e.g., Trulicity) as sources of RxTS variability, underscoring a policy of managing through mix and launch timing rather than fundamental demand decline. Quote: “The timing and trajectory of new product drug launches is an impact… Icodec… prior authorization programs… Trulicity… shifts in funding to other programs.â€
Earlier today, we reported first quarter company revenues of $79.3 billion, reflecting 6% growth year-over-year. Adjusted earnings per diluted share increased 8% to $7.88 above our original expectation. As a result of our performance in the first quarter, we're raising our guidance for full year adjusted earnings per diluted share from $31.25 to $32.05 to a new range of $31.75 to $32.55.
— Brian Tyler
Board of Directors approved a 15% increase to our quarterly dividend and additional share repurchase authorization up to $4 billion. This brings the total share repurchase authorization to approximately $10 billion as of July of 2024.
— Brian Tyler
Forward Guidance
Outlook and assessment:
- Revenue and earnings trajectory: Management raised FY2025 adjusted EPS guidance to $31.75–$32.55, signaling confidence in continued momentum across US Pharmaceutical (including strong oncology offerings) and stabilization of other segments. They expect US Pharmaceutical revenues to rise 13–16% (driven by specialty distribution and GLP-1 volumes) and RxTS revenues to grow 14–18% with 11–15% operating profit growth, albeit tempered by product-launch delays and GLP-1 program dynamics. These targets imply meaningful earnings growth in H2 as ramp costs subside and efficiency initiatives mature.
- Margin and profitability: The company expects insulated margin upside from higher-margin RxTS components (affordability and adherence solutions) and oncology/biopharma services, offset by ongoing mix shifts and platform investments. The MD&A notes that more than half of RxTS revenue is from the 3PL business (low margin), with higher-margin access programs and adherence solutions driving the bulk of incremental profitability later in the year.
- Cash flow and capital allocation: Free cash flow guidance of $4.8–$5.2B supports continued buybacks and a robust dividend policy, with expected repurchases around $2.8B for the year. Near-term cash flow remains sensitive to working capital timing, as noted by the company.
- Key risk factors to monitor: 1) GLP-1 program mix and potential changes in utilization or discounting by payers; 2) HUMIRA biosimilar competition affecting branded pharmaceutical contributions; 3) timing of product launches and evolution of RxTS programs; 4) cost optimization program in Medical-Surgical (charges $100–$150M planned, with benefits anticipated in H2 2025); 5) macro headwinds in primary care volumes impacting Medical-Surgical; 6) regulatory/policy shifts affecting reimbursement and pricing.
- Bottom line assessment: Given the combination of a strengthened oncology/biopharma services position, improving US Pharma performance, and meaningful capital returns, the QQ1 2025 results support a constructive longer-term view, with execution risk concentrated in RxTS mix stability and Medical-Surgical profitability dynamics in the near term. Investors should monitor GLP-1 launch timing, HUMIRA biosimilar progress, and the pace of synergies from the oncology platform consolidation as primary drivers of 2H performance.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MCK Focus
3.73%
1.34%
-52.10%
20.79%
CAH
3.64%
1.09%
-12.70%
16.14%
HSIC
30.00%
5.04%
2.58%
26.13%
PDCO
20.30%
1.90%
1.44%
42.23%
OMI
17.70%
1.44%
-2.45%
-23.98%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
McKesson remains a leading, diversified healthcare services company with a compelling longer-term growth trajectory anchored in oncology/biopharma services and a high-quality US pharmaceutical distribution franchise. The QQ1 2025 performance demonstrates solid top-line momentum, an improving earnings trajectory, and meaningful capital returns that support shareholder value creation. Key catalysts include: (i) continued expansion of the US Oncology Network and SCRI-driven clinical trial capabilities, (ii) monetization of ClarusONE and greater utilization of Ontada data insights to optimize payor/provider workflows, (iii) stabilization and potential upside in RxTS through higher-margin affordability and adherence services, and (iv) scale benefits from the Optum distribution contract onboarding. On the downside, precision around GLP-1 program mix, HUMIRA biosimilar dynamics, and RxTS launch delays represent near-term earnings sensitivity. Given the combination of earnings growth, sustainable cash flow, and the potential for margin expansion through strategic cost actions (Medical-Surgical restructuring) and higher-margin RxTS/oncology services, the investment stance remains constructive with a bias toward a gradual accumulation as execution across the oncology ecosystem and AI initiatives unfolds. Investors should monitor: GLP-1 utilization trends, product-launch cadence, the impact of Med-Surg restructuring on profitability, and the evolution of ClarusONE’s contribution to margin in the context of a competitive generic sourcing landscape.
Key Investment Factors
Growth Potential
Strong near-term growth in US Pharmaceutical, led by oncology assets and GLP-1 volumes; expansion of oncology ecosystem (US Oncology Network >2,600 providers; SCRI trials across 250+ locations; Ontada data/insights) provides cross-sell opportunities and data-enabled services. International Canada distribution growth, opportunities to apply AI in inventory and supply chain, and ClarusONE for generic sourcing offer additional upside. AI-enabled patient access and demand forecasting can improve operating leverage across RxTS and broader McKesson services.
Profitability Risk
HUMIRA biosimilar pricing/dynamics reducing branded pharmaceutical contribution; RxTS mix sensitivity to product-launch delays and annual verification programs; Medical-Surgical profitability exposed to primary care softness and cost-reduction program execution; potential regulatory or reimbursement shifts; integration risk and execution risk around oncology platform consolidation; negative free cash flow in Q1 reflects working capital timing and tax payments.
Financial Position
Solid revenue base with diversified franchises; liquidity supported by $2.3B cash and ongoing access to financing; debt remains elevated with total debt around $7.4B and net debt approximately $5.1B; free cash flow forecast supports continued capital deployment (dividends and buybacks) though near-term cash from operations was negative due to working capital timing. Projections imply improving operating cash flow in H2 as onboarding costs abate and efficiency programs mature.
SWOT Analysis
Strengths
Diversified healthcare services platform with integrated oncology/biopharma capabilities (US Oncology Network, Ontada, SCRI) enhancing patient access and outcomes.
Robust US Pharmaceutical momentum supported by GLP-1 growth and specialty distribution strength.
Scale and breadth of international distribution, particularly Canada, with technology-enabled capabilities.
Strong capital allocation stance (dividend growth and substantial buybacks) signaling confidence in long-term cash generation.
Strategic focus on AI and automation to improve forecasting, authorization processes, and supply chain efficiency.
Weaknesses
Low gross margin (3.73%) relative to some healthcare distributors, with notable margin pressure from 3PL versus higher-margin services.
Negative equity signal in the balance sheet suggesting capital structure complexity or reporting idiosyncrasies; reliance on debt financing.
Near-term weakness in Medical-Surgical segment driven by primary care softness and channel mix, requiring ongoing restructuring costs.
Opportunities
Expansion of oncology ecosystem and data-enabled services to drive cross-sell across segments.
AI-driven optimization in RxTS and supply chain could lift margins and reduce operating costs.
Continued international expansion and ClarusONE growth in generic sourcing delivering cost advantages to customers.
Potential further strategic partnerships or practice acquisitions in US Oncology Network to broaden geographic reach.
Threats
Pricing and utilization dynamics of GLP-1 therapies and HUMIRA biosimilars could compress margins in key segments.
Product-launch delays and changes in drug-mix within RxTS can cause earnings volatility quarter-to-quarter.
Regulatory/policy changes in healthcare reimbursements or drug pricing could impact margin resilience.
Execution risk from large-scale oncology platform consolidation and integration of multiple assets.
McKesson Corporation (MCK) Q3 FY2025 Earnings Analysis: Diversified Growth Across U.S. Pharmaceutical, RxTS and Oncology Platforms with Strategic Eye ...