Exchange: NYSE | Sector: Healthcare | Industry: Medical Distribution
Q2 2025
Published: Nov 7, 2024
Earnings Highlights
Revenue of $93.65B up 21.3% year-over-year
EPS of $1.86 decreased by 62.2% from previous year
Gross margin of 3.5%
Net income of 241.00M
"record quarterly revenue of $93.7 billion. Adjusted operating profit increased 7% to $1.3 billion and adjusted earnings per diluted share increased 13% to $7.07." - Brian Tyler
McKesson Corporation (MCK) Q2 FY2025 Earnings Review: Record Quarterly Revenue of $93.7B, Adjusted EPS $7.07, and Strategic Portfolio Expansion (Oncology, Biopharma Services) with Core Ventures and InspiroGene
Executive Summary
McKesson reported a strong second quarter of fiscal 2025, highlighted by record quarterly revenue of approximately $93.7 billion and a solid cash-generation profile. Management emphasized execution across the enterprise, with the US Pharmaceutical segment driving the majority of the top line through new partnerships, GLP-1 growth, and expanding oncology and biopharma services. Adjusted operating profit rose 7% to about $1.3 billion, and adjusted diluted EPS increased 13% to $7.07, prompting an elevation of full-year guidance to $32.40-$33.00 per share. The company also advanced strategic initiatives, including the formation of InspiroGene for cell & gene therapy commercialization, the acquisition of a controlling interest in Core Ventures to bolster the US Oncology Network, and the planned divestiture of Rexall and Well.ca in Canada to refocus capital and accelerate growth in core pillars.
Key near-term drivers include: (1) continued strength in the US pharmaceutical distribution franchise, supported by ClarusONE and a strategic partner onboarding that added roughly $31 billion of incremental revenue for the full year; (2) robust oncology and biopharma services momentum, with Sarah Cannon Research Institute enrollment growth and 118 new providers added to US Oncology Network year-to-date, expanding access to trials and community-based care; (3) InspiroGene’s launch as a dedicated cell & gene therapy Solutions platform, leveraging McKesson’s end-to-end capabilities in logistics, access, and support; (4) ongoing operational modernization and technology investments to improve customer experience and drive cost efficiency; and (5) disciplined capital deployment including a significant buyback program, dividends, and targeted acquisitions/divestitures.
Financially, GAAP metrics show operating income of about $0.58B for the quarter, while management underscored that non-GAAP adjusted results tell a more meaningful story of ongoing profitability and growth, with adjusted operating profit of ~$1.3B and adjusted EPS of $7.07. The company maintains a robust free cash flow trajectory ($4.8-$5.2B full-year guide) and a strong liquidity position, albeit with leverage influenced by recent acquisitions and held-for-sale activities. Investors should monitor: (a) execution of Core Ventures and impact on US Oncology profitability, (b) the ramp and cadence of RxTS programs and 3PL dynamics, (c) biosimilars and pricing dynamics, (d) the Rexall/Well.ca divestiture timing and accretion, and (e) the pace of SG&A optimization and cost-savings programs in Med/Surg.
Key Performance Indicators
Revenue
93.65B
QoQ: 18.12% | YoY:21.29%
Gross Profit
3.25B
3.47% margin
QoQ: 9.88% | YoY:5.83%
Operating Income
578.00M
QoQ: -45.52% | YoY:-39.22%
Net Income
241.00M
QoQ: -73.66% | YoY:-63.70%
EPS
1.87
QoQ: -73.48% | YoY:-62.22%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $93.65B (YoY growth 21%; excluding the addition of a new strategic partner, consolidated revenue would have grown ~8% YoY). QoQ growth: 18% in reported terms.
Gross profit: $3.248B; gross margin approximately 3.47% (gross profit margin shown as 0.0347).
Adjusted operating profit: $1.30B (+7% YoY).
Adjusted EPS (diluted): $7.07 (+13% YoY).
GAAP operating income: $0.578B; GAAP operating margin around 0.62% (0.00617 in the data).
Financial Highlights
Revenue, profitability, cash flow, and balance sheet highlights (Q2 FY2025):
- Revenue: $93.65B (YoY growth 21%; excluding the addition of a new strategic partner, consolidated revenue would have grown ~8% YoY). QoQ growth: 18% in reported terms.
- Gross profit: $3.248B; gross margin approximately 3.47% (gross profit margin shown as 0.0347).
- Adjusted operating profit: $1.30B (+7% YoY).
- Adjusted EPS (diluted): $7.07 (+13% YoY).
- GAAP operating income: $0.578B; GAAP operating margin around 0.62% (0.00617 in the data).
- Net income (GAAP): $0.241B; net income margin ~0.26% (0.00257).
- Diluted GAAP EPS: $1.86; weighted average shares ~128.7–129.3M.
- Free cash flow: $2.267B for the quarter; operating cash flow: $2.10B; capex: $0.167B.
- Cash and equivalents: $2.52B; total debt: $7.22B; net debt: $4.71B.
- Shareholder returns: $1.60B returned to shareholders in Q2 (including $1.50B in share repurchases and $80M in dividends).
- Segment highlights (Q2): US Pharmaceutical revenues $85.7B (+23% YoY; ex-partner growth ~8%); GLP-1 medications $10.4B (+47% YoY); RxTS revenues $1.3B (+11%); Medical Surgical revenues $2.9B (+4%); International revenues $3.7B (+7%).
- Guidance (FY2025): Revenue growth 15-17%; adjusted EPS $32.40-$33.00; US Pharmaceutical revenue growth 16-19% and op profit growth 9-11%; RxTS revenues 8-12%; Med Surg revenues 1-5%; International 5-9%.
- Strategic/corporate actions: Onboarding of a new strategic partner expected to contribute about $31B incremental revenue in FY2025; Core Ventures 70% stake for $2.49B cash; anticipated accretion of $0.40-$0.60 in 12 months post-close and $1.40-$1.60 by year 3; Rexall/Well.ca divestiture in Canada expected to close in Q4 FY2025 with ~$0.15 accretion from held-for-sale accounting; InspiroGene launch to accelerate cell & gene therapy commercialization and logistics; $2B+ in patient savings via affordability programs.
- Cash flow strength: Free cash flow guidance raised to $4.8B-$5.2B for the full year; working capital dynamics can cause quarterly volatility; significant capacity for share repurchases and deleveraging over time.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
93.65B
21.29%
18.12%
Gross Profit
3.25B
5.83%
9.88%
Operating Income
578.00M
-39.22%
-45.52%
Net Income
241.00M
-63.70%
-73.66%
EPS
1.87
-62.22%
-73.48%
Key Financial Ratios
currentRatio
0.91
grossProfitMargin
3.47%
operatingProfitMargin
0.62%
netProfitMargin
0.26%
returnOnAssets
0.33%
returnOnEquity
-7.99%
debtEquityRatio
-2.39
operatingCashFlowPerShare
$16.32
freeCashFlowPerShare
$17.61
dividendPayoutRatio
33.2%
priceToBookRatio
-21.09
priceEarningsRatio
66.01
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management insights and quotes from the Q2 earnings call:
- 'record quarterly revenue of $93.7 billion. Adjusted operating profit increased 7% to $1.3 billion and adjusted earnings per diluted share increased 13% to $7.07.' — Brian Tyler, Chief Executive Officer.
- 'We are raising and narrowing our guidance range for fiscal 2025 adjusted earnings per diluted share to $32.40 to $33.00.' — Britt Vitalone, Chief Financial Officer.
- 'Affordability programs enabled patient savings of over $2 billion in out-of-pocket costs in the second quarter.' — McKesson management, on Biopharma Services affordability program impact.
- 'In InspiroGene, we launched a dedicated cell and gene therapy commercialization business to address the complex challenges of bringing these therapies to market and to leverage our oncology capabilities across the platform.' — Brian Tyler.
- 'We expect Core Ventures to be accretive in the first 12 months post-close and meaningfully accretive by year 3; target accretion ranges $0.40-$0.60 and $1.40-$1.60 respectively.' — Britt Vitalone, on Core Ventures.
- 'GLP-1 medications growth remains strong; continued ramp in oncology network accruals and clinical trial activity.' — Brian Tyler.
- 'We are modernizing the enterprise with cloud and AI initiatives (Ontada and Microsoft Azure AI to process 150M oncology documents), which should yield long-term efficiency and differentiation benefits.' — Brian Tyler.
record quarterly revenue of $93.7 billion. Adjusted operating profit increased 7% to $1.3 billion and adjusted earnings per diluted share increased 13% to $7.07.
— Brian Tyler
we raised and narrowed our guidance range for fiscal 2025 adjusted earnings per diluted share to $32.40 to $33.00.
— Britt Vitalone
Forward Guidance
Assessment of McKesson's FY2025 outlook and risk factors:
- Growth trajectory: Revenue growth guidance 15-17% and adjusted EPS growth 18-20% (to $32.40-$33.00) reflects durable momentum in US Pharmaceutical distribution, expansion in specialty and oncology services, and integration benefits from Core Ventures and InspiroGene. Management expects the US Pharmaceutical segment to grow 16-19% in revenue with 9-11% operating profit growth, aided by a new strategic partner and continued GLP-1 and specialty drug volumes.
- Margin and profitability: Adjusted operating profit guidance implies ongoing margin discipline; cost optimization efforts (Medical Surgical initiatives) are projected to contribute $100M in savings in the second half, with payback under two years. However, near-term variations may arise from RxTS revenue variability and 3PL dynamics, which can affect quarterly profitability but are not expected to derail full-year AOP growth.
- Strategic deltas: Core Ventures (70% stake) is expected to be accretive to earnings, with initial accretion of $0.40-$0.60 in year 1 and $1.40-$1.60 by year 3, though no financial results from Core Ventures are included in the FY2025 outlook. InspiroGene is positioned to capture value from cell and gene therapy supply chains, leveraging McKesson's ecosystem.
- Cash flow and capital allocation: Free cash flow guidance remains strong ($4.8B-$5.2B), enabling continued share repurchases and potential deleveraging. Investors should monitor leverage trajectory given ongoing acquisitions and the Rexall/Well.ca divestiture.
- Risks: Regulatory clearance for Core Ventures, timing of Rexall/Well.ca completion, potential volatility in RxTS due to payer dynamics, product delays, and biosimilar competition; macro policy shifts and reimbursement environment; supply chain disruptions and illness-season variability impacting Med Surg volumes.
- Bottom-line assessment: The FY2025 outlook appears achievable given the mid-teens revenue growth targets, continued operating leverage, and substantial optionality from high-growth platforms (oncology, biopharma services, InspiroGene). Investors should monitor the timing of major divestitures, regulatory approvals, and the ramp of new platforms as the main secular and execution risks.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MCK Focus
3.47%
0.62%
-7.99%
66.01%
CAH
3.51%
0.99%
-13.40%
17.89%
HSIC
30.50%
5.55%
2.96%
19.69%
PDCO
19.60%
2.25%
2.78%
17.26%
OMI
18.00%
2.44%
-3.71%
-7.83%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
McKesson remains a foundational, diversified healthcare services platform with defensible scale in pharmaceutical distribution and meaningful upside from oncology and biopharma services. The combination of record revenue, disciplined cost management, and a robust free cash flow profile supports a constructive long-term investment thesis, balanced by execution and regulatory risks around core strategic initiatives. The company’s FY2025 guidance underscores confidence in mid-teens revenue growth and 18-20% EPS growth on a path that benefits from Core Ventures, InspiroGene, and technology-enabled efficiency gains. The stock could trade at a premium given the quality of the business and structural growth tailwinds, but investors should monitor regulatory/compensation risks, the timing of divestitures, and the ramp of new platforms that influence near-term profitability and cash flow cadence.
Key Investment Factors
Growth Potential
High. Growth drivers include: (i) expansion of US Pharmaceutical distribution with ClarusONE and a new strategic partner contributing approximately $31B incremental revenue in FY2025; (ii) US Oncology Network expansion via Core Ventures and acquisitions (e.g., Core Ventures joins 3,300 providers across 31 states), enabling scale and cross-selling across drug purchasing, clinical trials, and EHR services; (iii) Biopharma Services expansion leveraging prior authorization, hub services, and affordable access programs, plus the InspiroGene cell and gene therapy platform; (iv) InspiroGene collaboration with Ontada/Microsoft Azure AI to accelerate information extraction from oncology documents; (v) strong cash flow generating capability enabling continued buybacks and reinvestment in technology and distribution capacity.
Profitability Risk
Moderate-to-high. Key risks include: regulatory clearance risk and execution risk of Core Ventures; impact of Rexall/Well.ca divestiture timing; RxTS variability from regulatory/payer shifts and 3PL revenue volatility; biosimilar pricing dynamics and competition; potential cost inflation from technology investments and integration costs; macro policy changes affecting healthcare reimbursements.
Financial Position
Solid liquidity and cash generation. End of quarter cash and equivalents $2.52B; net debt approx. $4.71B with total debt of $7.22B; quarterly free cash flow $2.27B and run-rate guidance of $4.8–$5.2B for the year support aggressive share buybacks (raised to ~$3.2B) and potential deleveraging. Strong operating cash flow (Q2 CFO about $2.10B) and disciplined working capital management underpin stability of the balance sheet amid large transformative moves (Core Ventures, InspiroGene, Canada divestiture).
SWOT Analysis
Strengths
Largest US healthcare distributor with diversified exposure to Pharmaceuticals, Medical-Surgical, International, and RxTS (prescription technology solutions).
Strong cash flow generation and shareholder-friendly capital allocation (share buybacks, dividends, M&A optionality).
Growth platforms in Oncology and Biopharma Services (US Oncology Network expansion, Sarah Cannon Research Institute, and InspiroGene).
Scale advantages in distribution and sourcing (ClarusONE) and advantaged brand/private-label mix.
Strategic partnerships and pipeline catalysts (new Strategic Partner, Core Ventures, and 150M+ unstructured oncology documents project with Ontada/Microsoft).
Weaknesses
GAAP margins are modest (GAAP operating income ~$0.58B vs. adjusted ~$1.3B) implying limited visibility to traditional margin leverage in the near term.
Med/Surg segment exposed to primary care demand normalization and illness-season variability; ongoing cost optimization programs required.
Rexall/Well.ca divestiture introduces near-term execution risk and post-close transitional dynamics; relying on divestitures for capital reallocation.
RxTS variability and 3PL exposure can introduce quarterly volatility to revenue and near-term earnings.
Opportunities
Core Ventures acquisition and integration could broaden US Oncology footprint, scale economics, and cross-sell services.
InspiroGene platform to accelerate cell & gene therapy access, with potential to extend to other specialties beyond oncology.
Continued growth of GLP-1 and specialty meds via prior authorization and hub services; biosimilars opportunity in Part B and oncology.
Cloud, AI, and data analytics initiatives to reduce cost-to-serve and improve decisioning; Ontada/Microsoft Azure AI collaboration for efficiency and differentiation.
Threats
Regulatory clearance risk for Core Ventures and regulatory review of international divestitures; timing could affect earnings accretion.
Biopharma pricing and biologics/biosimilar competition could pressure margins; payer mix and utilization management policies remain influential.
Macroeconomic and political shifts impacting healthcare policy and reimbursement trajectories.
Execution risks associated with rapid onboarding of new providers and integration of acquired practices.
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