Business Overview and History
McKesson Corporation (MCK) is a diversified healthcare services leader dedicated to advancing health outcomes for patients everywhere. The company partners with biopharma companies, care providers, pharmacies, manufacturers, governments, and others to deliver insights, products, and services that help make quality care more accessible and affordable.
McKesson was founded in 1833 as a pharmaceutical distributor in New York City and has grown to become the largest pharmaceutical distributor in North America. In the early 1900s, the company expanded its operations beyond the East Coast, opening distribution centers across the United States. McKesson successfully navigated the challenges of the Great Depression and World War II, maintaining its position as a leading pharmaceutical distributor.
In the 1970s and 1980s, McKesson diversified its business by acquiring companies in medical-surgical supplies and information technology for healthcare providers, broadening its range of products and services. Through the 2000s and 2010s, the company continued to grow both organically and through acquisitions, expanding its footprint in specialty pharmaceutical distribution, oncology services, and health information technology.
The company operates through four reportable segments: U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International.
The U.S. Pharmaceutical segment distributes branded, generic, specialty, biosimilar, and over-the-counter pharmaceutical drugs, as well as other healthcare-related products in the United States. This segment also provides practice management, technology, clinical support, and business solutions to community-based oncology and other specialty practices. Additionally, it sells financial, operational, and clinical solutions to pharmacies, hospitals, and alternate site providers.
The Prescription Technology Solutions (RxTS) segment helps solve medication access, affordability, and adherence challenges for patients by working across healthcare to connect patients, pharmacies, providers, pharmacy benefit managers, health plans, and biopharma companies. RxTS offers prescription price transparency, benefit insight, dispensing support services, third-party logistics, and wholesale distribution support across various therapeutic categories and temperature ranges to biopharma customers throughout the product lifecycle.
The Medical-Surgical Solutions segment provides medical-surgical supply distribution, logistics, and other services to healthcare providers, including physician offices, surgery centers, nursing homes, hospital reference labs, and home health care agencies. This segment offers national brand medical-surgical products as well as McKesson's own line of high-quality products through a network of distribution centers in the U.S.
The International segment includes the company's operations in Canada and Norway, bringing together non-U.S.-based drug distribution services, specialty pharmacy, retail, and infusion care services. McKesson's Canadian operations deliver medicines, supplies, and information technology solutions throughout Canada, while its Norwegian operations provide distribution and services to wholesale and retail customers in Norway where it owns, partners, or franchises with retail pharmacies.
Financial Performance and Ratios
In the latest fiscal year ended March 31, 2024, McKesson reported annual revenue of $308.95 billion, a 12% increase from the prior year. Net income for the year was $3.00 billion, with a net profit margin of 0.97%. The company's operating cash flow was $4.31 billion, and free cash flow was $3.63 billion.
McKesson's financial ratios indicate a strong, well-capitalized business. The company has a current ratio of 0.88, a quick ratio of 0.48, and a debt-to-equity ratio of 1.77, suggesting a healthy balance sheet and liquidity position. The company's return on assets (ROA) and return on equity (ROE) were 4.70% and -9.21%, respectively, in the latest fiscal year.
In the most recent quarter ended December 31, 2024, McKesson reported revenue of $95.29 billion, an 18% increase year-over-year, driven by higher volumes from retail national account customers and growth in specialty pharmaceuticals. Net income for the quarter was $879 million, and operating profit increased 16% year-over-year, with double-digit growth in the U.S. Pharmaceutical and Prescription Technology Solutions segments.
The company maintains a solid liquidity position with $1.13 billion in cash and cash equivalents and an undrawn $4.0 billion revolving credit facility as of the most recent quarter.
Segment Performance
U.S. Pharmaceutical Segment: For the three months ended December 31, 2024, revenues increased by 19% to $87.11 billion compared to the prior year period. This increase was primarily due to higher volumes from retail national account customers and growth in specialty pharmaceuticals, partially offset by branded to generic drug conversions. Segment operating profit increased significantly to $854 million compared to $307 million in the prior year period, primarily driven by a $515 million provision for bad debts recorded in the prior year related to the bankruptcy of Rite Aid, as well as growth in specialty pharmaceuticals.
Prescription Technology Solutions (RxTS) Segment: For the three months ended December 31, 2024, revenues increased 14% to $1.37 billion compared to the prior year period, driven by increased volumes from the segment's third-party logistics business and higher technology service revenues. Segment operating profit increased to $219 million from $178 million in the prior year quarter.
Medical-Surgical Solutions Segment: For the three months ended December 31, 2024, revenues decreased 3% to $2.95 billion compared to the prior year period. This was driven by a $96 million decline in sales to primary care customers, partially offset by increases in sales to extended care customers and other sales. Segment operating profit remained flat at $269 million.
International Segment: For the three months ended December 31, 2024, revenues increased 6% to $3.86 billion compared to the prior year period. This was driven by a $311 million increase in sales in Canada, partially offset by $107 million in unfavorable foreign currency exchange impacts. Segment operating profit decreased to $111 million from $126 million in the prior year quarter, primarily due to an $11 million charge to remeasure the assets and liabilities of the Canadian retail disposal group to fair value less costs to sell.
Recent Developments and Outlook
In the third quarter of fiscal 2025, McKesson reported strong results, with revenues increasing 18% to $95.3 billion and adjusted operating profit growing 16% to $1.5 billion. The company's U.S. Pharmaceutical and Prescription Technology Solutions segments led the way, with double-digit growth in both revenue and operating profit.
Looking ahead, McKesson has raised and narrowed its guidance for fiscal 2025 adjusted earnings per diluted share to a range of $32.55 to $32.95, representing approximately 19% to 20% growth compared to the prior year. The company cites the growing and differentiated oncology and biopharma services platforms, supported by a strong core distribution business, as key drivers of its performance.
For fiscal 2025, McKesson expects:
- U.S. Pharmaceutical segment revenues to increase 18% to 20% and operating profit to increase 11% to 13%
- Prescription Technology Solutions segment revenues to increase 9% to 12% and operating profit to increase 12% to 15%
- Medical-Surgical Solutions segment revenues and operating profit to be roughly flat to the prior year due to lower than anticipated illness season volumes
- International segment revenues to increase 3% to 7% and operating profit to increase 10% to 14%
- Consolidated revenue growth of 16% to 18% and operating profit growth of 13% to 15%
McKesson maintains confidence in its long-term adjusted EPS target of 12% to 14% growth.
The company has also announced the acquisition of a controlling interest in PRISM Vision Holdings, a leading provider of general ophthalmology and retina management services. This transaction is expected to advance the company's specialty position and commitment to improving patient access to quality community care.
Risks and Challenges
While McKesson has demonstrated resilience and adaptability, the company faces several risks and challenges. These include ongoing litigation and claims related to the distribution of controlled substances, such as opioids, regulatory and policy changes, and macroeconomic factors that could impact healthcare utilization and spending.
The company's International segment has also faced headwinds, with the recent divestiture of its Canadian retail operations and ongoing efforts to exit its European business. Managing these strategic changes and maintaining operational efficiencies will be crucial for McKesson's long-term success.
Industry Trends
The healthcare distribution industry has seen steady growth, with a compound annual growth rate (CAGR) of approximately 5-7% over the past 5 years. Key drivers include increasing drug utilization, launch of new specialty pharmaceuticals, and growth in alternate site healthcare settings. McKesson's strong position in the market and focus on specialty pharmaceuticals align well with these industry trends.
Conclusion
McKesson's diversified healthcare services platform, strong financial position, and strategic growth initiatives position the company for sustainable long-term growth. The company's focus on advancing health outcomes through innovative solutions and partnerships with industry stakeholders underscores its commitment to creating value for patients, providers, and shareholders alike. While navigating industry challenges, McKesson remains well-equipped to capitalize on emerging opportunities and continue its legacy as a leading force in the healthcare services sector. With solid guidance for fiscal 2025 and confidence in long-term growth targets, McKesson demonstrates its ability to adapt to market dynamics and deliver consistent performance in the evolving healthcare landscape.