Executive Summary / Key Takeaways

• McKesson, a diversified healthcare services leader, is strategically focusing on high-growth areas like Oncology and Biopharma Services, supported by its foundational pharmaceutical distribution strength and enhanced by significant investments in technology and AI.
• Fiscal Year 2025 demonstrated robust financial performance, with consolidated revenues reaching $359.1 billion (up 16%) and adjusted diluted EPS of $33.05 (up 20%), driven by strong U.S. Pharmaceutical volumes, specialty growth, and contributions from new strategic partnerships.
• The company is actively managing its portfolio through targeted acquisitions in specialty areas (Core Ventures, PRISM Vision) and divestitures (Canadian retail, European exit), aiming to unlock value and concentrate capital on core growth pillars.
• McKesson faces significant risks, particularly from extensive opioid litigation liabilities ($6.4 billion accrued), ongoing regulatory scrutiny, and competitive pressures, which necessitate continuous operational efficiency and strategic adaptation.
• The outlook for Fiscal Year 2026 projects continued momentum with anticipated revenue growth of 11-15% and adjusted diluted EPS of $36.75-$37.55, supported by recent acquisitions, expected benefits from modernization initiatives, and reaffirmation of the long-term 12-14% adjusted EPS growth target.

McKesson Corporation, a healthcare services giant with roots tracing back to 1833, has strategically evolved into a diversified leader dedicated to advancing health outcomes. Operating across four key segments – U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International – the company occupies a critical position within the complex healthcare ecosystem, connecting biopharma companies, providers, pharmacies, and patients. At its core, McKesson's strategy centers on strengthening its foundational distribution capabilities while aggressively pursuing growth in its Oncology and Biopharma Services pillars, all underpinned by a commitment to disciplined portfolio management and enterprise modernization through technology.

The competitive landscape McKesson navigates is intense and marked by increasing consolidation. In pharmaceutical distribution, it faces formidable rivals like Cencora (COR) and Cardinal Health (CAH), competing fiercely on price, service quality, and efficiency. The RxTS segment sees competition from a diverse array of biopharma services firms, software providers, and tech companies. Medical-Surgical Solutions competes with national and regional distributors. McKesson's scale and the breadth of its product and service offerings are often cited as primary competitive advantages. However, competitors like Cencora and Cardinal Health often exhibit stronger profitability margins in certain areas, while integrated players like CVS Health (CVS) leverage their PBM and retail presence to influence market dynamics. McKesson's strategic response involves leveraging its extensive network, investing in specialized capabilities, and enhancing operational efficiency to maintain its market position and drive differentiated value.

A key differentiator for McKesson, and central to its modernization efforts, lies in its investment in technology and data analytics, including artificial intelligence (AI). Beyond foundational tools like McKesson Connect for ordering and Six Sigma for process improvement, the company is deploying advanced technologies across its operations. In the U.S. Pharmaceutical segment, technology enhances distribution efficiency and regulatory compliance. The RxTS segment is inherently technology-driven, utilizing platforms for electronic prior authorization, price transparency, and patient support services. McKesson's oncology platform, encompassing Ontada, leverages AI to process vast amounts of unstructured clinical data, significantly improving the ability to extract valuable insights. The newly launched InspiroGene business focuses on the complex logistics and support required for cell and gene therapies, relying heavily on integrated technology. Enterprise-wide initiatives are underway to modernize cloud services and accelerate the use of AI and automation to enhance customer experience, improve productivity, and bolster areas like supply chain prediction and fraud detection. While precise, quantifiable benefits of every technological application are not always disclosed, the strategic intent is clear: to drive operational efficiencies, enhance service offerings, and create a competitive moat through superior data utilization and automation. Management anticipates these enterprise-wide technology initiatives will generate approximately $250 million in benefits over the next five years, with an annual run rate benefit of around $100 million by the end of fiscal 2030.

McKesson's financial performance in Fiscal Year 2025 underscores the impact of its strategic focus. Consolidated revenues grew a robust 16% to $359.1 billion, primarily fueled by significant market growth in the U.S. Pharmaceutical segment. This growth was driven by higher volumes, notably from retail national account customers, and continued strength in specialty pharmaceuticals, including substantial contributions from GLP-1 medications, which reached $41 billion in revenue for the year (up 41% from FY2024). The successful onboarding of a new strategic partner in the U.S. Pharmaceutical segment was a key operational achievement, projected to contribute approximately $46 billion in total annual revenue. Gross profit increased 4% to $13.3 billion, benefiting from specialty pharmaceutical growth and antitrust legal settlements, though partially offset by LIFO inventory charges due to higher brand inflation. Total operating expenses remained relatively flat year-over-year, decreasing as a percentage of revenues, reflecting efforts to manage costs despite investments in growth and modernization. Adjusted diluted earnings per share saw impressive 20% growth, reaching $33.05, exceeding the company's initial expectations and surpassing its long-term growth target. This performance was supported by strong operational results, a lower share count due to repurchases, and favorable impacts from equity investments and discrete tax items.

Liquidity and capital allocation remain central to McKesson's strategy. The company generated strong operating cash flow of $6.1 billion in fiscal 2025, an increase of $1.8 billion from the prior year, driven by improved net income and effective working capital management. Free cash flow for the year was $5.2 billion. McKesson maintains a solid financial position with access to significant liquidity through its credit facilities and commercial paper program. Capital deployment priorities include investing in strategic growth areas, returning capital to shareholders, and maintaining a strong balance sheet. In fiscal 2025, the company returned $3.5 billion to shareholders through share repurchases ($3.1 billion) and dividends ($345 million). The Board's approval of a 15% dividend increase and an additional $4 billion share repurchase authorization in July 2024 signals confidence in future cash flow generation and commitment to shareholder returns.

Looking ahead, McKesson's outlook for Fiscal Year 2026 reflects confidence in sustained operating momentum. The company initiated guidance projecting revenue growth of 11-15% and operating profit growth of 8-12%. Adjusted diluted EPS is anticipated to be in the range of $36.75 to $37.55, representing 11-14% growth year-over-year (13-16% excluding the prior year's McKesson Ventures gain), exceeding the company's reaffirmed long-term adjusted EPS growth target of 12-14%. This outlook is underpinned by several key assumptions: continued strong performance in the U.S. Pharmaceutical segment (projected 12-16% revenue/profit growth), benefiting from the new strategic partner, specialty growth, and contributions from recent acquisitions like PRISM Vision and the expected close of Core Ventures (collectively contributing 6-7% to segment operating profit growth). The Prescription Technology Solutions segment is expected to see revenue growth of 4-8% and profit growth of 9-13%, driven by demand for access and affordability solutions, though revenue growth is anticipated to moderate slightly due to slower 3PL volumes. The Medical-Surgical segment is projected for 2-6% revenue/profit growth, with benefits from cost optimization initiatives expected to materialize. Corporate expenses are guided between $570-$630 million, reflecting ongoing investments in enterprise modernization. Free cash flow is anticipated between $4.4 billion and $4.8 billion, and the company plans to repurchase approximately $2.5 billion in shares.

Despite the positive outlook, McKesson faces notable risks. The most significant remains the extensive opioid-related litigation, with $6.4 billion in accrued liabilities at March 31, 2025, and ongoing legal disputes that could result in substantial future costs or operational changes. Regulatory risks, including potential changes from healthcare reform (like the Inflation Reduction Act's impact on drug pricing) and compliance burdens related to controlled substances, fraud and abuse laws, and cybersecurity regulations, pose ongoing challenges. The Medical-Surgical segment experienced unexpected softness in primary care volumes in fiscal 2025, highlighting market volatility. Competition across all segments remains fierce, potentially impacting pricing and margins. Cybersecurity threats and the risks associated with the increasing use of AI could disrupt operations or lead to data breaches. Economic conditions, including inflation and potential recessionary pressures, could affect customer demand and operational costs.

Conclusion

McKesson is executing a clear strategy focused on leveraging its core distribution strength to fund and grow its higher-margin Oncology and Biopharma Services platforms. Fiscal Year 2025 demonstrated the effectiveness of this approach, delivering strong financial results and exceeding growth targets. The company's commitment to disciplined portfolio management, highlighted by strategic acquisitions and the planned separation of the Medical-Surgical segment, aims to sharpen focus and unlock value. Enhanced by ongoing investments in technology and AI, McKesson is positioning itself to capture opportunities in evolving healthcare markets. While significant litigation and regulatory risks persist, the company's robust cash flow generation, strong balance sheet, and positive Fiscal Year 2026 outlook, supported by specific growth drivers and cost efficiencies, suggest a continued path toward sustainable growth and shareholder value creation. The ability to successfully integrate recent acquisitions and realize the benefits of enterprise modernization will be key factors to watch as McKesson navigates the competitive landscape and advances its strategic objectives.