Rachel Rodriguez, VP of Investor Relations, welcomes everyone to McKesson's Second Quarter Fiscal 2024 Earnings Conference Call. She introduces the speakers, CEO Brian Tyler and CFO Britt Vitalone. Rachel reminds listeners of the forward-looking statements and risk factors to consider. She also mentions non-GAAP financial measures and where to find them. Brian then discusses the company's solid financial results and their ability to consistently create value for shareholders. In the second quarter, revenues increased 10% to $77.2 billion and adjusted earnings per share were $6.23.

McKesson's adjusted earnings per diluted share increased by 14% from the previous year, leading the company to raise its guidance for fiscal 2024. The company is focused on improving care and has made progress in strengthening its portfolio and delivering value to customers. The company is closely monitoring Rite Aid's bankruptcy proceedings but does not expect it to have a significant impact on earnings. McKesson prioritizes investing in its employees and fostering a diverse and inclusive culture, which has been recognized by Forbes as one of America's Best Employers for Women.

McKesson has been recognized for their commitment to disability inclusion and held their Annual Wellness Day to prioritize employee health and well-being. The company has shown strong performance in their U.S. Pharmaceutical segment and has been a key player in the distribution of COVID-19 vaccines. They are now transitioning the distribution to commercial channels and have successfully distributed nearly 8 million vaccines.

InnoMed has a diversified portfolio of products and experience in the medical-surgical segment, with a focus on primary care and physician offices. However, there was a decline in foot traffic and respiratory illness in the second quarter, affecting the segment's results. Despite this, InnoMed remains confident in the business and its assets. In the biopharma services platform, InnoMed has built a powerful network that connects to providers and pharmacies, helping patients access prescription medications. The segment saw double digit growth in revenue and operating profit in the second quarter, driven by solutions for access to GLP-1 medications.

In the past year, the company's lower results were due in part to increased expenses for customer verification activities. One area of growth has been in their access solutions, specifically for prior authorizations for medications. Their technology streamlines the process and has resulted in a high approval rate within one hour. The company continues to improve their technology and recently added a feature to share authorization outcomes with patients. This success aligns with the company's business strategy and commitment to improving medication access and advancing health outcomes. The company also recently held a volunteer event focused on cancer awareness and support.

In summary, McKesson had a successful second quarter and is confident in its ability to continue growing and improving care in the future. The company's 25th anniversary was celebrated and they are committed to finding more ways to enhance the health of their communities. Despite recording a provision for bad debts related to Rite Aid's bankruptcy, McKesson continues to provide distribution services to the company and remains dedicated to operational excellence.

McKesson's second quarter results were strong, with solid growth in the U.S. Pharmaceutical and Prescription Technology Solutions segments. The company is confident that the recent customer event will not have a significant impact on their fiscal 2024 results. They are increasing and narrowing their full-year outlook for adjusted earnings per diluted share. Revenues increased 10%, led by growth in the U.S. Pharmaceutical segment. Gross profit decreased 1%, but increased 8% when excluding certain divestitures. Operating expenses decreased 2%.

In the second quarter, operating expenses increased by 9% year-over-year, driven by costs related to acquisitions and joint ventures. Operating profit increased by 1%, primarily due to growth in the U.S. Pharmaceutical and Prescription Technology Solutions segments. However, slower growth in the Medical-Surgical Solutions segment and completed divestitures in the International segment offset some of this growth. Excluding COVID-19 related items and losses from investments, operating profit increased by 12%. The effective tax rate was 23.5%, and diluted weighted average shares decreased by 6%. Earnings per diluted share increased by 3%, or 14% excluding COVID-19 related items and losses from investments. In the U.S. Pharmaceutical segment, strong operating profit growth was driven by sustainable factors.

In the second quarter, our scale distribution operations were efficient and we made investments to expand our capabilities. We manage a broad portfolio of pharmaceutical products and have a strong position in the market. Our oncology assets, including provider solutions, data and insights, and clinical trial capabilities, contributed to strong revenue and operating profit results. Revenue increased by 16% due to higher prescription volumes, particularly for GLP-1 medications. However, these medications have lower margin rates. Operating profit increased by 8%, driven by specialty product distribution and generic programs. Excluding the impact of COVID-19 vaccine distribution, operating profit increased even more.

The pharmaceutical segment saw a 15% increase in operating profit in the second quarter, thanks to successful product portfolio and partnerships with biopharma manufacturers. Revenues increased by 12% to $1.1 billion and operating profit increased by 48% to $209 million. This was driven by higher subscription transaction volumes and increased demand for access solutions. Medical-Surgical Solutions revenues were flat due to lower COVID-19 related sales, but the segment still delivered operating profit growth of 5% when excluding these items. This was driven by increased volumes in the extended care business.

In the second quarter, the primary care market volumes showed a decrease, in line with market indications. This was reflected in the growth rate of Medical-Surgical Solutions, which was affected by a slower start to the illness season compared to the prior year. International revenues also decreased due to divestitures. Corporate expenses increased, and there were losses from equity investments in the McKesson Ventures portfolio. The company ended the quarter with $2.5 billion in cash and delivered $825 million in free cash flow. The cash balance and free cash flow were impacted by payments related to opioid claims. Timing can also impact cash flow and working capital metrics.

In the first half of the fiscal year, the company invested $264 million in new distribution centers and technology to support growth. They also returned $1.7 billion to shareholders through share repurchases and dividends. The company's updated outlook for fiscal 2024, provided on an adjusted non-GAAP basis, includes a 13-15% increase in U.S. pharmaceutical revenues and a 6-8% increase in operating profit. This takes into account the strong second quarter performance and growth in generic sourcing and specialty distribution. The outlook also considers the continued impact of GLP-1 medications, which may vary quarter-to-quarter but are expected to be a revenue tailwind for the company. However, their distribution has a lower margin rate and will be a headwind to prior year results.

The company expects strong revenue and operating profit growth in the Prescription Technology Solutions segment, driven by Access Solutions and new product launches. However, the Medical-Surgical Solutions segment is expected to see a decline in revenue and operating profit due to a decrease in COVID-19 test volumes and market moderations in primary care foot traffic. The company will continue to invest in its distribution network to serve non-acute customers and support the distribution of COVID vaccines to physician offices.

The company anticipates making investments in data and analytics to expand their reach in the medical supplies, pharmaceuticals, and private brand product portfolio. They also expect a decline in revenues and operating profit in the International segment due to the closure of certain transactions. In the Corporate segment, expenses are expected to be in the range of $600 million to $660 million, including losses from equity investments and increased technology spending. The company also plans to repurchase shares and anticipates a free cash flow of approximately $3.7 to $4.1 million. As a result of their performance in the second quarter and their outlook for the remainder of the fiscal year, the company is increasing and narrowing its earnings per diluted share outlook. They expect a flat to 4% decline in operating profit, but a 6% to 10% increase when excluding certain items. These items include net gains and losses from equity investments, a benefit from the early termination of a tax receivable agreement, and COVID-19 related items in fiscal 2023.

The company anticipates that COVID-19 related items will have an immaterial impact on fiscal 2024 compared to fiscal 2023. Adjusted earnings per diluted share are expected to grow by 14% to 17% when excluding these items, and by 18% to 20% when excluding the contribution from the run off of European operations. The fiscal third quarter is expected to be stronger than the fourth quarter due to factors such as prescription transactions, patient visits, internal investments, and a discrete tax benefit. The company is pleased with its strong first half performance and believes that the momentum across the business, including growth in oncology and biopharma services, will create sustainable shareholder value. During the Q&A portion of the call, the focus was on RxTS. The company's guidance reflects a strong second quarter, but there is a range of outcomes for the second half. It is unclear whether the revenue upside seen this year for GLP-1 prior authorization is tied to manufactured programs or script volume. The company may be conservative in its outlook for the second half, and it looks at factors such as denial rates and new starts when modeling this segment.

The speaker discusses the stable utilization trends and growth in GLP-1 medications that have positively impacted the transactions and services in the Prescription Technology Solutions segment. However, there are certain factors that can create variability in revenue and operating profit, such as prescription utilization and timing of drug launches. The segment's revenue and operating profit have trended similarly to the utilization and new drug launches. The analyst asks for clarification on the projected decrease in margin and growth rate for the second half of the year, and the speaker mentions potential factors such as conservatism, additional expenses, and changes in programs. The analyst seeks to understand how to think about the segment on a normalized basis and how the first half compares to the second half.

The speaker, Britt Vitalone, discusses the impact of GLP-1 medication volumes on the fourth quarter and the potential for a flattening out in the future. He also mentions the company's investments in product extensions and new products. The question is then asked about the Rite Aid reserves and how the company plans to approach collections and reserve for them.

The speaker discusses the company's continued distribution services for Rite Aid and a provision for uncollected trade accounts receivable. They also mention an interim agreement with different credit terms. A question is asked about the sustainability of operating expenses and the speaker clarifies that the company has good expense discipline and reinvests in the business.

The speaker mentions that the company has been investing in distribution network capabilities, automation, and data analytics to benefit their operations and customers. They expect to see continued operating margin leverage while investing in these capabilities. The next question is about the Med-Surg segment and specifically primary care. The speaker acknowledges the slow start and low ramp in the illness season, but also mentions other factors such as heavy travel season and vacation schedules that may have contributed to lower primary care volumes. The speaker is also asked to quantify the rate of growth change during the September quarter.

In the paragraph, Brian Tyler and Britt Vitalone discuss the growth and positioning of the Pharma segment, citing macro trends and investments in distribution and data analytics. They also address a question about the segment's mix and its impact on EBIT growth. The topic then shifts to the Medical segment and its expected performance for the remainder of the year, with an anticipated increase in revenue and AOI but flat margins due to a less severe flu season and investments in distribution and data analytics.

The speaker is answering a question about the cadence of AOI for the next two quarters and mentions modeling similar growth rates to the second quarter. Another question is asked about restructuring charges and the speaker explains that they are still finalizing the program and have not seen all the benefits yet. The next question is about the generic deflation environment and M&A pipeline, and the speaker mentions a strong sourcing program and discipline on the sell side.

The company has been operating in a competitive but stable environment for a number of years and has not seen any significant changes in the second quarter. They are able to procure generics at a low cost and stable supply for their customers. M&A is a top priority for capital deployment, but they have a structured and disciplined approach to ensure it aligns with their growth strategy and has a good financial return. The company is interested in potential acquisitions and continues to develop their business development funnels.

During the Q&A session of their earnings call, a question was asked about the potential spillover benefits of GLP-1 drugs on the company's RxTS business. The CEO responded by stating that they already have a well-established relationship with providers and pharmacies, so they do not expect any significant impact from this. Another question was asked about the impact of a competitor's ordering challenges on the medical segment, but the CEO declined to comment on this. The last question was about the scale of the company's oncology business within the U.S. drug segment, but the company did not provide any specific numbers.

During a conference call, Britt Vitalone asked Brian Tyler about the growth of the oncology business. However, George Hill, who was also on the call, got disconnected. Once he reconnected, he asked for more information about the scope and scale of the business within the U.S. distribution segment. Brian Tyler responded by mentioning the various components of the oncology business, such as distribution, GPO services, and joint ventures, and provided some numbers to give an idea of the magnitude of the business. The call ended with Tyler thanking everyone for their questions, expressing confidence in the company's long-term growth, and acknowledging the contributions of the McKesson team.

The operator thanks the participants for joining the conference call and informs them that they may now disconnect and have a great day.

This summary was generated with AI and may contain some inaccuracies.