The operator introduces the McKesson's Fourth Quarter Fiscal 2024 Earnings Conference Call and hands it over to Rachel Rodriguez, VP of Investor Relations. She introduces the speakers, Brian Tyler, CEO, and Britt Vitalone, CFO. She also mentions that the discussion will include forward-looking statements and directs listeners to the cautionary statements and risk factors. Non-GAAP financial measures will also be discussed and a summary of results and guidance assumptions can be found in the presentation slides. Brian thanks the employees for their efforts and highlights the company's strong fiscal year.

In fiscal 2024, McKesson saw a 12% growth in revenue and a 6% increase in earnings per share, surpassing expectations. The company's success is attributed to their diverse portfolio, innovative solutions, and commitment to quality. They are particularly excited about the growth opportunities in oncology and biopharma services. The company's top priorities include a focus on people and culture, as well as maintaining their innovative culture. McKesson has been recognized as one of America's most innovative companies, as well as one of the top workplaces for women.

McKesson is impressed by the commitment and leadership shown by their employees, and they have two strategic pillars in oncology and biopharma services. They have been building their portfolio in oncology, welcoming four new practices to their network and expanding their reach to 31 states. They now treat over 1.4 million patients each year and provide clinical trial services through a joint venture called Sarah Cannon Research Institute.

The US Oncology Network has been involved in over 200 clinical trials in the past year, with over 3100 patients enrolled. A collaboration with AstraZeneca aims to improve clinical trial delivery and enrollment. The company's biopharma services platform has seen strong growth, with a 23% increase in adjusted operating profit and $8.8 billion in savings for patients. The platform was built through strategic investments, including the acquisition of RelayHealth, which helps with prescription claims and delivery.

The company's connectivity to pharmacies allows them to gain insights into the patient's journey and develop solutions like copay assist programs and digital coupons. Their priority is to drive sustainable growth in their core businesses of pharmaceutical and medical surgical distribution. They have seen solid results in their U.S. Pharmaceutical segment and continue to invest in their infrastructure and capabilities, such as artificial intelligence, to improve efficiency and service levels. They also have a growing portfolio of services and solutions in specialty and oncology, and have a strategic relationship with Optum.

McKesson has expanded their services with Optum and is dedicated to improving healthcare in underserved communities through a new initiative. They have also opened a pharmacy in Avondale, Ohio and plan to make a lasting difference in more communities. Additionally, they support charitable works through the McKesson Foundation, which recently celebrated its 80th anniversary.

In the last fiscal year, McKesson funded 50 organizations and disbursed $9 million, with one third going towards direct patient care. They also saw an increase in employee participation in volunteer initiatives. Overall, the company had a strong year and is confident in their ability to drive growth and generate shareholder return. In the fourth quarter, they delivered earnings per diluted share of $6.18 and for the full year, $27.44.

The company's fourth quarter results were in line with expectations and demonstrated their ability to consistently execute and create value for shareholders. For the full year, adjusted operating profit and EPS grew above their long range targets. The fourth quarter saw an increase in revenues and gross profit, driven by growth in the U.S. Pharmaceutical segment. Operating expenses also increased, primarily to support growth. The company recorded a reserve for environmental matters, impacting operating profit. Year-over-year results were also impacted by lower contributions from U.S. Government COVID-19 programs.

In the fourth quarter, McKesson's adjusted operating profit increased by 4%, with interest expense rising by 7% due to higher short-term borrowings. The effective tax rate was 28.1% and diluted weighted average shares decreased by 5% year-over-year. Earnings per diluted share was $6.18, a 14% decrease from the previous year. In the U.S. Pharmaceutical segment, revenues increased by 12% due to higher prescription volumes, particularly from specialty products, retail national account customers, and GLP-1 medications. However, the growth rate for GLP-1 medications has slowed down.

In the fourth quarter, operating profit increased by 5% to $901 million, mainly due to the growth in specialty product distribution and increased contributions from the generics program. CoverMyMeds also saw organic growth in their access solutions and increased volumes in affordability solutions. Operating profit for CoverMyMeds decreased by 3%, primarily due to higher costs and investments to sustain growth. In Medical-Surgical Solutions, revenues increased by 6% and operating profit remained flat, driven by growth in primary care and extended care businesses. International results also showed strong performance, with a 6% increase in revenues and an 18% increase in operating profit, driven by higher pharmaceutical distribution volumes in the Canadian business.

In the fourth quarter, corporate expenses increased by 30% due to environmental reserve and higher technology, infrastructure, and compliance spending. The company ended the quarter with $4.6 billion in cash and generated $3.6 billion in free cash flow for the fiscal year. The Change Healthcare outage had a minimal impact on cash flow. The company remains focused on driving value for stakeholders through capital deployment and returned $3.3 billion to shareholders in fiscal 2024. Since fiscal 2019, the company has returned $16.2 billion to shareholders through share repurchases and dividends, reducing total average shares outstanding by 36%.

The company's strong balance sheet and credit metrics were recognized by Moody's credit rating upgrade. This allows them to invest in growth initiatives, pursue strategic opportunities, and return capital to shareholders while maintaining a durable capital structure. The company's fiscal 2025 outlook predicts an increase in U.S. Pharmaceutical revenues and operating profit, driven by sustainable momentum in the core distribution business and growth in the oncology platform. The company also anticipates growth in the Prescription Technology Solutions segment.

In fiscal 2024, McKesson saw increased demand for their access and affordability solutions, particularly in GLP-1 medications. This trend is expected to continue in fiscal 2025, but at a slower rate. The Medical-Surgical business is well positioned to leverage their services and assets across all alternate sites of care, with expected revenue and profit growth. Investments are being made in the segment to support the acquisition of Compile, a healthcare data platform, which is expected to provide opportunities for value creation.

In the longer term, the company expects increased opportunities to integrate their oncology and biopharma services, leading to meaningful returns. The International segment is projected to see growth in revenues and operating profit, with investments in technology and a focus on the Canadian market. The company plans to exit Norway as part of their European exit. The Corporate segment will see expenses related to technology and infrastructure investments, including in AI. These investments aim to improve customer service and provider productivity, with one example being the implementation of AI in the oncology platform.

The InnoMed EHR contains structured data but also relies on unstructured data such as uploaded documents and provider notes to capture details on patient's disease conditions. Natural language processing is used to extract core variables from this unstructured data, making it possible to have complete longitudinal patient records for real world research. The application of AI reduces the burden on clinicians and improves practice efficiencies. The company is committed to investing in AI technologies to deliver value to their stakeholders. Interest expense is expected to be $220 million to $240 million, income from non-controlling interest is expected to be $140 million to $160 million, and the effective tax rate is estimated to be 18% to 20%. The company anticipates free cash flow of $4.8 billion to $5.2 billion.

The company's working capital metrics and free cash flow will vary from quarter-to-quarter and are impacted by timing, including the day of the week that marks the close of a quarter. They plan to repurchase $2.8 billion of shares in fiscal 2025, resulting in an estimated weighted average diluted shares outstanding of $128 million to $130 million. The company has a strong balance sheet and operating cash flows, providing flexibility for growth and returning capital to shareholders. They expect revenue and operating profit growth in fiscal 2025, with earnings per diluted share of $31.25 to $32.05, representing a 14% to 17% increase compared to fiscal 2024. The first quarter is expected to have the lowest contribution, as the first quarter of fiscal 2024 had a lower effective tax rate due to a discrete tax item. The company sees strength and stability in their underlying fundamentals and is confident in their operating profit growth momentum across all segments. They believe their sustained financial performance has created value for customers, partners, and shareholders.

McKesson is well positioned to deliver strong results in fiscal 2025 as they continue to execute their strategic and financial framework. In the Prescription Technology Solutions segment, they expect organic growth and increased demand for their access and affordability solutions, particularly for GLP-1 medications. They also anticipate growth in the Medical-Surgical business, especially in primary care, lab solutions, and specialty pharmaceuticals. McKesson is making investments to support their recent acquisition of Compile, a healthcare data platform.

In the Medical-Surgical Solutions segment, there are opportunities for incremental value creation and integration with other platforms. These investments may result in a 2% operating profit headwind in the medical segment. The International segment is expected to see revenue and operating profit growth, with investments in technology to improve the supply chain. The company plans to exit Norway as part of their European exit. In the Corporate segment, expenses are expected to increase due to investments in technology, infrastructure, compliance, and data analytics, including artificial intelligence to improve efficiency and productivity.

The company is investing in AI and other advanced technologies to improve customer service and provider productivity. They are implementing AI in their oncology platform to extract data from unstructured documents and reduce clinician workload. This has led to practice efficiencies and better patient care. The company is committed to increasing their investment in AI to deliver value to stakeholders. They anticipate interest expense to be $220 million to $240 million and income attributable to non-controlling interest to be $140 million to $160 million. The full year effective tax rate is expected to be between 18% and 20%.

The company does not provide quarterly effective tax rate guidance due to the unpredictability of discrete tax items. They anticipate free cash flow of $4.8 billion to $5.2 billion and plan to repurchase $2.8 billion of shares in fiscal 2025. Revenue and operating profit are expected to grow by 15% to 17% and 9% to 14%, respectively. Earnings per diluted share are projected to be $31.25 to $32.05, representing a growth of 14% to 17%. The first quarter is expected to have the lowest contribution, with a lower effective tax rate due to a discrete tax item in the previous year. The company's financial performance has been strong and stable, and they aim to continue creating value for stakeholders.

McKesson is pleased with their strong fiscal 2024 performance and confident in their fiscal 2025 outlook. They expect growth in all segments of their business and have a strong balance sheet and financial position. They are well positioned to deliver strong results and drive sustainable growth for stakeholders. During the Q&A, they were asked about the impact of the Optum contract on their pharma growth and Med-Surg guidance, but they did not provide specific details on the contract or its contribution to their performance. They have not incurred any costs related to the transition yet, but expect some in the future, which are included in their guidance.

Britt Vitalone, Brian Tyler, and Rachel Rodriguez were asked about the performance of the pharmaceutical segment. They discussed the various factors that contribute to this segment, such as their 3PL business and prior authorization business. While the 3PL performance was lower than the previous year, the prior authorization business saw growth. The company made investments for future growth and saw a 23% increase in bottom line growth. They also mentioned that employers and payers are still figuring out how to handle coverage for diabetes and weight loss drugs. Lisa Gill then asked about the pharmaceutical operating profit for 2025.

Brian Tyler, CEO of McKesson, responds to a question about the company's projected growth and their recent expanded relationship with Optum. He attributes the growth to their investments in efficiency and innovation, and states that the new agreement with Optum is a reflection of their past investments in distribution and other capabilities. COO Britt Vitalone adds that the partnership with Optum is a testament to McKesson's diverse healthcare services, and provides some background on Optum's services.

The pharma segment has seen a 6% compound annual growth rate over the past four years, in line with long-term targets. The company is pleased with the growth and momentum in this business, and the recent addition of Optum has provided further opportunities for growth. The company's capital allocation strategy prioritizes investing in the business through internal development and inorganic opportunities.

The company is looking for inorganic opportunities or M&A that align with their strategy, particularly in the oncology space. They have made small acquisitions in the past to improve their capabilities in areas such as AI. These efforts have contributed to the company's record growth last year. When asked about the improved outlook for RxTS, the company did not provide specific reasons but expressed overall optimism for the segment's future performance.

The speaker states that the AOP growth guide for FY 2025 is in line with the 16% compound annual growth rate seen in the past four years. They plan to continue investing in the business to develop more solutions and services for customers. The value provided to partners is resonating and stable prescription growth is supporting programs and solutions. The growth rate for next year is expected to be in line with previous years and free cash flow will be used to invest in growth opportunities. The next question is about competitive intensity and contract movement, specifically with Optum and CVS outsourcing and scaling to the speaker's company.

The speaker is asked about the company's scale advantage in mail and specialty distribution and how important it is in driving their recent gains. They mention significant investments in modernizing their distribution infrastructure and having a highly compliant network. The speaker believes that scale does help in this business, but their success is also due to their understanding of the market and their ability to provide value-added solutions. Another speaker adds that the company's strategy of focusing on oncology and pharma services and making investments in these areas has resulted in a broader range of capabilities and increased value for customers.

Stephanie Davis asks about the biopharma investments in the prescription transaction business and whether they are recurring expenses or more near-term pockets of spend. Brian Tyler explains that they have differentiated assets and are not afraid to increase investment to solve new problems for biopharma. Rachel Rodriguez introduces the next question from Elizabeth Anderson about Med-Surg segment and the use of data and assets with the new acquisition. Brian Tyler comments that they see Compile as a foundational data investment and are looking to add value-added services in this segment.

The company is expecting accelerated growth in their 3PL business, which will result in a faster top line but lower margin on the bottom line. They are making investments in their medical business to augment their data services and unlock unique value. This growth is in line with their overall strategy and they are confident in their investment thesis.

The underlying technology businesses are growing consistently and the company is pleased with their growth. The FY 2025 outlook includes a mix impact from the 3PL business. In terms of pricing, the company expects a stable and competitive environment for both branded and generic products. There is no significant change in the outlook for FY 2025 compared to FY 2024. The company anticipates being able to drive good value for customers in the generic space. In terms of the quarter, a question was asked about the pharma revenue growth rate.

The speaker is discussing the impact of insulin list price changes on the company's revenue growth rate and whether there was any contribution from commercial COVID vaccines in the quarter. They state that there is nothing specific to mention and that the contribution from COVID vaccines was lower than in the previous quarter. The speaker thanks everyone for joining the call and expresses confidence in the company's ability to execute its strategies and drive growth. They also mention their commitment to improving healthcare. The call ends with the operator thanking everyone and saying they can now disconnect.

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