The operator introduces the McKesson first quarter fiscal 2025 earnings conference call and turns it over to Rachel Rodriguez, VP of Investor Relations. Brian Tyler, CEO, and Britt Vitalone, CFO, will lead the call and discuss forward-looking statements, risk factors, and non-GAAP financial measures. The company reported a 6% increase in revenues and an 8% increase in adjusted earnings per diluted share, resulting in an updated guidance for the full year.

The company has experienced strong financial performance and growth, allowing them to increase dividends and share repurchase authorization. They have been consistently executing their company priorities and transforming into a diversified healthcare services company. While there were some challenges in certain segments, the company remains committed to their long-term growth targets and is confident in their strategy and capabilities. Their focus for the rest of the fiscal year is on their company priorities and advancing their role in the healthcare industry.

The company is investing in technology to improve product offerings and operational efficiencies. They prioritize people and culture, and were recently recognized for their efforts in diversity and talent retention. The Board of Directors welcomed a new member with extensive experience in biopharmaceuticals and oncology. The company saw solid growth in the distribution business, particularly in specialty pharmaceuticals and oncology assets.

The Pharmaceutical segment of McKesson saw success in on-boarding a large distribution customer and implementing technology and AI in inventory control. The International segment also saw growth, thanks to the performance of their Canadian business. In the Medical-Surgical segment, market conditions have been favorable for the medical business, but there has been some weakness in the primary care channel. McKesson is taking steps to improve operational efficiencies and cost optimization while still investing in customer service.

Despite a slow start to the year, the company remains confident in their assets and unique positions in the alternate site markets. They are focused on growing their oncology platform and improving cancer care experiences for patients. The company has aligned all oncology-related assets and teams into one organization to better execute their strategy and provide a seamless customer experience. The US Oncology Network, a foundational asset, has seen significant growth in the past year and continues to expand with the addition of new practices, including the recent addition of Tennessee Cancer Specialists. The network now has over 2600 providers.

The second strategic growth pillar of the US Oncology Network is biopharma services, which focuses on improving medication access, affordability, and adherence through a connected network. This includes the Sarah Cannon Research Institute Joint Venture, which has over 1300 physicians actively enrolling patients in clinical trials. The network also offers affordability programs that have saved patients $2.2 billion in out of pocket costs and utilizes automation and technology to help patients get the medicine they need. The segment's adjusted operating profit remained unchanged in the first quarter due to a mix of services and higher expenses, but the network is strategically positioned to continue delivering value to biopharma.

McKesson is a strong and successful company that supports over 650 biopharma brands and has a strong presence in key therapeutic areas. They are constantly exploring new ways to use technology and AI to improve efficiency and customer experiences. Despite mixed segment results, they are confident in their ability to deliver on their financial commitments due to their strong business foundation, well-defined strategy, and track record of execution. The company's differentiated offerings will continue to drive better health outcomes for their customers and their patients. In the most recent quarter, they exceeded expectations and increased their full-year guidance, thanks to the growth of their US Pharmaceutical segment and Canadian pharmaceutical distribution operations.

The Board of Directors approved a 15% increase in quarterly dividend and an additional $4 billion in share repurchase authorization, demonstrating confidence in the company's strategic priorities. Consolidated revenues increased by 6%, led by growth in the US pharmaceutical segment. Gross profit increased by 4%, driven by specialty distribution growth and higher volumes in the Canadian business. Operating expenses increased by 7% to support growth in the US pharmaceutical segment, and were also impacted by increased technology investment and lapping of prior year integration costs.

In the first quarter of fiscal 2024, the script joint venture and arc savings solutions operating profit increased by 12%, driven by pretax gains from McKesson Ventures equity investments. The US Pharmaceutical segment saw growth, but the Medical-Surgical solutions segment had higher interest expenses. The effective tax rate for the quarter was 13%, and diluted weighted average shares decreased by 4%. Overall, earnings per diluted share increased by 8%. The US Pharmaceutical segment showed strong revenue and operating profit growth, with all customer segments contributing to this momentum. Revenues for the segment were $71.7 billion, a 7% increase.

The revenue growth of the company is attributed to increased prescription volumes, particularly in GLP-1 medications. The company's comprehensive platform of oncology assets is also contributing to revenue growth, with solid growth in the US Oncology Network. The Prescription Technology Solutions segment had flat revenues and operating profit compared to the prior year. The company plans to continue investing in its oncology offerings to sustain growth.

The first quarter results for the company showed growth in technology services products, but were lower than expected due to drug product launch delays. The Medical-Surgical solutions segment had lower revenues and operating profit, while the international segment saw an increase in both. Corporate expenses included gains from equity investments in the McKesson Ventures portfolio.

McKesson Ventures' impact on financials can vary due to the performance of individual investments, resulting in gains and losses. The company ended the quarter with $2.3 billion in cash and had negative free cash flow due to tax payments and working capital investments. They returned $609 million to shareholders through share repurchases and dividends. The company is confident in their fiscal 2025 outlook and is raising their guidance for adjusted earnings per diluted share. They remain confident in their differentiated oncology and biopharma services assets and their strategy as a diversified healthcare services company. The US Pharmaceutical segment had strong momentum in the first quarter, particularly in their oncology offerings.

The company's strong capabilities and portfolio in oncology have led to value creation for customers, partners, and shareholders over the past five years. The fiscal 2025 outlook for the US Pharmaceutical segment is expected to continue this momentum, taking into account the impact of a distribution contract with Optum. The company has made investments in working capital in advance of the contract start date and expects revenues to increase 13-16% and operating profit to increase 8-10%. In the Prescription Technology Solutions segment, revenues are expected to increase 14-18% and operating profit to increase 11-15%, reflecting lower than anticipated first quarter results and product launch delays.

The company remains confident in their long-term growth targets, but anticipate fluctuations in growth due to various factors. They see strong demand for their solutions and services and are investing in innovation. In the Medical-Surgical segment, they expect revenues to increase and operating profit to be at the lower end of the initial guidance range. The primary care channel has experienced volatility, but the company's breadth of services has led to strong performance. However, there has been general market weakness in the primary care channel, resulting in lower sales and operating profit in the first quarter.

The company's updated outlook for the full year takes into account the first quarter results and market trends. They have announced initiatives in the Medical-Surgical solutions segment to drive efficiency and align the organization. These initiatives will result in charges of $100-150 million and are expected to be completed by the end of the first half of fiscal 2026. The company remains confident in their ability to deliver long term growth and anticipates revenue and operating profit increases in the International segment. They are committed to exiting Norway as part of their European exit.

McKesson Corporation expects expenses in the corporate segment to be between $495 and $555 million, including gains from equity investments and increased technology spending. They are pleased with the progress of their enterprise technology organization and plan to continue investing in AI to improve the customer experience. The company is evaluating their technology operating model to better support their strategy and needs. Interest expense is expected to be higher due to increased loan balances and interest rates. Income attributable to non-controlling interest is projected to be between $175 and $185 million, and the effective tax rate is estimated to be between 17% and 19%. Free cash flow is anticipated to be between $4.8 and $5.2 billion.

The company's working capital and free cash flow will vary due to timing and share repurchase plans. They anticipate revenue and operating profit growth for fiscal 2025, with a focus on oncology and biopharma services. The first half of the fiscal year may have less contribution than expected, but they remain confident in their leading positions and growth pillars. They have a strong financial foundation and are focused on creating sustainable shareholder value. The first question in the Q&A is about the mix of services within access.

The speaker addresses a question about the mix of services in the access portfolio and the impact on GLP-1 mix. They explain that each program within the portfolio is unique and can be influenced by the manufacturer's preferences. The mix of services in the access portfolio has shifted unexpectedly this quarter. Regarding GLP-1s, the speaker mentions stable and growing utilization, but also points out that product delays can have an impact on their access and affordability programs.

The impact of product evolution and maturity on prior authorization programs is discussed, with the example of a drug that had a prior authorization program for 9 years. The variability in the segment is driven by launch timing, trajectory, and types of services and programs for different drugs. The next question is about the factors driving profit growth in the U.S. Pharma segment, and the impact of excluding GLP-1s and HUMIRA on the revenue outlook.

The company's revenue profile in the first quarter remained unchanged, in line with expectations and previous guidance. Growth in specialty and oncology, as well as a strong generics program, contributed to this performance. The company anticipates continued growth in these areas for the rest of the year. The 8% to 10% full year guidance remains unchanged. The company is confident in its position and customer base, particularly in the oncology platform. In the MedSurg business, there have been shifts in product demand and a focus on cost cutting measures. The decrease in HUMIRA revenues is due to a formulary change to the biosimilar.

The speaker discusses the impact of COVID-19 on the demand for medical products, specifically test kits and testing services. While overall growth in the Medical segment has been positive, certain areas such as testing and test kits have remained soft. The company is focusing on improving profitability in the MedSurg division, which includes alternate site businesses and a broad product offering. Growth in pharmaceutical and specialty pharmaceutical products has been strong but has also created margin mix challenges.

The speaker discusses the company's strong customer service and reputation, as well as its recent softening in demand due to various factors such as the economy and staffing challenges. They mention taking actions to align their strategies and operations and meet changing customer demands, including driving efficiency and realigning their real estate portfolio. They are confident that these actions will bring benefits to the company in the second half of the year.

Britt Vitalone, speaking on behalf of the company, addressed a question about the impact of HUMIRA on gross profit. He explained that the primary driver for the slight decrease in gross profit was the higher growth in GLP-1 distribution transactions than expected. He also mentioned that the company has seen a moderation in the growth of GLP-1s in the last few quarters, but in the first quarter, they saw a sequential growth that was higher than anticipated. Another question was asked about product launch delays in Prescription Tech, and Vitalone responded by saying that they have moderated their full year guidance slightly and have a broad portfolio of services to support specialty drugs.

The company has various affordability programs in place, including access programs and an annual verification program. Despite a slower start to the year, they believe that adjusting their guidance is appropriate. The supply constraints for GLP-1s are improving, and the company is always in discussion with manufacturers to ensure fair value for their services in getting these products to patients.

The speaker discusses the importance of access to patients in order to increase uptake of products. They mention that discussions with customers will revolve around core distribution and additional services, such as those provided through Technology Solutions. The changing market mix is also mentioned, and the speaker believes that the partnership with ClarusONE will continue to benefit the company in terms of low cost and availability of supply. They also mention the potential for expanding services, but their focus remains on meeting customers' generic needs.

Brian Tanquilut from Jefferies asks about the margin dynamics in the RxTS segment and the impact on the guidance adjustment. Britt Vitalone explains that the 3PL business, which makes up more than 50% of the revenue, has a lower operating profit contribution and that other programs such as access and affordability and adherence solutions will drive improvement in the second half of the year. There is time for one more question from Erin Wright with Morgan Stanley, who asks about the recent news of Tennessee Cancer Specialists joining the U.S. Oncology Network and the company's appetite for similar deals in the future. Brian Tyler responds that they are pleased with the growth of the network and may provide more disclosure on this in the future.

The company has experienced steady growth in its network of over 600 sites and 2,600 providers in 31 states. They plan to continue expanding through acquisitions and attracting physicians to existing practices. The company sees potential in the complementarity between its various oncology assets and has brought them together under coordinated leadership to accelerate growth. They are committed to investing in their strategic priorities, including expanding the network. The company's first quarter adjusted earnings per diluted share exceeded expectations.

The company is focused on executing their strategy and priorities to navigate a dynamic environment with confidence. They are confident in their businesses and assets, and thank their employees for their dedication. The conference call has ended.

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