McKesson Corporation FY2026 (Year Ended March 31, 2026) – Double-Digit Revenue Growth, Strategic M&A, and Planned Separation of Medical-Surgical Business

• Diluted EPS increased 49% to $38.38 from $25.72, supported by 45% net income growth to $4.8 billion and a 230 basis point reduction in the effective tax rate to 17.8%, reflecting both operational gains and favorable tax developments.

• The company acquired controlling interests in PRISM Vision ($875 million for 80%) and Core Ventures ($2.5 billion for 70%), expanding the Oncology & Multispecialty platform, which delivered 31% revenue growth and 50% operating profit growth driven by provider additions and specialty pharmaceutical sales.

• McKesson returned $5.1 billion to shareholders through $4.8 billion in buybacks and $381 million in dividends (raised quarterly dividend 15% to $0.82), while announcing the planned separation of Medical-Surgical Solutions with Apollo Funds investing $1.25 billion for approximately 13% ownership.

McKesson reported revenues of $403.4 billion, up 12% year-over-year, with growth concentrated in North American Pharmaceutical (11% increase to $336.7 billion) and Oncology & Multispecialty (31% increase to $48.4 billion). Gross profit rose 9% to $14.6 billion, though margin compressed 10 basis points to 3.61%. The LIFO inventory accounting method generated a $210 million credit in fiscal 2026 due to brand pharmaceutical deflation, reversing a charge of $82 million in the prior year. This swing contributed $292 million favorably to gross profit comparisons. Total operating expenses decreased 6% to $8.3 billion, primarily due to a $480 million net gain on the sale of the Norway disposal group (including a $164 million accumulated other comprehensive loss component), partially offset by $77 million in separation-related charges for Medical-Surgical Solutions. The company recorded $170 million in restructuring charges related to enterprise-wide efficiency initiatives, down from $240 million in the prior year. Net income attributable to McKesson reached $4.8 billion, up 45%, translating to diluted earnings per share of $38.38 compared to $25.72 in fiscal 2025. The effective tax rate improved to 17.8% from 20.1%. Operating cash flow was $6.2 billion, relatively flat compared to $6.1 billion in the prior year, as higher net income was partially offset by working capital timing effects.

The results demonstrate strengthening momentum across McKesson's diversified healthcare platform, particularly in higher-margin specialty and oncology services. The 31% revenue growth and 50% operating profit increase in Oncology & Multispecialty reflects successful execution of the company's strategy to build an integrated oncology platform through acquisitions and organic growth. Operating margin in this segment expanded 29 basis points to 2.37%, supported by the addition of providers in practice management and growth in specialty pharmaceuticals. North American Pharmaceutical operating margin improved 12 basis points to 1.09% despite revenue growth of only 11%, indicating better operational leverage and favorable pricing dynamics, including the LIFO credit swing. The company's ability to generate $6.2 billion in operating cash flow while investing $3.4 billion in strategic acquisitions and returning $5.1 billion to shareholders underscores strong capital generation capacity. The planned separation of Medical-Surgical Solutions (which contributed $11.5 billion in revenues but grew only 1%) signals a portfolio optimization strategy to focus on faster-growing, higher-return segments. The Apollo Funds investment values this business and provides partial liquidity while maintaining McKesson's ownership during the transition. The reduction in effective tax rate from 20.1% to 17.8% added meaningful earnings benefit. The 49% EPS growth significantly outpaced revenue and net income growth due to the cumulative effect of share repurchases, which reduced weighted-average diluted shares outstanding by 3% to 124.1 million.

North American Pharmaceutical revenues of $336.7 billion increased 11% driven by higher volumes from retail national account customers, partially offset by branded-to-generic conversions and branded pharmaceutical price decreases. The segment benefited from a $210 million LIFO credit compared to an $82 million charge in the prior year, as brand pharmaceutical deflation replaced prior-year inflation. Operating profit in the segment grew 24% to $3.7 billion, though comparisons were aided by prior-year remeasurement charges of $667 million related to the Canadian retail disposal group and $57 million in opioid-related claims. Oncology & Multispecialty revenues reached $48.4 billion, up 31%, with growth driven by the additions of PRISM Vision and Core Ventures as well as higher specialty pharmaceutical sales. Operating profit increased 50% to $1.1 billion, benefiting from a $51 million net gain on sale of an investment and prior-year loss of $43 million on an equity method investment, though partially offset by $96 million in acquisition and integration costs. Prescription Technology Solutions generated $5.8 billion in revenues (up 11%) and $1.0 billion in operating profit (up 19%), with margin of 17.98%, the highest among all segments, reflecting strong demand for third-party logistics and technology services. Medical-Surgical Solutions revenues of $11.5 billion grew only 1%, with operating profit of $938 million up 20% primarily due to lower restructuring charges in fiscal 2026 ($43 million versus $204 million in the prior year) and business rationalization benefits, though offset by $25 million in separation-related charges. Corporate expenses increased to $931 million from $796 million, driven by higher restructuring charges of $158 million (versus $68 million) and $52 million in Medical-Surgical separation costs, partially offset by the absence of prior-year charges including $87 million for U.K. pension plan termination and $62 million related to the Canadian retail disposal group.

Management highlighted the company's strategic evolution toward higher-growth, higher-margin businesses through the oncology platform expansion and planned separation of Medical-Surgical Solutions. The acquisitions of PRISM Vision (general ophthalmology and retina administrative services) and Core Ventures (oncology business and administrative services from Florida Cancer Specialists) represent significant investments totaling $3.4 billion to build scale and capabilities in specialty care delivery. Management noted enterprise-wide initiatives approved in the second quarter of fiscal 2025 to modernize and accelerate the technology service operating model and drive operational efficiencies, with total anticipated charges of $650 million to $700 million, substantially complete by fiscal 2028. For the Norway disposal group sale, management recorded a net gain of $480 million including a $164 million loss related to accumulated other comprehensive loss balances. The planned separation of Medical-Surgical Solutions is characterized as a portfolio optimization strategy, with the Apollo Funds investment of approximately $1.25 billion for a 13% minority ownership interest intended to partially fund the transition while maintaining majority control during the separation process. Management emphasized the company's capital allocation discipline, returning $5.1 billion to shareholders while maintaining adequate liquidity, with cash and cash equivalents of $4.1 billion and access to a $4.0 billion revolving credit facility (replaced by a $5.0 billion facility in April 2026). The dividend increase of 15% to $0.82 per quarter and Board authorization of an additional $5.0 billion share repurchase program (bringing total authorization to $7.7 billion as of April 2026) signal confidence in sustained cash generation capacity. Management indicated the separation of Medical-Surgical Solutions is expected to be effected through a split-off or spin-off, or combination, intended to qualify as tax-free to the company and its stockholders, subject to various conditions including regulatory approvals and Board approval.

McKesson faces extensive litigation and regulatory risks, with an accrued opioid-related litigation liability of $5.7 billion at March 31, 2026, payable in annual installments through 2038, with $601 million due within twelve months. The company states it is unable to reasonably estimate the upper or lower ends of the range of ultimate possible losses for all opioid-related litigation matters, and adverse judgments or settlements could have material adverse effects on results of operations, financial position, and cash flows. The company operates in a highly regulated healthcare industry subject to extensive, complex, and frequently changing laws, including those governing controlled substance distribution, healthcare fraud and abuse, privacy and data protection, and environmental matters. Cybersecurity incidents represent a material risk, with the company acknowledging that despite security measures, technology systems have experienced incidents and remain subject to future cyberattacks, which could result in material data breaches, business disruption, litigation, regulatory action, and reputational damage. The planned separation of Medical-Surgical Solutions is subject to multiple conditions and risks, including receipt of tax opinions, SEC registration effectiveness, governmental approvals, finalization of capital structure, and Board approval, with no assurance the separation will be completed on contemplated terms or timeline or achieve intended benefits. The company is exposed to risks from business acquisitions including integration challenges, retention of key personnel, unanticipated compliance issues, unknown liabilities, and failure of acquired businesses to perform as projected. McKesson's top customer (CVS) represents approximately 24% of total consolidated revenues and 21% of trade receivables, creating significant customer concentration risk. The company faces competitive pressures from industry consolidation, with a few large suppliers controlling significant pharmaceutical market share and customers consolidating or joining group purchasing organizations with greater negotiating power. Changes in healthcare reform policies, including government reimbursement rates, value-based payment models, and pharmaceutical pricing regulations (such as the Inflation Reduction Act and 340B program developments), could adversely affect profit margins and business operations. The company is subject to tax law changes and challenges to tax positions across multiple jurisdictions, including implementation of the OECD Pillar Two global minimum tax initiative. Goodwill and intangible assets totaled $11.3 billion and $4.1 billion respectively at March 31, 2026, subject to impairment risk if business performance deteriorates or key assumptions change. Foreign currency exchange rate fluctuations, inflation, economic slowdown, and disruptions to capital and credit markets could adversely impact results, though foreign operations represented only approximately 4% of consolidated revenues.

Investors should monitor:

• Progress and timeline of Medical-Surgical Solutions separation, including regulatory approval of the Apollo Funds transaction, finalization of NewCo capital structure, and IRS tax opinion, with management targeting a split-off or spin-off structure intended to be tax-free.

• Integration execution and financial performance of PRISM Vision and Core Ventures acquisitions in the Oncology & Multispecialty segment, including physician retention, practice additions, and realization of anticipated operating synergies against $96 million in acquisition and integration costs incurred in fiscal 2026.

• Trajectory of LIFO inventory accounting impacts given the $292 million favorable swing from a credit of $210 million in fiscal 2026 versus a charge in the prior year, as brand pharmaceutical pricing dynamics and deflation/inflation trends will affect future gross profit comparisons.

• Completion and costs of enterprise-wide restructuring initiatives with total anticipated charges of $650 million to $700 million through fiscal 2028, and realization of targeted operational efficiencies and cost optimization benefits.

• Developments in opioid-related litigation and claims management, including any changes to the $5.7 billion accrued liability, payment schedules, new litigation matters, or regulatory consent decree compliance requirements affecting controlled substance distribution operations.