McKesson Lifts Guidance as Oncology Surge Offsets GAAP Charge
McKesson raised its full-year profit outlook after adjusted earnings per share climbed 20% even as a one-time charge tied to its planned Medical-Surgical spinoff dragged GAAP profit down 18%.
McKesson (MCK) raised its full-year adjusted earnings guidance on Wednesday after posting 20% growth in adjusted per-share profit for its fiscal first quarter, even as a new accounting charge tied to the planned separation of its Medical-Surgical Solutions business pulled GAAP earnings down 18%.
The divergence between the two profit measures traces to a $293 million pre-tax redemption-value adjustment on the redeemable noncontrolling interest McKesson created when it sold a roughly 13% stake in Medical-Surgical Solutions to Apollo Funds for $1.25 billion on June 1. That transaction, paired with a $2.25 billion secured term loan taken out June 9, is financing the segment's split into a standalone company that McKesson named Wellverse on the day of the earnings release. The charge pushed GAAP diluted earnings per share to $5.15 from $6.25 a year earlier and cut net income attributable to McKesson to $614 million from $784 million, reversing a run of GAAP gains that included a 37% year-over-year increase in the prior quarter.
Stripping out the separation-related items, the underlying business accelerated. Revenue rose 8% to $105.4 billion, an acceleration from the 6% growth McKesson posted in the fiscal fourth quarter, even though it trailed the 12% pace for all of fiscal 2024. Adjusted earnings per share of $9.93, up from $8.26, grew faster than either the fourth quarter's 16% or the full year's 18%, helped by a 5% reduction in weighted-average diluted shares to 119.2 million as buybacks continued to shrink the share count.
Oncology & Multispecialty drove the quarter, with segment revenue jumping 33% to $14.2 billion on provider solutions, specialty distribution and acquisitions, far outpacing the roughly 12% revenue growth the segment contributed to all of fiscal 2024. Adjusted operating profit in the segment rose 41% to $405 million, the fastest growth of any business line, ahead of North American Pharmaceutical's 19% and Prescription Technology Solutions' 13%.
Medical-Surgical Solutions moved the opposite direction. Adjusted operating profit fell 20% to $195 million on unfavorable product mix and one-time administrative expenses, and the segment's adjusted operating margin compressed 211 basis points to 6.92%, the steepest decline among McKesson's businesses even as North American Pharmaceutical and Oncology both expanded margins. Restructuring, impairment and related charges nearly tripled to $136 million from $47 million, concentrated in Prescription Technology Solutions, corporate expenses and Medical-Surgical Solutions.
Free cash flow swung to a use of $372 million, combining an operating cash outflow of $220 million with $152 million of capital spending, a reversal from the $3.2 billion generated in the seasonally stronger fourth quarter and from $5.4 billion for the full prior year. The burn was smaller than the $1.1 billion of negative free cash flow McKesson posted in the same quarter a year earlier.
McKesson raised its fiscal 2025 adjusted earnings guidance to a range of $44.20 to $45.00 a share, implying growth of 13% to 15%, up from the $43.80-to-$44.60 range it issued just one quarter earlier at fourth-quarter results. The board also raised the quarterly dividend 15% to $0.94 a share from $0.82, the tenth consecutive annual increase, and the company returned $2.6 billion to shareholders in the quarter under a newly launched $2.25 billion accelerated share repurchase program.
McKesson also disclosed a leadership change, with Thomas L. Rodgers retiring as chief strategy and business development officer effective August 1 and Ramesh Srinivasan succeeding him as chief strategy officer, as the company works toward completing the Wellverse separation.