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McKesson posts record revenue and raises FY2026 guidance, offsetting margin pressures with strong specialty and Medical-Surgical growth, while cost controls and upcoming spin-offs offer further upside.

# McKesson Delivers Record Revenue and Raises Guidance Despite Margin Pressures in FY2026 Q1

---

## Executive Summary

- **McKesson (NYSE: MCK) reported record quarterly revenue of $97.8B, up 23% YoY, and delivered an adjusted EPS of $8.26, narrowly beating consensus ($8.18).** GAAP EPS declined 11% YoY to $6.25, primarily due to one-time charges, including a $189M bad debt expense related to the Rite Aid bankruptcy.
- **Earnings quality was mixed:** While revenue growth was robust—driven by volume gains and a strong Medical-Surgical segment (+22% YoY)—core U.S. Pharmaceutical margins compressed (adjusted margin down 28bps YoY to 1.06%). However, cost discipline was evident, with adjusted operating expenses down 1% YoY.
- **Management struck a bullish tone,** highlighting record results, successful strategic acquisitions, and a raised FY2026 adjusted EPS guidance (now $37.10–$37.90, up from $36.90–$37.70). Portfolio actions, including the sale of the Norwegian business and a planned Medical-Surgical spin-off, signal a focus on high-growth, high-margin areas.
- **Risks remain:** Margin pressure in the U.S. Pharmaceutical segment and negative free cash flow (–$1.1B, though improved 28% YoY) are key concerns. However, specialty/oncology growth (GLP-1 revenues +38% YoY) and operational leverage from cost controls present underappreciated upside.
- **Catalyst watch:** Near-term, the market is likely to react positively to the EPS beat and raised guidance. Upcoming catalysts include the Medical-Surgical spin-off and further updates on specialty segment expansion.

---

## Performance Snapshot

| Metric                | Reported   | Consensus | Surprise | YoY Change |
|-----------------------|------------|-----------|----------|------------|
| Revenue               | $97.8B     | $95.6B    | +2.3%    | +23%       |
| GAAP EPS              | $6.25      | $6.40     | –2.3%    | –11%       |
| Adjusted EPS          | $8.26      | $8.18     | +1.0%    | +4%        |
| Free Cash Flow        | –$1.1B     | –         | –        | +28%       |
| Medical-Surgical Rev. | +22% YoY   | –         | –        | +22%       |
| GLP-1 Revenue         | +38% YoY   | –         | –        | +38%       |

---

## Earnings Quality

- **Revenue mix was favorable,** with outsized growth in Medical-Surgical and specialty/oncology segments offsetting modest performance in core U.S. Pharmaceutical distribution.
- **Margin strength was mixed:** U.S. Pharmaceutical margins compressed (1.06%, –28bps YoY), but RxTS and Medical-Surgical segments posted double-digit growth and margin expansion.
- **Cost structure improvements** were evident, with a 1% YoY reduction in adjusted operating expenses, reflecting effective management of COGS, SG&A, and logistics costs. This discipline helped offset inflationary and labor pressures.
- **Profitability lagged sales growth** due to one-time charges and ongoing margin headwinds in the largest segment, but underlying operational leverage is building.

---

## Management Commentary & Guidance

- **Management’s tone was bullish,** emphasizing record revenue, segment strength, and the benefits of recent acquisitions (PRISM Vision, Core Ventures).
- **Guidance was raised:** FY2026 adjusted EPS is now expected at $37.10–$37.90 (up from $36.90–$37.70), implying 12–15% YoY growth (14–17% ex-venture gains).
- **Assumptions are realistic but slightly aggressive,** given ongoing margin pressures and the impact of acquisitions on free cash flow. Management is confident in cost controls and the growth trajectory of specialty/oncology.

---

## Key Risks

- **Margin pressure** in the U.S. Pharmaceutical segment remains a headwind, with potential for further compression if pricing or cost inflation worsens.
- **Negative free cash flow** (–$1.1B) is improving but still a concern, especially as acquisitions and divestitures continue.
- **Regulatory and demand-side risks** persist, particularly in specialty pharmaceuticals and reimbursement environments.

---

## Expected Market Reaction

- **Analyst and investor sentiment is expected to be positive** in the near term, driven by the adjusted EPS beat, raised guidance, and visible cost discipline.
- **Cautious optimism** may prevail, as some investors remain wary of margin sustainability and the impact of one-off charges, but the overall bullish tone and strategic repositioning are likely to support the stock.

---

## Final Takeaway

- **This was a strong quarter for McKesson,** with record revenue, an adjusted EPS beat, and raised guidance, despite ongoing margin and cash flow challenges.
- **The market may be underestimating the strength of McKesson’s cost controls and the growth potential in non-pharmaceutical segments,** while overemphasizing headline GAAP EPS and free cash flow concerns.
- **Upcoming catalysts:** Watch for the Medical-Surgical spin-off and further specialty/oncology segment updates, which could unlock additional value and drive sentiment.

---

McKesson (MCK): Record Revenue, Guidance Raised Amid Margin Pressures

McKesson (MCK) is set for another strong quarter, driven by robust U.S. Pharmaceutical growth and margin expansion, though investors should monitor regulatory and FX risks.

# McKesson Corporation: Margin Momentum and Segment Strength Set the Stage for a Dynamic Quarter

## Executive Summary

We are **bullish** on McKesson Corporation (MCK) heading into the upcoming quarter, driven by **sustained double-digit growth in the U.S. Pharmaceutical segment (+21% YoY)** and a **notable 31% YoY improvement in operating margin** to 1.75% in Q4. Management’s recent **EPS guidance raise to $36.90–$37.70** and a **dividend increase to $0.82/share** underscore confidence in near-term performance. However, the market may be underestimating the **potential volatility from regulatory and international headwinds**, as evidenced by nuanced options activity and mixed sentiment in the derivatives market. We expect McKesson’s operational efficiency and segment momentum to drive another strong quarter, but recommend close monitoring of policy and FX risks.

## Recent Trends Signal What’s Next

McKesson’s last two quarters highlight a **clear acceleration in core U.S. Pharmaceutical revenue** and a **steady improvement in operating leverage**. Q4 FY25 revenue reached **$90.82B (+19% YoY)**, with the U.S. Pharmaceutical segment contributing **$83.2B (+21% YoY)**. While total revenue missed consensus by 3.7%, the **operating margin expanded to 1.75% (up from 1.34% in Q3 and 1.34% in Q4 FY24)**, reflecting successful cost initiatives. Gross margin, however, edged lower, suggesting some pricing or mix pressure. EPS has tracked above guidance for two consecutive quarters.

### Quarterly Financial Trend Table

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------------|---------|
| Q3 FY24      | 76.2         | 5.1              | 1.34                 | 0.98          | 7.10    |
| Q4 FY24      | 76.3         | 5.0              | 1.34                 | 1.01          | 7.25    |
| Q3 FY25      | 88.7         | 4.8              | 1.62                 | 1.12          | 8.60    |
| Q4 FY25      | 90.82        | 4.7              | 1.75                 | 1.18          | 9.05    |

**Trend:** Revenue and operating margin are both rising sequentially, while gross margin is slightly compressing.

## Management’s Forward Tone and Positioning

Management’s tone has shifted from “cautiously optimistic” in prior quarters to **decisively confident** this quarter. In the Q4 FY25 call, CEO Brian Tyler stated, **“We’re seeing strong momentum in our core segments and are raising our full-year EPS outlook.”** The company also highlighted, **“Our operational discipline is driving sustainable margin expansion.”** This is a marked change from Q3, where the focus was on “navigating headwinds” and “monitoring regulatory developments.” The **dividend increase and guidance raise** reinforce a more assertive stance on near-term growth and capital returns.

## KPI Trends & Upcoming Quarter Drivers

The most relevant KPIs for the next quarter are:

- **U.S. Pharmaceutical Revenue Growth:** +21% YoY in Q4, up from +18% in Q3.
- **Prescription Technology Solutions Margin:** 18.5% in Q4, up from 17.2% in Q3.
- **Short Interest:** Rose slightly from 1.71% to 1.78% QoQ.

### KPI Movement Table

| KPI                                 | Q4 FY24 | Q3 FY25 | Q4 FY25 | YoY Change | QoQ Change |
|--------------------------------------|---------|---------|---------|------------|------------|
| U.S. Pharmaceutical Revenue ($B)     | 68.8    | 80.2    | 83.2    | +21%       | +3.7%      |
| Prescription Tech. Solutions Margin (%) | 16.8    | 17.2    | 18.5    | +1.7pp     | +1.3pp     |
| Short Interest (%)                   | 1.65    | 1.71    | 1.78    | +0.13pp    | +0.07pp    |

**Impact:** Continued segment growth and margin expansion should drive revenue and EPS upside, while the slight uptick in short interest signals some market caution.

## Missed by the Street

A key overlooked signal is the **divergence in options activity**: while management’s guidance is bullish, **large trades in both bullish ($670–$720 strikes) and neutral ($640 strike) positions** suggest that sophisticated investors are hedging for volatility. This is not fully reflected in consensus estimates, which may be underpricing the risk of regulatory or FX-driven surprises. Additionally, a footnote in the 10-Q highlights, **“International segment operating losses were primarily driven by divestitures and unfavorable currency movements,”** a risk that could resurface if macro conditions deteriorate.

## Scenarios for the Upcoming Quarter

### Scenario Table

| Scenario   | Total Revenue ($B) | EPS Range ($) | Operating Margin (%) | Key Assumptions                                              |
|------------|--------------------|---------------|----------------------|--------------------------------------------------------------|
| **Bull**   | 93.0               | 9.50–9.70     | 1.85                 | U.S. segment outperforms, FX stable, no new regulatory headwinds |
| **Base**   | 90.0–91.0          | 9.00–9.20     | 1.75                 | Steady segment growth, minor regulatory pressure, stable costs   |
| **Bear**   | 87.0–88.0          | 8.50–8.70     | 1.65                 | Regulatory tightening, international drag, FX headwinds         |

**Most Likely:** The **Base case** is most probable, given current segment momentum and management’s confident guidance, but with a watchful eye on regulatory and international risks.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter      | Revenue ($B) | EPS ($) | Operating Margin (%) |
|--------------|--------------|---------|----------------------|
| Q3 FY24      | 76.2         | 7.10    | 1.34                 |
| Q4 FY24      | 76.3         | 7.25    | 1.34                 |
| Q3 FY25      | 88.7         | 8.60    | 1.62                 |
| Q4 FY25      | 90.82        | 9.05    | 1.75                 |

### KPI Movement Table

| KPI                                 | Q4 FY24 | Q3 FY25 | Q4 FY25 | YoY Change | QoQ Change |
|--------------------------------------|---------|---------|---------|------------|------------|
| U.S. Pharmaceutical Revenue ($B)     | 68.8    | 80.2    | 83.2    | +21%       | +3.7%      |
| Prescription Tech. Solutions Margin (%) | 16.8    | 17.2    | 18.5    | +1.7pp     | +1.3pp     |
| Short Interest (%)                   | 1.65    | 1.71    | 1.78    | +0.13pp    | +0.07pp    |

### Key Management Quotes

1. **“We’re seeing strong momentum in our core segments and are raising our full-year EPS outlook.”**  
   *Q4 FY25 Earnings Call*  
   *Interpretation: Management is confident in near-term growth, signaling upside risk to consensus.*

2. **“Our operational discipline is driving sustainable margin expansion.”**  
   *Q4 FY25 Earnings Call*  
   *Interpretation: Cost controls are a key lever for continued EPS improvement.*

3. **“We are increasing our quarterly dividend from $0.71 to $0.82 per share.”**  
   *Q4 FY25 Press Release*  
   *Interpretation: Strong cash flow supports shareholder returns, reinforcing management’s confidence.*

4. **“International segment operating losses were primarily driven by divestitures and unfavorable currency movements.”**  
   *Q4 FY25 10-Q*  
   *Interpretation: International remains a risk factor, especially if FX volatility persists.*

5. **“We continue to monitor the evolving U.S. regulatory landscape around drug pricing.”**  
   *Q4 FY25 Earnings Call*  
   *Interpretation: Regulatory risk is top of mind and could impact margins.*

6. **“Prescription Technology Solutions delivered another quarter of double-digit margin expansion.”**  
   *Q4 FY25 Earnings Call*  
   *Interpretation: This segment is a key driver of margin and profit growth.*

7. **“We are seeing early signs of normalization in demand across our Medical-Surgical segment.”**  
   *Q4 FY25 Earnings Call*  
   *Interpretation: Smaller segments are stabilizing, reducing downside risk.*

---

**In summary:** McKesson is positioned for another strong quarter, with segment momentum and margin expansion likely to drive results above consensus, but investors should remain alert to regulatory and international volatility signals.

McKesson (MCK): Margin Expansion Drives Bullish Outlook