Exchange: NYSE | Sector: Healthcare | Industry: Medical Distribution
Q3 2025
Published: Feb 6, 2025
Earnings Highlights
Revenue of $95.29B up 17.8% year-over-year
EPS of $6.94 increased by 56.9% from previous year
Gross margin of 3.4%
Net income of 879.00M
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"Revenue grew 18% to $95.3 billion and adjusted operating profit grew 16% to $1.5 billion. Adjusted operating profit grew across all segments, led by strong double-digit growth in U.S. pharmaceutical and prescription technology solutions."" - Brian Tyler
McKesson Corporation (MCK) Q3 FY2025 Earnings Analysis: Diversified Growth Across U.S. Pharmaceutical, RxTS and Oncology Platforms with Strategic Eye Care Expansion
Executive Summary
McKesson reported a strong third quarter for FY2025, driven by robust growth in the U.S. Pharmaceutical segment and the Prescription Technology Solutions (RxTS) platform. Revenue rose 18% year-over-year to $95.3 billion, with adjusted operating profit up 16% to $1.5 billion, reflecting broad-based strength across three of four segments. U.S. Pharmaceutical benefited from higher prescription volumes and continued momentum in specialty product distribution, including GLP-1 medications, while RxTS benefited from greater access and affordability solutions. The Medical-Surgical Solutions (Med-Surg) segment, by contrast, faced softer volumes tied to a milder illness season and lower primary care foot traffic, dampening near-term performance in that unit. Management underscored strategic actions to rationalize underperforming assets and invest in high-growth platforms, including oncology and biopharma services, retina/ophthalmology, and clinical trial services via SCRI. McKesson narrowed and raised its full-year guidance for fiscal 2025: adjusted EPS now targeted at $32.55–$32.95, implying roughly 19–20% year-over-year growth, with expected incremental revenue from a strategic partner approaching $32 billion in full-year 2025. The company also disclosed the PRISM Vision acquisition (80% stake for about $850 million), signaling an accelerated expansion in Retina/Ophthalmology alongside its existing retina assets (Onmark Vision, Retina OS). Near-term cash flow remained pressured by working capital movements, with negative quarterly free cash flow of approximately $2.58 billion, though the full-year free cash flow guidance remains intact at $4.8–$5.2 billion. Looking ahead, McKesson reiterated a long-term EPS growth target of 12–14% and signaled ongoing investments in AI, data analytics, and North American distribution modernization to sustain competitive advantages across its diverse platform.
Diluted EPS: $6.94 (GAAP), with adjusted metrics referenced in guidance; share count ~126.6 million
Financial Highlights
- Revenue: $95.294 billion; YoY growth +18%; QoQ +1.75%
- Gross profit: $3.284 billion; gross margin 3.45%
- Operating income: $1.224 billion; operating margin ~1.28%
- Net income: $0.879 billion; net margin ~0.92%
- Diluted EPS: $6.94 (GAAP), with adjusted metrics referenced in guidance; share count ~126.6 million
- EBITDA: $1.446 billion; EBITDA margin ~1.52%
- Cash from operations: -$2.383 billion; free cash flow: -$2.58 billion for the quarter
- Cash and cash equivalents: $1.131 billion; total debt: $9.758 billion; net debt: $8.626 billion
- Total assets: $71.081 billion; total liabilities: $73.785 billion; total stockholders’ equity: -$3.084 billion (negative equity)
- Interim guidance (FY2025): Revenue growth 16–18%; adjusted EPS $32.55–$32.95; free cash flow guidance $4.8–$5.2 billion
- Segment highlights: U.S. Pharmaceutical revenues $87.1 billion, up 19%; GLP-1 medications $10.9 billion, +45% YoY; Prescription Technology Solutions revenue $1.4 billion, +14% YoY; Medical Surgical revenue $2.9 billion, -3% YoY; International $3.9 billion, +6% YoY
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
95.29B
17.80%
1.75%
Gross Profit
3.28B
4.19%
1.11%
Operating Income
1.22B
90.65%
111.76%
Net Income
879.00M
49.24%
264.73%
EPS
6.98
56.85%
273.26%
Key Financial Ratios
currentRatio
0.88
grossProfitMargin
3.45%
operatingProfitMargin
1.28%
netProfitMargin
0.92%
returnOnAssets
1.24%
returnOnEquity
-28.5%
debtEquityRatio
-3.16
operatingCashFlowPerShare
$-18.91
freeCashFlowPerShare
$-20.47
dividendPayoutRatio
10.5%
priceToBookRatio
-23.28
priceEarningsRatio
20.42
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Strategy and M&A momentum:
- Brian Tyler highlighted the PRISM Vision acquisition (controlling interest) as an important step to expand Retina/Ophthalmology capabilities and to build a retinal care platform aligned with McKesson’s oncology playbook (integration with distribution, GPO services, data/analytics, and clinical trial support).
- Britt Vitalone emphasized the ongoing rationalization and the expectation to deliver ~$100 million of cost savings in the second half of fiscal 2025 (weighted toward Q4) as part of the cost optimization initiatives.
- Segment performance and market dynamics:
- Tyler noted broad-based double-digit adjusted operating profit growth across three of four segments, with Med-Surg softer than expected due to a milder illness season and weaker primary care volumes.
- Vitalone underscored 18% consolidated revenue growth driven by U.S. Pharmaceutical strength, including GLP-1 demand, and the RxTS platform’s continued growth in access and affordability solutions.
- Outlook and guidance:
- Management reaffirmed and tightened FY2025 guidance, targeting adjusted EPS of $32.55–$32.95 (18–20% YoY). They stressed revenue growth of 16–18% for FY2025 and highlighted that acquisitions (PRISM Vision, other deals) are not yet baked into the outlook but will contribute accretion post-close.
- The leadership outlined a long-range EPS growth target of 12–14% for 2026 and described qualitative drivers expected to persist, including pharmaceutical distribution scale, oncology leadership, retina/ophthalmology expansion, and continued RxTS strength.
- Market conditions and policy considerations:
- The transcript acknowledged illness-season variability as a persistent factor for Med-Surg volumes, with ongoing sensitivity to public policy and formulary dynamics (PBMs), including potential IRA-related effects on drug pricing and payer requirements.
"Revenue grew 18% to $95.3 billion and adjusted operating profit grew 16% to $1.5 billion. Adjusted operating profit grew across all segments, led by strong double-digit growth in U.S. pharmaceutical and prescription technology solutions."
— Brian Tyler
"We raised and narrowed our full year guidance for fiscal 2025 adjusted earnings per diluted share to $32.55 to $32.95."
— Brian Tyler
Forward Guidance
McKesson reiterates a constructive margin and growth trajectory through FY2025 and into FY2026 driven by its four-paceted strategy: a large, efficient U.S. pharmaceutical distribution core; a growing oncology and biopharma services platform; a retina/ophthalmology expansion via Onmark Vision and the PRISM Vision transaction; and a scalable RxTS ecosystem with access/affordability programs. Key takeaways:
- FY2025 guidance: Revenue growth 16–18%; Adjusted EPS $32.55–$32.95 (~19–20% YoY growth), with an expectation of non-linear quarterly performance and seasonality factors (e.g., annual verification programs in Q4).
- Cash flow: Full-year free cash flow guidance of about $4.8–$5.2 billion; near-term cash flow may be affected by working capital timing (as noted by management: approximately $2.0B of cash timing shift from Q3 to Q4).
- 2026 outlook: Management intends to sustain a long-term adjusted EPS growth target of 12–14% with ongoing investments in North American distribution modernization, data/analytics, cloud and AI initiatives, and continued expansion of oncology and retina platforms. Acquisitions (e.g., PRISM Vision) are expected to add accretion in year 1 (~$0.20–$0.30 per share) and $0.65–$0.75 accretive by year 3 post-close.
- Risks and watch points: Non-linear OpEx trajectory in Med-Surg due to illness season; PBM formulary dynamics and brand/generic transitions; regulatory approvals for transactions; macro health policy shifts; reliance on GLP-1 growth and the durability of oncology/biopharma demand; integration risk for PRISM Vision and other M&A.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MCK Focus
3.45%
1.28%
-28.50%
20.42%
CAH
3.87%
1.33%
-17.20%
16.34%
HSIC
31.30%
4.95%
2.83%
23.32%
PDCO
20.40%
2.89%
3.16%
21.85%
OMI
20.60%
0.89%
-1.46%
-23.68%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
McKesson remains well-positioned to capitalize on the secular growth in healthcare distribution, specialty pharma services, and expanding ophthalmology/retina care. The Q3 FY2025 results demonstrate durable breadth and scale, with three segments delivering double-digit adjusted operating profit growth and a clear path to accretive PRISM Vision inclusion. The company’s four-paceted growth pillars (US Pharmaceutical, RxTS, Oncology/Biopharma services, and Retina/Ophthalmology) create multiple levers to offset cyclicality in any single segment. Management’s guidance for FY2025 (revenue growth 16–18%, adj. EPS $32.55–$32.95) implies ~19–20% YoY EPS growth, supported by a 32B incremental revenue contribution from the July strategic partnership and the ongoing cost optimization program (targeting ~$100M savings in H2 FY2025).
Near-term risk factors include illness-season volatility impacting Med-Surg volumes, payer/formulary dynamics impacting Rx volumes and margins, and integration risk related to PRISM Vision. However, the 12–14% long-term adjusted EPS growth target signals credibility of the portfolio’s ongoing value creation, supported by accelerating AI/data capabilities and continued modernization of North American distribution footprints. Investors should monitor: (1) execution milestones on PRISM Vision integration; (2) the trajectory of GLP-1 and other specialty volumes; (3) progress on cost optimization in Med-Surg and potential spillovers into FY2026; and (4) evolving policy/regulatory developments that could affect pricing or reimbursement dynamics.
Key Investment Factors
Growth Potential
Diversified platform with multi-year growth runway: US Pharmaceutical expansion (retail volumes, specialty distribution, oncology), RxTS growth (access/affordability, prior authorizations, and logistics), and retina/ophthalmology acceleration via PRISM Vision and existing retinaOS/GPO assets. Management projects mid-teens EPS growth through 2026, supported by ongoing investments in automation, data analytics, and cloud infrastructure to improve throughput and customer experience.
Profitability Risk
Key risks include illness-season volatility impacting Med-Surg volumes, formulary and payer dynamics affecting revenue in PBM-driven channels, regulatory hurdles and integration risk from M&A (notably PRISM Vision), potential macro policy shifts impacting drug pricing, and the unusual negative equity signal in the balance sheet that could affect capital markets access if leveraged.
Financial Position
Solid scale in distribution and biopharma services with a large U.S. footprint; strong liquidity guidance (free cash flow target of $4.8–$5.2B for FY2025) and disciplined capital deployment (targeted $3.2B in share repurchases for FY2025). However, reported equity position is negative (-$3.084B), and net debt stands at approximately $8.63B against a total asset base of ~$71.1B, underscoring a capital structure that relies on ongoing internally generated cash and favorable financing terms to support growth initiatives.
SWOT Analysis
Strengths
Large, diversified healthcare distribution and biopharma services platform with a proven track record across four segments (US Pharmaceutical, International Medical-Surgical Solutions, RxTS, and PRISM Vision/Retail Ophthalmology potential).
Leading oncology assets and extensive U.S. Oncology Network (2,750 providers across 640 sites in 31 states), plus strong SCRI clinical trial capabilities.
Growing retinal/ophthalmology footprint via Onmark Vision, Retina OS, and now PRISM Vision, creating a nascent but meaningful retina/ophthalmology services and distribution platform.
RxTS provides scalable access/affordability solutions and logistics capabilities, reinforcing differentiated client value propositions.
Strong revenue scale and operational leverage in core distribution assets; ongoing automation and data analytics investments.
Weaknesses
Near-term Med-Surg volumes exposed to illness-season variability and primary care weakness, creating quarterly earnings volatility.
Negative stockholders’ equity (−$3.084B) indicating potential balance sheet complexity or accounting effects that warrants monitoring.
GAAP margins are relatively thin (gross margin ~3.45%, op margin ~1.28%), implying sensitivity to any adverse pricing or mix shifts.
Significant reliance on regulatory approvals for M&A activity; integration risk remains with PRISM Vision and other deals.
Opportunities
PRISM Vision acquisition opens a path to a comprehensive retina/ophthalmology platform, potentially driving higher-margin add-on services and cross-sell opportunities.
Expansion of retina and ophthalmology offerings, building a broader platform akin to Oncology, including GPO, data analytics, and clinical trial interfaces.
Continued leadership in oncology and biopharma services with Ontada and Sarah Cannon complements that can be extended to broader therapeutic areas.
AI-enabled optimization and cloud/data initiatives to improve forecasting, pricing, and supply chain resilience.
Threats
Regulatory and policy risk, including payer formulary shifts and IRA-related pricing dynamics, that could affect prescription volumes and ASPs.
Competitive intensity from peers (e.g., Cardinal Health, Henry Schein) in distribution and biopharma services; market share gains require continuous investment.
Macroeconomic headwinds and healthcare policy changes could impact capital deployment and M&A timing.
M&A execution risk and integration challenges for PRISM Vision and other projects.