Healthcare distribution and services specialist McKesson (MCK 2.69%) reported mixed financial results for fiscal 2025's third quarter on Wednesday, Feb. 5. McKesson beat earnings expectations with an adjusted EPS of $8.03, coming in just ahead of the projected $8.01. Revenue for Q3 came in at $95.3 billion, falling slightly short of the estimated $96 billion.
The quarter reflected solid operational performance despite a minor revenue miss, with a notable 91% increase in operating profit compared to the previous year.
| Metric | Q3 2025 | Analysts' Estimate | Q3 2024 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $8.03 | $8.01 | $7.74 | 4% |
| Revenue | $95.3 billion | $96.0 billion | $80.9 billion | 18% |
| Operating profit | $1.29 billion | -- | $676 million | 91% |
| Net income | $879 million | -- | $589 million | 49% |
Source: McKesson. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year.
Business Overview
McKesson is a significant player in the healthcare supply chain, providing medical supplies and pharmaceutical products across various regions. The company is essential in the U.S. Pharmaceutical sector, delivering medicines to healthcare providers and retailers. Primary revenue components include distributing branded, generic, and specialty drugs. Its Prescription Technology Solutions segment aims to enhance medication access and affordability.
In recent years, McKesson has focused on strengthening its core operations in the U.S. and Canada, exiting some European markets to consolidate resources. The company's success is tied to its robust distribution network and strategic customer and supplier relationships, which improve efficiency and service scope in its pharmaceutical distribution sector.
Quarterly Highlights
Fiscal 2025's third quarter saw McKesson posting a surge in operating profit, up 91% compared to the previous year, reaching $1.3 billion. This increase was fueled by heightened efficiency and cost controls. The U.S. Pharmaceutical segment showed dynamic growth with revenue hitting $87.1 billion, driven by increased prescription volumes and a solid performance in oncology services.
Meanwhile, the Prescription Technology Solutions (RxTS) segment posted a 14% revenue rise, reaching $1.4 billion. This growth resulted from increased third-party logistics and technology services, emphasizing McKesson's role in medication access and affordability.
Conversely, its Medical-Surgical Solutions segment faced challenges, noting a 3% year-over-year revenue drop to $2.9 billion. This decline followed a reduction in seasonal vaccine and testing activities, highlighting a need for strategic realignment to sustain performance.
During the quarter, McKesson secured a controlling interest in PRISM Vision Holdings, further extending its specialty care offerings. Additionally, it divested Canadian retail businesses like Rexall, aligning with its strategy to sharpen focus on core growth markets.
Despite these strategic efforts, McKesson generated negative free cash flow in Q3 of $2.2 billion, attributed to investments and share buybacks. This financial aspect signals the necessity for improved cash management in future quarters.
Looking Ahead
With a positive outlook, McKesson raised its fiscal 2025 adjusted EPS guidance to a range of $32.55 to $32.95, indicating confidence in its strategic initiatives. This new projection reflects an anticipated growth rate of 19% to 20%, driven by strategic moves and robust operational foundations.
Investors should watch how McKesson navigates competitive and regulatory pressure. Notable competitors like Cardinal Health could challenge McKesson's market position. Upcoming quarters may see further strategic adjustments focused on maintaining growth momentum within key segments.
