Morning, everybody. Thank you for our next presentation. We're obviously excited to have Cencora here with us today. For those of you who don't know me, I'm Glenn Santangelo. I'm the analyst at Barclays that covers the stock. We recently picked up the stock a couple months ago, almost three months ago in December. Before that, I had covered this earlier in my career for over two decades, so I'm very excited to be back covering the company. Let me just do some quick introductions. We have the CFO to my right, Jim Cleary, who I think maybe many of you know. To his right, Bennett Murphy, who's Senior Vice President, Head of IR and Enterprise Productivity. I think he wears a number of different hats inside Cencora these days.
With that, why don't we sort of dive right into it? Jim, Bennett, welcome. Thank you guys for joining us today.
Thank you.
Glad to have you back, Glen.
Okay, excellent. You know, maybe as a good place to start, why don't, Jim, I don't know if you just wanna give us a quick level set on some of the recent fiscal first quarter results and kind of the guidance for the year and stuff like that, just to set the table, then we'll dive right in.
Sure. Well, Glen Santangelo, first of all, it's fantastic to be back here at your conference, and you know, it's a great opportunity for us to meet with investors and for us to talk about our growth priorities and our strategic drivers. You know, we were pleased with our first quarter results. It you know, we had nice growth. We had 21% growth in our U.S. segment, and really kinda good performance across our U.S. segment. We're also very pleased during the quarter to be able to announce that we were going to do the OneOncology acquisition. We were also very you know, pleased when we announced our quarterly results that we had closed that acquisition. I'll say we feel you know, very good about our MSO strategy.
During the quarter, we not only were able to announce OneOncology, but we also had, you know, very nice performance in our Retina Consultants of America business. You know, we were very pleased once we announced OneOncology that we're able to increase our operating income guidance and increased it on an enterprise level by 3.5 percentage points at the low end and the high end of the range. We're now at 11.5%-13.5%. Then also in our U.S. segment, able to increase our operating income guidance for the year to 14%-16%. Overall, we were very pleased with the first fiscal quarter results, Glenn.
That's definitely a good start to the year. All right. Why don't we dive right into that, into your U.S. Healthcare Solutions business? I mean, I think you just said you posted 5% revenue growth, but more importantly, the 21% operating profit growth. What I found, you know, surprisingly, for a very short period of time, and it's always interesting kinda coming back into new coverage of a stock and where the expectations are, that people, for a couple of hours at least, viewed that 21% as sort of disappointing because it was slower than the 29% I think you reported the quarter before that.
As you know, there were a lot of moving pieces in there around M&A and sort of on the contracting front that may be screwing around with that quarterly cadence and the growth rate, which I think makes it harder for you know, investors to sort of unpack all the pieces and actually get a better sense of what the underlying trend is. Maybe if you could just shed a little bit of light on that 21% operating profit growth you generated in the quarter and maybe disaggregate a couple of the pieces and help us just think about the core underlying trend.
Sure.
Out there.
Sure. Great. Excellent question, Glen. We felt, as I said, very good about the quarter with that 21% growth in the U.S. As Glen mentioned, when we announced that, the stock traded down for a bit, but swung back to where it was within two days. You know, what we see in that 21% is really, you know, broad-based good growth across our U.S. business. Even if we exclude the incremental quarter of RCA, because we didn't anniversary the RCA acquisition until the beginning of our second fiscal quarter. If we exclude the incremental benefit of RCA, we still grew at the high end of our long-term guidance.
That even includes the headwind that we have from the loss of an oncology customer that was acquired by a competitor. You know, we feel kind of as you unpack those sorts of things, we feel very good about the U.S. performance during the quarter, you know, being at the high end of our long-term guidance range, even in spite of the loss of the oncology customer. We had great performance. Now, it wasn't at the same level of outperformance that we had seen in the fourth quarter, where basically everything went right, but we still feel, you know, great about that 21% growth rate.
Okay. Let's just wind the clock forward and looking forward through some of those moving pieces. You talked about RCA, and I think you closed that deal in January 2025, right? Now that's no longer. You know, we've now comp that. Florida Cancer, I think we still have as a headwind for the next two quarters. Now you've recently announced the acquisition of OneOncology, right? Help us think about sort of those headwinds and tailwinds as we think about, you know, the remaining sort of three fiscal quarters in your year.
Sure. As you look at our, we certainly have Q1 in the books, which had the stub period from RCA, which as Jim said earlier and he's called November. If you take the two, the RCA tailwind and then the Florida Cancer headwind, those two net out to a 1% headwind to our full year operating income. As you look at the balance of our fiscal year, Q2 would be the lowest growth quarter because you think about the annualization of RCA on January one, as you said, and then the OneOncology transaction closed on effectively February one. You get two months of the initial two months of OneOncology, you know, three months in each of the subsequent two quarters. That'd be.
As you said, Florida Cancer, two more quarters, we begin to annualize that on July 1, which would then, you know, create a more normal trajectory in the fourth quarter.
Okay, perfect. All right. Listen, you know, the specialty deals, they always take all the oxygen out of the room. What I wanted to do before we talk about those in a little bit more detail is just sort of focus on the core a little bit. You know, can we talk about sort of the volumes that you've been seeing in the underlying business and how they've sort of trended, right? People are starting to say, "Is the job market starting to wobble?" You know, have you. If you could just talk about the second half of calendar 2025 and the outlook for sort of 2026, what's sort of embedded within your guidance.
Yeah. 2025, certainly it saw extremely strong growth, which as we said on our November earnings call, we'd start to annualize and compensate higher contribution periods. As I think about turning into calendar 2026, certainly IQVIA data showed softness in January, which a number of the sell-siders attributed to weather and things like that. I think, as I think about our business overall and macro in the big picture, it's that pharmaceuticals have historically been generally inelastic in terms of the demand for them, because they are the most effective course of care. A lot of the users are on government programs, so there is more support, particularly Medicare. There is good commercial coverage.
We've seen, you know, over the various economic cycles over the past 25 years, that inelasticity of pharmaceutical demand generally play out over cycles like this.
I mean, I guess the simple take is you haven't seen any volatility to that growth rate relative to some of the macroeconomic news that's transpired.
There's a lot of macroeconomic news.
Yeah, there's a lot of macro.
I think the truth holds that over cycles, we see general inelasticity of demand.
All right, excellent. Maybe if we could just focus on generic pricing for a second. That's always kind of important. You know, we've reported in our research that it feels like to us, you know, as we move from 2025 into 2026, that the generic pricing has gotten maybe one turn a little bit better as opposed to one turn a little bit late. For those of you who are here, at lunchtime, we're hosting a panel with one of the consultants we like to use in this space to try to dig into the generic manufacturers and pricing in a little bit more detail.
I don't know if there's any sort of high-level commentary you can make with respect to generic pricing and any recent trends that you might be seeing in that business.
Yeah, Glen, great question. We don't really have anything new to call out there. We've been talking for some time now about the moderation of generic deflation, and that's still what we're seeing as manufacturers have been prioritizing their portfolios. There's also been some increased inspections and those sorts of things. We just kinda continue to see a moderation of generic deflation and that sort of price stability.
Yeah.
Thanks.
All right. Maybe I don't know if there's anything else to call out on sort of the generics or sort of biosimilar pipeline. One of the thing that is new and differentiated when we think about our coverage is we also cover some of the generic and biosimilar manufacturers. You know, for example, we hosted Teva this morning. They're already talking about, you know, 10 new biosimilars they plan to have in the market by 2027. We look at the pipeline of sort of complex generics that you have a steady diet coming from now through 2030, which seems like it just is a natural sort of ongoing tailwind that just seems to sort of get blended into everything else within your business.
You know, when you think about maybe what that pipeline of generics, complex generics, biosimilars, like, how do you think about that sort of, you know, layering itself into your business over the coming years?
Yeah. It's really a great opportunity for us, and it's one of the really strong things about our business model. As we look over the next several years, we'll really benefit from generics and biosimilars, but also they create room for innovation in the market also. You know, just a great thing about our business model is we'll benefit from innovation, and at the same time, we'll benefit from generic and biosimilars. You know, that our sweet spot in biosimilars is in Part B, and it's in you know, area where we've been quite successful, and it's in a you know, area that also plays into our MSO strategy, Glen.
Yeah. As I think about, you know, what brings investors to our company or industry often is that the ability to get access or exposure to specialty coming to market, and then the added benefit of as products go generic or as products go biosimilar, that not only being, you know, good for us from a commercial standpoint, but it's also good for patients and good for the healthcare system overall, in that it takes cost out to make room for that innovation.
Okay.
Excellent point. Thank you.
All right. Maybe can we talk about sort of the IRA pricing issues? You know, when we were doing our work in the fall and we started re-engaging with investors on these names, it was pretty apparent to us that one of the things that people were concerned about, right, was the impact of lower pricing on certain branded pharmaceuticals from the IRA. Would these companies be able to renegotiate their fee for service agreements, you know, effectively enough to sort of make themselves whole? You know, not only yourselves, but your two other competitors have sort of commented that they sort of feel comfortable around that.
I mean, is there any sort of message or anything you want to deliver to the investors with respect to the IRA pricing changes scheduled for this year and next year, and Cencora's sort of readiness to, you know, embrace those pricing changes?
Sure. Well, excellent question. We have terms in our contracts that indicate if there are meaningful reductions in price, that we're able to renegotiate with the manufacturers. We've seen very good success this year, and we have, you know, a strong strategic global sourcing department. You know, what we really look at is maintaining gross profit dollars. Whether it was the negotiations that we went through this year or the insulin-related negotiations that we went through some time back, we've seen good success maintaining gross profit dollars.
Right. You feel like you've had enough of a lead time to.
Oh, yeah.
To sort of have those conversations. Okay, excellent. All right. Maybe just one more on sort of the core businesses around the Publix loss this year. I mean, I think people sort of always generally ask the question, you know, fortunately, we haven't seen many contracts move, right, in the last X amount of years. People always ask, is there anything else on the contracting front, anything else that we should be mindful of when we think about, you know, contracting over the next kinda couple years?
No, I think, I mean, that example would be something more tying back to Cencora's strategy and us on our priorities and focus areas. As I look forward, no, there's no contract that we've disclosed expiring.
Okay.
In the next 12 months.
All right. Maybe let's shift over to specialty. Big investments, you know, in the last sort of 18 months in RCA and OneOncology. You know, Jim, you talked about the MSO strategy a little bit. Maybe for those that are maybe a little bit less familiar, if you could just maybe spend a minute, you know, talk about those deals, talk about the MSO strategy, and then we can maybe segue into where we go from here. Maybe just it's worth spending a minute to bring people up to speed on where we're at.
Yeah. As I said earlier, we feel very good about our MSO strategy, and it's really the natural evolution of the most successful part of our business. Of course, the specialty distribution has been, you know, a growth driver for us for quite some time. We got into businesses like GPO, and so getting into the management services is really the natural evolution of this business. We feel very good about our experiences thus far. You know, we've owned RCA for over a year now and are very pleased with the business, are very pleased with all aspects of the business. The kind of clinical trial site part of the business has exceeded our expectations. The growth in attracting top doctors has really exceeded expectations.
You know, we had a very good quarter. Of course, we made the initial 35% investment in OneOncology, and then we of course acquired most of the rest of it that we announced on about February second when we announced our earnings. We feel that the opportunities for synergy and working together between RCA and OneOncology is quite strong, whether it be in terms of clinical trial sites, whether it be in terms of, you know, back office functions, such as revenue cycle management and IT and staffing, whether it be longer term things like data and analytics. We feel, you know, very good about the way that we're prioritizing growth-oriented investments.
That's one of Bob's kind of four strategic drivers for the business, is prioritizing growth-oriented investments. This is, you know, just a great example for that, and it just is, you know, good for our company. Also we feel that these businesses are, you know, just excellent sites of care and very efficient sites of care.
Mm.
Really good for patients also.
Yeah. I think. As you think about Cencora, you think about pharmaceutical-centric, and you think about specialty. The MSOs that we've moved into are retina, which is predominantly pharmaceutical-centric course of care, and oncology, which is also predominantly a pharmaceutical course of care and the largest part of the physician administered part of the market. We think those are the right places for us to play. We think that's where we can be really good strategic partners. We have long-term distribution relationships. We have long-term GPO relationships. This gives us the. This is an extension of those relationships into the MSO upstream.
Bennett, those are such important points that I think as you look at Cencora and what you'll see us do, you know, kind of two of the key things are strengthening our position in specialty, and then also you'll see that, you know, kinda all the key moves we make will be pharmaceutical-centric. That's what, you know, kind of makes kinda what we're doing with RCA and OneOncology just is, you know, so well aligned with those two things. Just one other thing that I didn't mention is just you know, how pleased our company has been with the strength of the management teams also.
Maybe that's a good segue into my next question because it seems like from my perspective, and Ben, I think you were sort of touching on this a little bit, when I look at sort of Cencora and McKesson, feels like you're pursuing somewhat similar strategies where it feels like Cardinal has done acquisitions that are maybe somewhat differentiated maybe from that you were discussing. Maybe my question is not is one strategy better than the other? I'm not asking you to opine on that. Maybe do you believe that you guys are maybe heading in slightly different directions? I think you and Jim were just sort of outlining why, you know, yours is more of a pharmaceutical-centric strategy.
If you could maybe just draw that differentiation for people 'cause I think that's important.
Sure. Having the position that we have in specialty means we have exposure to all the different therapy verticals that exist within the physician-administered market. There are a number of great customers across that landscape that we are very happy to serve as customers. As we think about where we want to extend ourselves into the MSO space, you know, the Retina and oncology being-
Yeah.
Being really the only two specialties that are predominantly pharmaceutical-centric gives us significant confidence strategically.
Yeah. All right, we got three minutes left, so we're gonna fly through the last three or four questions if that's okay. All right. The longer term outlook for acquisitions in this market, I mean, you just announced a major deal last month, so I'm not asking when the next one is. You know, could you sort of comment on the market and how we should think about it even beyond fiscal 2026? Are you starting to see upward pressure for acquisition multiples, or do you think there will be ample opportunity in the future? Any high-level thoughts?
Yeah. Very quickly, we talked about this before, strengthening our position in specialty, pharmaceutical-centric. We now have two very strong platforms in terms of RCA and OneOncology. What I would expect to see is kind of bolt-on, add-on investments there, you know, but nothing of that size in the MSO market because we have two leading platforms now.
Okay. All right, just shifting on to your other segment. A little bit of mixed emotions for you maybe seeing the MWI business go. For those of you who don't know, Jim used to be the CFO of MWI when it was acquired by Cencora. Okay, well, that's kinda gone, but there are a couple of other assets in there pro forma, some consulting businesses that are still maybe you're considering strategic alternatives. Any update on that other segment?
Yeah, let me be quick there. In November, we set up other, and these are very good businesses, but they don't bring competitive advantage to the balance of the enterprise. MWI, for instance, has performed very well for a long time, but we think by coming together with Covetrus, it can really kind of focus on the animal health space, have a lot more efficiency, can bring affordability to the customer base, and so we kinda feel very good the direction we're going in there.
The other businesses and other are much smaller, but you'll see us continue to do those sorts of things with that business to look at strategic alternatives so that they can be more focused on those markets. One of the businesses, our legacy U.S. consulting business, we're now accounting for as an asset held for sale because of the progress there.
Yeah. Okay. The leverage on the balance sheet, it sort of ticked up post the OneOncology deal. I mean, I think you've talked about maybe suspending some share repo in the interim to bring that leverage back down to a range that you're more comfortable with. Can you just remind people, you know, do you have any specific leverage targets in mind and how we should think about repo? Should we just assume it continues in fiscal 2027?
Yeah. The way to think about that is for a period of time, we're prioritizing de-leveraging. We have, you know, very strong relationships with the rating agencies. Over time, we'll get back to balanced capital deployment, which we've always focused on, which is really continuing to make the investments in the business, looking at strategic acquisitions, and we talked about the MSO strategy there. We'll always look at opportunistic share repurchases that we'll get back to after we prioritize the de-leveraging, and then also have a reasonable growing dividend rate. Thank you.
You touched on the guidance. You know, you raised the operating profit guidance in the U.S. business on 1Q. It's hard to believe that we're almost halfway through your fiscal year 2026, right? I mean, any sort of high-level thoughts with respect to the guidance or anything you wanna, you know, share with people on maybe what motivated you to raise that guidance at the time, given it was just your fiscal first quarter?
Yeah. We raised the guidance because we had closed the acquisition of OneOncology. What I'll also say, in the past six months, we've raised our long-term guidance twice, which is 7%-10% organic operating income growth, 3%-4% a year from capital deployment, and so a 10%-14% long-term guide.
All right. Well, listen, we're out of time, but I wanna give you guys the last word. I mean, Things are clearly moving in the right direction, I mean, in the core trends. You know, you have the strong growth in specialty. We talked about the steady stream of generics and biosimilars. What sort of last word do you wanna leave our investors with, you know, today and anything else that we didn't cover that you think you just wanna conclude with?
Glenn, I think that we covered it well. Your questions were excellent. We feel, you know, good about the first quarter. We were pleased to increase our long-term guide twice in the last six months. We feel, you know, very good about the execution of our teams, particularly across the U.S. segment. We're pleased with the progress that we've been making in many areas, including the MSO strategy, which we've talked a lot about.
Jim Cleary, Ben Murphy, thank you guys very much. Really appreciate it.
Thank you, Glenn.
Thank you.