Welcome to the McKesson Q4 earnings call. Today's call is being recorded. At this time, I would like to turn the call over to Holly Weiss. Please go ahead, ma'am.
Thank you, Ebony. Good morning. Welcome everyone to McKesson's fourth quarter fiscal 2019 earnings call. Today, I'm joined by Brian Tyler, our Chief Executive Officer, and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt. Then we will move to a question and answer session. Today's discussion will include forward-looking statements, such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's press release and our slide presentation, and to the risk factor section of our periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. During this call, we will discuss non-GAAP financial measures.
Additional information about our non-GAAP financial measures, including a reconciliation of those measures to GAAP results, is included in today's press release and presentation slides, and is also available on our website at investor.mckesson.com. With that, let me turn it over to Brian.
Thank you, Holly. Thanks, everyone, for joining us on our call. Today, we're going to focus on our fiscal 2019 results and our outlook for fiscal 2020. Britt will cover our financial performance in greater detail. First, let me take a couple of minutes to discuss some of our important accomplishments and why we are so confident in McKesson's future. During our fiscal 2019, we saw increasing momentum in our strategic growth initiatives, including priority areas that focused on manufacturer value proposition, specialty pharmaceuticals or biopharma services, and the expanding role of retail pharmacy in community health services, all this supported by our ongoing investments in data and analytics. We also continued to optimize our operating model to improve our cost position and the overall speed and effectiveness of the organization. We recently renewed our CVS agreement.
This follows a renewal of our Rite Aid agreement and a 2-year extension of our Veterans Affairs agreement earlier in the year. We believe our strong value proposition and superior service quality were critical to allow us to continue supporting the success of these customers, and we are very pleased to continue these long-standing partnerships. We made several changes to strengthen our leadership team, including the promotion of Kirk Kaminsky as President of our U.S. Pharmaceutical and Specialty Solutions segment, the promotion of Kevin Kettler as the President of our Europe segment, and the hiring of a new leader for our U.K. business. More recently, we appointed Tracy Faber as our Chief Human Resources Officer to succeed Jorge Figueredo upon his retirement later this year.
In our medical business, we acquired Medical Specialties Distributors, or MSD, which has, among other things, expanded our value proposition with manufacturers and brought specialty infusion capabilities and services. It is progressing in line with its business case. Change Healthcare filed its S-1 with an intention to complete an IPO, market conditions permitting. In terms of overall performance for the quarter, I'm pleased with our adjusted EPS of $3.69, up 6% versus the prior year, driven by solid execution across multiple businesses. For the year, we were able to deliver results that were in line with our expectations outlined at the beginning of the year. Our fiscal 2019 adjusted earnings of $13.57 represent 8% year-over-year growth. Despite the challenging industry environment. As a company, I'm pleased with our results.
We have scaled businesses in many good markets, and we're a critical resource to providers in the community care setting. Through our 80,000 associates acting together, we successfully delivered for our customers, executed, and took decisive action to position McKesson for success over the long haul. Looking forward now to fiscal 2020. Our fiscal 2020 outlook for adjusted earnings of $13.85-$14.45 per diluted share represents low to mid-single digit % year-over-year growth. This outlook reflects solid growth across our operating segments, a continuation of disciplined, efficient capital deployment, investments in the business, increased costs for opioid litigation, and modestly improved U.K. results. I would remind you that this guidance is inclusive of our organic growth and our strategic growth initiatives. Britt will cover this in more detail. I'll now touch on developments in each of our businesses during the past year, which provide the platform to delivering.
Past year, which provide the platform to delivering on our expect-Mid-good organic growth. In our European pharmaceutical segment, we experienced sizable U.K. government reimbursement cuts, which we have previously discussed, and we took additional actions this quarter to further rationalize our footprint and back-office operations in Europe. Overall, for Europe, we anticipate revenue to be growing by low to mid-single digits, driven by market growth with no incremental U.K. cuts contemplated in our fiscal 2020 guide. In medical surgical, we delivered another year of solid growth across all of our customer channels, and we are well-positioned to support the growing alternate site markets. The acquisition of MSD and our investments in home delivery help us meet the needs of the patient wherever it suits them and further supports our growth in this segment.
For the medical segment, we expect segment to deliver revenue growth in the high single-digit range for fiscal 2020. Turning to other, which primarily comprises McKesson Prescription Technology Solutions or MRxTS, Canada, and our investment in Change Healthcare. MRxTS is a fundamental part of our strategy to improve healthcare one patient, one prescription, one partner at a time. We're excited by innovative solutions like RxBenefit Clarity, which provides transparency around prescription pricing at the point of prescribing for any medication and all payers. Physicians and patients are excited about this tool, and a fast-growing number of them, currently over 100,000, benefit from information they can really use to make timely decisions. We believe we can do much more to improve transparency for patients and to improve adherence by enhancing the ability of patients, pharmacists to collaborate with their prescribing physicians.
In Canada, we made significant progress to mitigate the impact of government actions as we move through fiscal 2019. Our Canadian retail presence, combined with Well.ca, which by the way, was recognized by Forrester as the number one digital retailer in Canada in 2018, provides patients with another channel to connect with us. We've been piloting our future retail pharmacy concept that evolves the patient experience, which is currently being expanded to more sites. We also announced a collaboration with Google Cloud that will enable us to accelerate how we leverage our data to develop insights and predictive capabilities that will support better patient outcomes and reduce waste. In combination, we expect other to deliver flat to low single-digit revenue decline for fiscal 2020.
We remain confident in McKesson's path forward, the critical role of the services we provide to the healthcare industry today, and our ability to identify and apply solutions to address the most pressing challenges to healthcare systems globally. In particular, we have a scaled presence across important community care settings, including community pharmacy, specialty providers, oncology, alternate sites, which are all critical to addressing the nation's cost, quality, and access challenges. Before I wrap up, I want to take a moment to share a perspective on the evolving drug pricing reform landscape and opioid litigation. Given our broad capabilities and the multitude of customers and channels that we serve are sometimes referred to 360-degree view of the supply chain, we've been actively engaged with the administration, Congress, and industry stakeholders to provide thought leadership on a range of proposed policy changes.
The breadth and depth of our enterprise-wide assets provides a platform for developing new solutions that can help the industry adapt. Our MRxTS or our pharmacy technology business has been investing in real-time benefits tools and cost transparency solutions for patients, prescribers, and pharmacies so they can make informed choices about the cost of therapy. As we move towards a world potentially without rebates, our manufacturer partners and pharmacy customers are interested in exploring new and innovative operating models. We're committed to being part of that solution. We have differentiated technology capabilities that can help move a solution forward, leveraging our retail health pharmacy switch and the assets and capabilities like our chargeback platform in our wholesale business.
Our unique experience in value-based programs such as the Oncology Care Model optimally position us to support the evolving needs of providers as they adapt to new care delivery models and value-based payment programs. With respect to opioid litigation, you are all well aware of the scope and complexity of litigations facing McKesson and many members of the pharmaceutical supply chain. Last week, we announced a settlement with the State of West Virginia. The settlement resolved all the state's past claims regarding McKesson's operations in West Virginia. While we deny wrongdoing, it's important to us that the settlement provides funding towards initiatives intended to address the opioid epidemic itself. We remain committed to resolving other claims and, more importantly, to being part of the solution to this public health crisis. For example, we have contributed $100 million to a foundation focused on combating the crisis.
We've been educating our customers to comply with regulations and identify warning signs of prescription abuse and potential diversion. We've advocated for solutions identified in our white paper, Call to Action: Execute Solutions Today to Combat the Opioid Epidemic. These solutions in our white paper include the SUPPORT for Patients and Communities Act, which was signed into law last year, and the ALERT Act, which, if passed, would establish a prescription safety alert system to help identify patients at risk for opioid abuse. Finally, I'd like to take this opportunity to thank our employees for their continuing dedication, leadership, and consistent focus on a safe and secure supply chain as we strive to improve care in every setting, one product, one partner at a time. One patient at a time.
I am continually inspired by the letters I receive from patients who tell us about our associates consistently going the extra mile to ensure great health outcomes. With that, I'll turn the call over to Britt.
Thanks, Brian. Good morning. Today, I'll provide an update on our fourth quarter and full year fiscal 2019 results. Then I'll close by providing our fiscal 2020 guidance before turning to your questions. My comments will focus primarily on our adjusted earnings results. However, I want to start by discussing two items that impacted our GAAP-only results. As a result of the dynamic market environment, regulatory headwinds, and business performance in our European segment, we recorded an after-tax charge of $1.5 billion in our fiscal fourth quarter, reflecting non-cash goodwill and long-lived asset impairment charges and restructuring charges that are largely in our European business. The impairment charges were mainly due to declines in estimated future cash flows, primarily attributable to the effects of U.K. government reimbursement reductions and competitive pressures in the U.K. Following this charge, there is no remaining goodwill balance in our European business.
The restructuring charges in our European business are related to actions taken to address our performance in the segment. We're working to reinforce and accelerate our U.K. restructuring through further closures of retail pharmacy stores and cost management efforts throughout Europe. We anticipate recording additional restructuring charges in future periods as we execute on planned actions. We remain focused on our business performance in the U.K. and Europe more broadly, and we've taken these actions to better position the business for the future. Now let's discuss our fiscal 2019 results. As a reminder, our initial fiscal year 2019 guidance called for adjusted earnings per diluted share of $13-$13.80. Despite significant regulatory and competitive headwinds, fiscal 2019 adjusted EPS was $13.57, 8% above fiscal 2018 and above the midpoint of our initial guidance. In fourth quarter, adjusted earnings of $3.69 per diluted share were ahead of our expectations.
We exit the year with another quarter of solid performance and remain focused on building upon this positive momentum as we enter fiscal 2020. Starting with the details of our full-year fiscal 2019 consolidated results, which can be found on slide five. Consolidated revenues for the year increased 3% versus fiscal 2018, primarily driven by market growth in our U.S. Pharmaceutical and Specialty Solutions segment, acquisitions, and organic growth in our Medical-Surgical Solutions segment, partially offset by Q4 fiscal 2018 customer losses, which we've discussed previously. Adjusted gross profit was up 2% year-over-year, mainly driven by growth in U.S. Pharmaceutical and Specialty Solutions with McKesson Prescription Technology Solutions, or MRxTS, Medical-Surgical Solutions, and contributions from acquisitions. These positive developments were partially offset by Q4 fiscal 2018 customer losses, headwinds in our European Pharmaceutical Solutions segment, and the fiscal 2018 sale of the Enterprise Information Solutions business.
Fiscal 2019 adjusted operating expenses increased 4% year-over-year, principally driven by acquisitions, increased opioid-related litigation costs, investments to support growth, including incremental spend on data and analytics capabilities and information security, and charges related to the Q3 fiscal 2019 bankruptcy of Shopko within our U.S. Pharmaceutical and Specialty Solutions segment. These increases were partially offset by the lapping of the $100 million contribution to create a nonprofit foundation for opioids in Q4 fiscal 2018, the $90 million reversal during Q2 fiscal 2019 of a contractual liability associated with our equity investment in Change Healthcare, and the fiscal 2018 sale of the Enterprise Information Solutions business. Adjusted income from operations was $3.8 billion for the year, a decrease of 2% from the prior year.
Interest expense was $264 million for the year, a decrease of 7% compared to the prior year, reflecting fiscal 2018 fourth quarter refinancing of debt at lower interest rates. Adjusted tax rate was 17.8% for the year, mainly driven by our mix of business and discrete tax benefits. Income attributable to non-controlling interest was $221 million for the year, a decrease of 4% compared to the prior year. Adjusted net income from continuing operations totaled $2.7 billion, and our diluted weighted average shares outstanding were 197 million for the year, a decrease of 6% year-over-year. Next, I'll discuss our full-year segment results, which can be found on slides six through nine. Let me start with U.S. Pharmaceutical and Specialty Solutions.
Revenues were $167.8 billion for the year, up 3%, driven by market growth and acquisitions, partially offset by previously disclosed Q4 fiscal 2018 customer losses in branded to generic conversions. Segment adjusted operating profit for the year was down 2% to $2.5 billion due to fiscal 2018 customer losses and the Shopko bankruptcy, which offset higher growth in our specialty business and acquisitions. The segment adjusted operating margin rate was 150 basis points, a decrease of eight basis points. Next, European Pharmaceutical Solutions. Fiscal 2019 revenues were flat to fiscal 2018 at $27.2 billion for the year. On an FX-adjusted basis, revenues were up 1%, driven by solid performance outside of the U.K., mostly offset by the fiscal 2018 reduction of approximately 200 retail pharmacies and challenging market environments in the U.K. and France.
Segment adjusted operating profit was down 36% to $219 million, and on an FX-adjusted basis, down 35% to $220 million. The segment adjusted operating margin rate was 80 basis points on both the reported and an FX-adjusted basis, which was a decrease of 44 basis points. The decline in the segment was driven by headwinds in the U.K., which included an inventory charge of approximately $20 million. Moving now to Medical-Surgical Solutions. Revenues were $7.6 billion for the year, which were up 15%, driven by the Medical Specialties Distributors, or MSD acquisition, and growth in our primary care business, most notably from growth in pharmaceutical products and lab solutions. Excluding the MSD acquisition, segment revenue grew 6%.
Segment adjusted operating profit for the year increased 11% to $605 million, driven by solid operational performance, contribution from the MSD acquisition, and ongoing cost management, partially offset by additional investments to support business growth. The segment adjusted operating margin rate was 794 basis points, a decrease of 29 basis points, driven by growth in lower margin pharmaceutical products and investments in our patient home delivery business. Finishing our business review with Other. Revenues were $11.7 billion for the year, down 1%. On an FX-adjusted basis, revenues grew 1%, driven primarily by market growth across the businesses within this segment, partially offset by the April 2018 government pricing actions in Canada and the sale of our Enterprise Information Solutions business in fiscal 2018.
Other adjusted operating profit increased 8% to $1 billion on an FX-adjusted basis, driven mainly by growth in our MRxTS business and a $90 million reversal of a contractual liability associated with our equity investment in Change Healthcare in the second quarter. This was partially offset by the fiscal 2018 sale of the Enterprise Information Solutions business and the impact of the April 2018 government pricing actions in Canada. Included in Other, adjusted equity income from Change Healthcare was $242 million for the year. Next, McKesson reported $555 million in adjusted corporate expenses, an increase of 7% compared to the prior year. There are a few discrete items impacting the expense growth, led by the increase in opioid-related litigation costs and investments in technology infrastructure. These items were partially offset by the fiscal 2018 contribution to create a nonprofit foundation for opioids, which is detailed in our press release.
Excluding these items, we're executing on cost discipline, an important component to driving leverage and a key part of our financial model that we have confidence in driving and sustaining over the long term. Turning now to cash, which can be found on slide 10. Our cash flow remains dependably strong as we remain focused on working capital efficiency and cash flow generation. For the fiscal year, we generated $3.5 billion in free cash flow, which includes $557 million spent on capital expenditures. With the scale of our distribution businesses, there can be variability in our cash flows reported a quarter, including the day of the week a quarter ends on. A portion of the fiscal 2019 performance was due to favorable timing in our U.S. distribution and European businesses.
We ended the quarter with a cash balance of $3 billion. In fiscal 2019, we returned $1.9 billion to our shareholders via share repurchases and dividends. Additionally, we have a total of $3.5 billion remaining on our share repurchase authorization. Before turning to our outlook for fiscal 2020, I'd like to make a few comments as it relates to the fourth quarter. Our detailed results are provided in our press release, I'll just hit a few of the highlights. Consolidated revenue grew 3% on an FX adjusted basis. Revenue was led by market growth in our U.S. Pharmaceutical and Specialty Solutions segment and acquisitions, partially offset by the Q4 fiscal 2018 customer losses, which we've discussed previously. Adjusted earnings per share were $3.69, up 6% for the quarter.
This result exceeded our expectations and was led by a lower share count, strong performance in Medical-Surgical and MRxTS, offset by the weak Europe segment results, principally driven by the inventory charge in the U.K. and a higher tax rate. Free cash flow for the quarter was $3.7 billion, led by strong working capital performance and some favorable timing. In summary, adjusted operating profit performance was ahead of our expectations in our segments, with the exception of Europe. Earnings per share were in line with the most recent guidance range, despite increased opioid litigation costs and investments in technology. We generated strong free cash flow above our target. Overall, we demonstrated progress in many areas, importantly, there's room to improve on all metrics. Now let me turn to our fiscal 2020 outlook.
The dynamic macro environment from this past fiscal year, which was led by regulatory impacts, particularly in our international retail markets, uncertainty regarding the outcome of several U.S. drug pricing proposals, reimbursement headwinds, and increased opioid-related litigation costs will continue to confront us in fiscal 2020. We continue to invest in several strategic initiatives. We're making solid progress against our cost and operating model programs. We've attempted to construct guidance ranges that reflect these components. We expect adjusted earnings per share of $13.85-$14.45 for fiscal 2020, which contemplates adjusted operating profit growth across each of our segments, including our U.S. Pharmaceutical and Specialty Solutions segment. We will continue to deploy capital in a disciplined manner. Please refer to our press release in Slides 11-14 in our supplemental slide presentation for our full list of fiscal 2020 assumptions.
In lieu of outlining each assumption, I will instead walk you through the key items. I will start with the segments. In the U.S. Pharmaceutical and Specialty Solutions segment, we expect low to mid-single digit % revenue growth, primarily driven by market growth, including strong performance in our specialty business. Adjusted operating profit is expected to grow in the low to mid-single digit %, primarily driven by growth in our specialty business and ongoing cost management. In the U.S. market, we anticipate mid-single digit % branded pharmaceutical price increases consistent with our experience in fiscal 2019. As a reminder, approximately 95% of our contracts with branded manufacturers are on a fixed fee rate per service basis. As Brian noted, we are pleased to have renewed our agreement with CVS Health.
Both the CVS Health renewal and the Rite Aid renewal during fiscal 2019 are included in our fiscal 2020 expectations for the segment. Moving to the European Solutions segment, we expect low to mid-single digit % revenue growth. Adjusted operating profit is also expected to grow in the low to mid-single digit %, driven by solid performance in countries outside of the U.K. and cost management programs, including the benefit from recent restructuring actions. This outlook assumes a modest improvement in our U.K. business with no incremental reimbursement cuts contemplated. We are focused on executing against key initiatives to strengthen the business in the U.K. and bolster the performance in other European countries. Moving to Medical-Surgical Solutions, we expect high single-digit % revenue growth, primarily driven by the shift of care to lower-cost settings, increased demand in patient home delivery, and growth in pharmaceutical products.
We expect high single to low double-digit % adjusted operating profit growth, reflecting organic growth, synergies from the MSD acquisition, benefits from fiscal 2019 investments in the patient home delivery business, and operating expense leverage. For the remaining businesses included in other, revenue is expected to be approximately flat to down by a low single digit %, driven by the exit of an unprofitable customer in our Canadian business, partially offset by anticipated volume expansion and increasing sales in MRxTS. Adjusted operating profit is expected to be down by a low to mid-single digit %, driven principally by the $90 million reversal of a contractual liability associated with our equity investment in Change Healthcare in our second quarter of fiscal 2019.
For Change Healthcare, we anticipate the adjusted equity income attributable to our interest be in the range of $250 million-$270 million, which assumes that our ownership continues at 70% throughout fiscal 2020. As a reminder, Change Healthcare Inc. which owns the remaining 30% of Change Healthcare, filed its S-1 with the SEC on March 15th, 2019 and continues to make progress towards a potential IPO. We will not comment specifically on the anticipated performance of the business. I would instead refer you to SEC filings by Change Healthcare Inc. for further information. Moving on now to corporate expenses. As detailed in our press release, our fiscal 2020 guidance contemplates increased corporate expenses year-over-year.
This assumption reflects an increase in opioid-related litigation costs to approximately $150 million, an increase over fiscal 2019 of approximately $70 million related to technology investments, most notably infrastructure and data and analytics investments related to our strategic growth initiatives, and a decline in other income. As a result of these items, we anticipate adjusted corporate expenses will be in the range of $725 million-$775 million for fiscal 2020. While we're not providing an outlook beyond fiscal 2020 today, we anticipate that investments related to technology, our growth investments and initiatives, and operating model optimization efforts will be higher in fiscal 2020 than future fiscal years. Turning to the consolidated view, we expect low-to-mid single-digit percent revenue growth, and adjusted income from operations is anticipated to be flat to down by a low single-digit percent.
While we expect adjusted operating profit growth in the majority of our businesses, this growth will be partially offset by the higher corporate expenses that I outlined earlier. We remain particularly focused on lowering operating expenses across the organization, in addition to the important progress we're making on our operating model optimization. As a result of recent restructuring efforts, we've increased our annual pre-tax gross cost savings target from approximately $300 million-$400 million to a new range of $400 million-$500 million. We expect these savings will be substantially realized at the end of fiscal 2020. We've made solid progress in fiscal 2019. We're tracking in line with our expectations.
Below the line, we assume a full-year adjusted tax rate of approximately 18%-19%, which may vary from quarter to quarter and includes anticipated discrete tax items that we expect to realize during the course of the year. We expect weighted average diluted shares outstanding for fiscal 2020 to be approximately 185 million, which reflects share repurchases completed in fiscal 2019 and the benefit of share repurchases anticipated in fiscal 2020. We anticipate our revenues and results of operations to be currency neutral. Turning to cash flow, we expect free cash flow of approximately $2.8 billion-$3 billion, which is net of property acquisitions and capitalized software expenses of between $500 million and $700 million. The free cash flow expectation reflects the favorable timing realized in the fourth quarter of fiscal 2019.
In closing, we're pleased with the results of our fiscal fourth quarter performance and the execution against our strategic priorities. While the external environment presents many headwinds, we're making important progress. Our efforts to drive productivity, execute on initiatives to deliver savings to fund investments for growth, simplify our organization structure, and increase accountability are all aimed at delivering balanced top-and bottom-line growth that creates value for our shareholders. We know we have more work to do, yet we are pleased with the progress. We look to build on the momentum of our third and fourth quarter operating performance and remain confident in our business as we enter fiscal 2020. With that, Brian and I would be happy to take your questions. I'll turn it back over to the operator.
Thank you. Ladies and gentlemen, to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, press star 1 at this time. We will take our first question from Robert Jones with Goldman Sachs. Please go ahead.
Great. Thanks for the questions. I guess, just to start on the U.S. Pharmaceutical business, around guidance and specifically around branded inflation, was wondering if you guys would be willing to share what the assumption around inflation is that is assumed in guidance. More importantly, I was hoping you could provide us an update on how you feel generally around the branded portfolio and renegotiations with branded manufacturers, Britt, both on the fee for service side, as you mentioned, but also on that 5% that's still contingent upon inflation.
Good morning, Bob, thanks for that question. Let me see if I can answer those in order. In terms of our guidance for the U.S. Pharmaceutical segment, as I mentioned, our assumption around branded price inflation is mid-single digits, that's really in line with what we've been experiencing here in our fourth quarter, it's really in line with fiscal 2019. Our conversations with our manufacturing partners continue to be very productive. We have conversations with our manufacturing partners on a regular basis. We feel like we're very well-positioned in those conversations, there's nothing in our conversations today that would suggest anything different from the guidance that I provided you. As it relates to the contingent portion, again, I wouldn't point to anything new here.
We continue to have really constructive conversations, with our manufacturing partners, we're really feeling like that fiscal 2020 sets up pretty similar to fiscal 2019.
I guess just a quick follow-up. You guys highlighted the corporate expense, obviously taking a step up, it sounds like in large part because of the ramping opioid litigation. Could you maybe just talk a little bit about the visibility you have into what those expenses will be specifically in 2020? As we think about where we stand, in the timelines of some of those larger cases, it seems like some of the bigger ones are poised to go to trial in 2020, and obviously could be an expense for some time beyond that. Any sense you can give us on how you're thinking about the run rate around these costs as we move, not just in 2020, but beyond 2020?
Well, thanks for that question. Let me start. Then I'll have Brian add some commentary here. As we were going through last year, we provided you the best guidance that we had for fiscal 2019, and we talked about opioid-related costs being in excess of $100 million for FY 2019. As we set our guide, again, what we're doing is giving you the best visibility that we have to those costs. I outlined that as $150 million for FY 2020. It's very difficult to forecast these out. These really are dependent on the speed of the trials, the decisions that the judges make along these cases, and it's hard for us to predict that.
What we've done here is given you our FY 2020 view as we sit here today on how we think those trials might progress and what we think those costs might be to defend in those litigation proceedings.
I think you covered it well, Britt. It is difficult to forecast exactly. It's a little bit of art and a little bit of science. Obviously, we're prepared to make the investment we need to make to prepare a proper defense and protect our shareholders' interests. As information unfolds and judges' decisions and schedules and proceedings occur, we'll be committed to keep this group updated. I would say, in general, I think if you look at the operating expense environment and discipline in the core operations, I'm very pleased with the trajectory and the progress that we're making. It is being offset by investments in opioid defense and some very specific targeted investments we're making into the business as part of our strategic growth initiatives.
Great. Thanks for that.
Thanks, Bob.
Our next question will come from Eric Percher with Nephron Research. Your line is open. Please go ahead.
Thank you. Last year, we were talking about a lot of unique headwinds, and it seems significant that CVS is not considered a unique headwind. Brian, I'd be interested in your perspective on what makes for unique or not and whether there was any change to the scope of that relationship. Britt, it would be helpful if you have any commentary on the cadence of earnings, given some of the renewals and one-timers and acquisitions that are contributing.
Good morning. Thank you for the question. We're very pleased to be able to announce the renewal of our CVS agreement this morning. It's a long-time partnership that we've enjoyed with them. I would say that I don't characterize this renewal as really any different than many of the others I've been through with CVS in the years. These are big business relationships, complicated business relationships. We worked through those discussions in a way that we reached a feeling that it was mutually beneficial for us to continue to go forward. We're really excited about our partnership with CVS. The economics of that renewal, as always, have been built into the numbers Britt shared with you this morning.
Eric, maybe I'll just answer your second question here. As we think about the progression of earnings over the course of the year, we don't provide quarterly guidance. What I would say to you is that as we look at the year, you should expect that our earnings will be roughly the same first half to second half as what we experienced in FY 2019.
Thank you for the detail.
Our next question will come from Ross Muken with Evercore ISI. Your line is open. Please go ahead.
Hi, this is Elizabeth Anderson on for Ross. Can you talk a little bit more about your expectations on Europe in the coming year? I know, obviously, there were a couple of one-time items or things that were unavoidable in FY 2019, but sort of what gives you confidence in the profit growth trajectory for fiscal 2020?
Thank you, Elizabeth. Well, we obviously did take a charge of approximately $20 million in the fourth quarter in the U.K. I would say if you step back and look at Europe overall, we were really in line with our growth expectations in most of the countries. We're pleased with the performance. We feel like with the headwinds we've experienced over the past years in the U.K. and the management actions that we've taken, which includes really building a new leadership team there, rationalizing our store portfolio, restructuring the operations, is the work we've done that gives us confidence to feel that we can get Europe back to very modest growth next year.
Okay, perfect. That's really helpful. I also wanted to ask you a question in terms of the upside in your cost-cutting program. Are there any particular areas that you're seeing additional dollars coming from or any other color you could provide there would be very helpful.
Yeah, thanks for that question. I think as we've talked about before, there are several areas that we were really focused on as we think about not only cost cuts and spending behaviors and disciplines themselves, but also, we're going through some operating model optimization efforts in our finance operations, in legal, HR, in our technology, and we've also talked about investments that we're making in technology and data and analytics. We've also talked about some things in our finance operating model, like the partnership with Genpact, as we've expanded that. I wouldn't think of it just as cost-cutting. Spend discipline is important. It's an important component to that. We're also going through some operating model optimization capabilities, and we've made some really great progress, particularly in the areas of technology and in finance.
In the area of technology, we're in a position now to reinvest back into that, invest in infrastructure, and also invest in data and analytics capabilities.
Perfect. Thank you very much.
Our next question will come from Kevin Caliendo with UBS. Your line is open. Please go ahead.
Hi. Good morning, everybody. Thanks. I want to get back to the U.S. Pharma business and your guidance there. If I'm thinking about this right, I think it assumes margins to be pretty flattish year-over-year. I understand there's some synergies from M&A and some other improvements in growth and specialty and the like. If you can break down sort of what your expectations are for generic profitability and the spreads there, like what have you been seeing versus maybe margins in some of the other segments within U.S. Pharma?
Thanks for that question, Kevin. I'll start. What I would say to you as a starting point is we're pleased to be able to provide an outlook for our U.S. Pharmaceutical and Specialty Solutions segment, which returns to growth next year. I think that's on multiple dimensions. We've certainly made some advances in our specialty business. We continue to see good growth there. As we talked about, we're seeing relative stability in the manufacturer price increase area of our business. As it relates to generics, we don't provide specific guidance on inflation or deflation rates. What I would tell you, though, is that we are very comfortable with the sourcing capabilities that we have through ClarusONE. We continue to drive good value out of that. On the sell side, we have great compliance with our customers.
We utilize our capability and scale through ClarusONE, provide really good value to our customers. We believe that we're continuing to create an appropriate spread, which is in a market that is competitive, yet stable. We're very comfortable operating in that environment. Overall, that leads us to be able to provide you an outlook for the segment that has low to mid-single-digit growth in 2020.
Just one quick follow-up, speaking of outlook. It feels to me like this guidance is a little bit narrower than we've seen recently, especially given the higher number. What would cause guidance to come in at the high end of range versus low end of range, given what you've provided us so far? What's $13.85 versus $14.25? Like, what needs to happen?
Yeah. Thank you, Kevin. First of all, it is narrower than the guidance that we provided last year. We have certainly put together plans and constructed these plans with a lot of really good information and visibility into our business units. I think as you think about the top end of the range, certainly continued growth in our specialty business would propel us there. We've had very strong growth in our Medical-Surgical Solutions business, continuing to grow patient home delivery. The investments we've made there, we called those out. We think that those are going to deliver some upside in 2020 and beyond. Our ongoing cost management efforts will take hold as we get further into the period to FY 2021.
On the downside, I think things that could happen could be the outcome of U.S. drug pricing reform or additional regulatory impacts in our international market, which again, we called out. We're not contemplating those, but those are things that could happen that drive us to the lower end of that range.
Great. Thanks, guys.
Our next question will come from Michael Cherny with Bank of America. Please go ahead.
Good morning. Thanks for taking the question. Brian, you talked before about the CVS renewal and how it wasn't that different from previous renewals. That being said, you've recently renewed three of your largest customers, CVS, Rite Aid, VA, against the backdrop of some of these drug pricing dynamics. You've also talked about your engagement with brand inflation manufacturers. How do you think about the conversations that you went into them and thinking about the trade-off of services versus price versus volume commitments in this new drug pricing world? Was there anything that, given the moving piece on drug pricing, you were able to essentially pivot the conversation on?
Thanks for the question, Michael. Obviously, as we entered these discussions, we're well aware and informed of the regulatory environment as, frankly, were our customers. As we have been evolving our model over the past years to think about how we think of different product classes and the services we provide around those classes and the economics we get with those classes, that kind of all goes into the mix, and as the context and the backdrop for these conversations. As we think about the gross-to-net environment and things of that nature, I would remind folks that there is a little bit of a natural hedge on the buy and the sell side for us. These were all well-considered and well-contemplated, frankly, on both sides as we entered into these agreements.
We have baked the results of these renewals into the guide that we reviewed to you this morning, and we're very comfortable in the relationships and excited to extend our business partnership with both Rite Aid and CVS.
Okay. Then just one quick one relative to the share count guidance. It looks like, if my math is correct, you're assuming a higher degree of buyback versus previous years of guidance. Does that have anything to do with your outlook on potential M&A targets relative to where you sit on a portfolio basis or the viability of what you see across the market?
Well, again, I would just point to, as I mentioned, our share count assumption is 185 million at the end of FY 2020. As Brian talked about and we've talked about in the past, we look at our capital deployment on a balanced perspective and trying to drive the most value for our shareholders. As we think about FY 2020, we think that capital deployment towards share repurchases is still an important component of that. We believe that our share price is undervalued at this point. That certainly is going to be a component of how we think about capital deployment.
I would just add, I don't think the message should be that we don't see good M&A opportunities or good growth opportunities for the company. We have had a good track record, and some of our recent deals, I think, have been highly successful for us. What we are doing is really being very focused on where that M&A might occur and making sure it's aligned with our strategic growth initiative and the three growth pillars that we have aligned. We make those decisions, obviously, in the context of where our share price is today and what we think the relative attractiveness of share buybacks versus M&A are. We do have good opportunities. We are and will continue to be active in looking for growth, or capabilities that might come to us through M&A, but doing that in a very disciplined way.
I think MSD is a good example of that we completed in FY 2019.
Great. Thanks for the color.
Thanks, Michael.
Our next question will come from Stephen Baxter with Wolfe Research. Please go ahead.
Hi. Thanks for the question. I was hoping to get some additional insight into the pacing of the efficiency program. Can you help us understand how much of the cost savings was achieved in 2019, how much incremental you think happens in fiscal 2020, and then how much of that remains to benefit the numbers in 2021 and 2022? Thank you.
Yeah, thanks for that question. What we have told you is that we expect to have $400 million-$500 million of cost savings by the end of FY 2021. We are comfortable raising that target given the actions that we've taken here in the last quarter. We haven't provided specific year-to-year guidance on that. What I have said is that in FY 2019, the savings that we generated are largely invested back in the business. We talked about our information technology infrastructure and data and analytics capabilities. You should view FY 2019 as largely reinvested back in the business.
As we progress through the time period over FY 2020 and now 2021, we would expect that those savings will increase over time, and that you should expect to see more and more of those hit the bottom line, we haven't provided specific year-to-year or quarter-to-quarter guidance on the numbers.
Okay, thanks. This is a quick follow-up. I think in the past you said of the cumulative program, most of it will drop through. Is there any update to that, or is that still the right way to think about it?
That's the right way to think about it.
I'd think about it that, we're in the early phases where our efficiency initiatives are producing. We're making a calculated decision in some instances to invest that back into the business. As those efficiency efforts continue to grow, the investments will begin to wane off. You'll see a bigger impact.
Great. Thank you.
Our next question will come from Charles Rhyee with Cowen. Please go ahead.
Yeah. Hey, thanks for taking the question. I wanted to ask a question regarding sort of the rebate rule and sort of the role you see the distributors play. If I'm not mistaken, in some of the comments that the wholesalers have provided to OIG and CMS here is, sort of applying some of the chargeback system that you already have in place with manufacturers for pharmacies, to apply this for the administration of point-of-sale rebates. Can you talk about the capabilities that you currently have to do that today, how that works for pharmacies, and how quickly could that be applied for the use for consumers directly? Thanks.
Thanks for the question, Charles. First off, I would remind everybody that the Part D safe harbor does not really impact our business model directly. We're not contemplating that. What we're really talking about in the course of that reform is what are the implications for retailers and manufacturers, and then how might that ultimately impact us. We do think that we have some scaled and significant capabilities to help address the solution for this area. That would be not just the wholesaler chargeback infrastructure and technology, which really operates at big scale and highly efficient today, but also through our RelaySwitch business. We are transacting $18 billion-$19 billion transactions at the pharmacy desktop each and every day, or not each and every day, each and every year, as we speak.
While each one of those solutions by itself is probably not what's going to be required to administer whatever comes out, and we think it will actually come out pretty soon in terms of a final rule, we think the underlying capabilities will be there. What we're really looking for in the rule is, what does HHS say relative to transparency? What are they going to stipulate in terms of the service providers that can support this, and frankly, what is the timeframe for the implementation? Contemplating all of those things, we'll look at how we bring our capabilities, which are unique to us. Not all of them. We all have the chargeback capability, but the RelaySwitch business is a little bit unique to McKesson.
If the opportunity is there for us to play a differentiated role or be part of the solution, that's something that we would certainly look to do. We'll also approach it with the seriousness that these are massively scaled transactions, with big financial implications for all parties, and so anything that we would roll out would have to be robust, tested, and reliable.
Just to follow up, I think one concern is particularly, as you think about the application of point-of-sale discounts, there's potential that, particularly pharmacies or independent pharmacies could be caught on the wrong end carrying a negative float here, until a true-up on payments. Is that something where you see distributors potentially playing a role, supporting pharmacy customers, using a balance sheet to help them on the working capital side? Thanks.
Yeah, that's a good question, and that's one that we're probably not prepared to answer right now until we see what the final rule looks like. I will say that we have long been an important part of supporting the independent customer base with a really broad array of solutions from helping on the reimbursement side of the business, helping with the cost, the reporting, obviously generic procurement programs. As this rolls out and we see what the impact and evolutions are, we'll assess our capabilities, whether they support new services or balance sheet to figure out how to best support the independent and retail community pharmacy space. It would be premature to make any definitive statements.
Great. Thank you.
Our next question will come from Steven Valiquette with Barclays. Please go ahead.
Great. Thanks. Good morning, Brian and Britt. Thanks for taking the question. Just to come back for a minute here on the cost savings and the segment reporting. Just kind of thinking out loud for the $400 million-$500 million of cost savings, we're assuming most of that does show up in the operating profit segment results for U.S. Pharma Solutions and European Pharma Solutions, but just curious if any material amount of the savings would show up in the corporate expense line over the next couple of years, even though corporate expenses are obviously going up a lot in fiscal 2020. It does seem like, as you describe some of the sources of savings, it does seem like some of that would fit into a corporate expense bucket. Just curious if there are some savings factored into that guidance in corporate expense for fiscal 2020. Thanks.
Thanks, Steve, for that question. It's a great question. Let me just clarify that. The cost savings programs that we put in place, which include the optimization of our operating models, are enterprise-wide. As we think about cost savings, it's really disciplined on an enterprise basis, which would include our corporate functions. As we think about our operating model optimization efforts, whether that be in finance or technology or HR, clearly those will be enterprise-wide as well. As we think about these, they're really holistic programs where we expect the benefits to have an impact, not only within the segments, but also within our corporate expense line as well.
Okay. One other quick one here, just on the guidance. Normally, you guys will give some comments on contribution from new generic launches. I didn't hear much about that for FY 2020. There's been some big ones that launched recently, generic Advair, a few others. Just big picture, any view on profits from new generic launches FY 2020 versus FY 2019?
Yeah. Thanks for that question. Clearly, there will be generic launches in every year. As we think about this, we don't expect a material profit difference in FY 2020 than FY 2019 from generic launches. There will be what we would expect to be a modest impact from generic launches in FY 2020.
Got it. Okay, thanks.
Thank you.
Operator, we have time for one more.
Thank you. Our final question will come from David Larsen with SVB Leerink. Please go ahead.
Hi. It looks like you're guiding pretty good operating profit growth for fiscal 2020 across all segments with the exception of other. Can you just remind me what is going on in other that is going to basically cause the entire enterprise's operating income, it looks like, to decline possibly low single digits in fiscal 2020? Thanks.
Yeah, thanks for the question. As I talked about in my remarks, in fiscal 2019, in our other segment, we had the benefit from the $90 million reversal of a contractual liability within our Change Healthcare business. That, obviously, we will be lapping that in fiscal 2020. That is the primary change, and that is really partially offsetting some good growth and some good expansion that we're seeing, particularly in our MRxTS business.
Okay. With the opioid litigation costs, some of the numbers we're hearing from these litigators are very high. Would you expect to include those costs of litigation in your adjusted EPS going forward beyond fiscal 2020? Would you view those as one-time items? Thanks.
Yeah, thanks for that question. What I would be prepared to say now is our guidance assumes the litigation costs, and that number is $150 million. It'd be inappropriate for us to really comment on it at this time. As things come up or there are decisions that are being made, we'll certainly provide that guidance and visibility to you. As it relates to our guidance today, it's the $150 million in opioid-related litigation costs, which are in our corporate segment.
Okay. Just the last one for me.
Yep.
You had $23 million.
Go ahead.
of operating income in European Pharmaceutical Solutions this quarter. It looks like we're expecting a pretty big rebound in fiscal 2020. Just what's going to drive that? I'll stop there. Thanks a lot.
I would just remind you that we took a charge in the fourth quarter related to that business, and we've also been hard at work in terms of optimizing our store portfolio, rationalizing our back office support functions, and we think all of those will begin to yield benefit.
Okay. Congrats on a good fiscal 2019, Britt.
Thank you. Thank you, David. Thank you, operator. Unfortunately, we're out of time, I want to thank all of you who joined us on the call this morning, particularly those with questions, and we appreciate your support and interest in McKesson. We have a clear strategy and a solid operating plan for fiscal 2020 and exciting growth opportunities across McKesson. I remain confident in our future. Thanks again for joining us this morning. I'll now hand the call to Holly for her review of upcoming events for the financial community.
Thank you, Brian. We will participate in the Bank of America Merrill Lynch Healthcare Conference in Las Vegas on May 14th, we will participate in the Goldman Sachs Global Healthcare Conference in Southern California on June 11th. We look forward to seeing you in the new fiscal year. Thank you and goodbye.
Ladies and gentlemen, this does conclude today's conference. Thank you for joining today. You may now disconnect. Have a great day.