Q1 2021 Mckesson Corp Earnings Call
[music].
Welcome to Mckesson's first quarter in Skol beats can for interest being recorded.
This time I'd like to turn to call. If we see a hobby Weiss. Please go ahead.
Thank you Melissa good morning, and welcome everyone can make happen first quarter fiscal 2021 earnings call today, I'm joined by Brian Tyler, Our Chief Executive Officer, and brief it alone our Chief Financial Officer.
And will lead off followed by Brett and then we will move to a question and answer session.
Today's discussion will include forward looking statements such as forecast 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, which are available on our web site at Investor Dot Mckesson Dotcom with that let me turn it over to Brian.
Thank you Holly and good morning, everybody.
Thank you for being with us on the this morning's call I hope I.
I hope that you your families in your communities are staying healthy and safe.
Our fourth quarter call. It may I discussed that we were entering the new fiscal year with a macro uncertainties and volatility in health care consumption patterns as it as a result to covert 19 pandemic at our first quarter results clearly reflect the effects of these dynamics.
Today, we are reporting results for what are the most complicated quarters at our company's history, our first quarter adjusted results while materially down against prior year due to the pandemic finish significantly above our original expectations.
We reported first quarter total company revenues of $55.7 billion and adjusted earnings per diluted share of $2.77.
Both ahead of our original expectations.
Through April and May trends in the business align closely with our original expectations. However, we saw volumes across the business improved significantly over the back half of June resulting in a strong close to the quarter.
Based on our first quarter results and the current shape of the recovery versus our original expectations. We're raising our fiscal 2021 adjusted earnings per diluted share guidance range to $14.70 to $15.50 per diluted share. This is up from our previous range.
<unk> of 13 95 to $14.75 per diluted share.
Despite the uncertainty brought on by the pandemic. Our focus is on executing against what is within our control and that execution really underpinned our strong finish to the quarter as customer demand began to improve from the troughs, we experienced in April and May.
From the beginning our top priority has been to navigate the challenges and and the fluidity of the situation brought on by the pandemic by focusing first on protecting the health and safety of our teams. So that we could continue to meet the needs of our customers and keep the healthcare supply chain operating at a high level we.
Committed to increase safety measures for our employees and have maintained an unwavering commitment to our customers and our communities.
In May I talked about the essential role Mckesson plays in the fight against the Cobot 19 pandemic and the need to partner closely with manufacturers various government entities. So that we can react quickly as demand patterns shift with the spread of the cobot 19 virus one such area that has evolved is.
Demand for personal protective equipment or PE.
As frontline workers and our customers work to to help treat and keep patient safe. We've worked with supplier partners federal state and local governments to get higher volumes of PE to areas of critical need.
Our partnership with Walmart to produce and deliver medical gallons in the U.S. has continued to increase total accounts supply with over 30 million gallons shipped to the U.S. since April.
We're also continuing to invest in our communities our foundation made contributions to over a dozen food banks and some of the nation's most vulnerable areas.
These investments translate into more than 6 million meals for individuals who would otherwise go hungry.
Before I expand on our first quarter results I want to provide just a brief update on the macro environment and the trends we've seen over the past 75 days since we reported our fourth quarter fiscal 2020 results and issued our fiscal 2021 outlook.
Covert 19 has continued to progress and persist here in the U.S. in ways. We couldn't have predicted when we initially provided our outlook for fiscal 2001.
Several states, including Texas, where I am today are experiencing significantly higher numbers of cases, while others. Other parts of the country and frankly the world are are in very different in various forms of recovery. This variability makes predicting an aggregate timeline for the recovery challenging.
As we detailed on our fourth quarter call, we expected the most severe impacts to our business in the fiscal first quarter.
And as a reminder, our original outlook assumed the pandemic would have the most material impact on our businesses with physician and specialty provider and oncology exposure.
We expect a gradual stabilization beginning in our fiscal second quarter and ramping over the remainder of the fiscal year as doctors offices reopened and patients returned to their treatments.
Through April and May our results were largely in line with our original expectations with volumes across the enterprise materially down versus the prior year and well below pre cove at levels.
We experienced in June however, a wasn't earlier than expected pace of recovery, particularly for the last weeks of the quarter, resulting in demand acceleration at higher volumes versus our original expectations.
These impacts were the most pronounced in the primary care business within our medical segment.
Primary care patient visits showed encouraging signs of improvement in June as patients returned to their doctors following the relaxation of shelter at home guidelines.
Now turning to the business.
Ill summarize the first quarter, and then I'll turn the call over to Britt to elaborate.
US pharmaceutical and specialty solutions exceeded our original expectations in the quarter underpinned by strong execution and improving volume trends in the business in the back half of June.
Market stability, our disciplined approach to pricing and a growing specialty market continue to be foundations for us to build upon.
We're very pleased to have recently renewed our distribution agreement with the buyers alliance, sometimes referred to as Tbtu per day.
And doing so while maintaining our disciplined approach to the market I would remind you TV as a group consisting of several health systems retail national accounts, and small and medium chain pharmacies.
We're always looking for how we can best serve our customers and help them grow their business.
This was evidenced by the growth in our specialty provider business in the midst of this pandemic driven and small part by improved adoption of bio similars in the quarter.
While our specialty business recovered more quickly than we had assumed following the initial downturns and demand we have certainly had to adapt to meet the needs of patients at the onset of the pandemic. The U.S. oncology network developed a rollout plan for telemedicine and within four weeks, 80% of our network physicians were able to us.
Initiate tele medicine follow up visits and new consultations with their patients to date more than a 120000 telemedicine visits have taken place with over 1200 50 providers.
Our improved outlook for fiscal 2021 in the segment reflects the positive trends, we saw in the quarter across the portfolio versus our original expectations.
Let me make a few comments on Europe.
While each of the 13 countries, we operate and have had different responses and recoveries during the pandemic. We're encouraged by the segment's results in the first quarter.
We also continue to take actions to better position the business for future growth as evidenced by our ongoing efforts to evaluate our footprint and cost structure in our largest market the UK.
In the UK market I'd remind you that are owned retail pharmacies are very healthcare focused with up to 90% of our mix coming from pharmaceutical volumes.
While lower foot traffic through our pharmacies was a headwind in the quarter. Our downside was limited due to our relatively small exposure to the front shop categories.
The good example of how we're evolving this business is our 2019 acquisition of a company called Echo now operating as Echo by Lloyds Pharmacy. This is an online prescription fulfillment business in the UK.
It's all it is it was a timely acquisition for us, particularly given the impact of the pandemic to meet customer demands in uncertain times, our investment in our digital health care strategy in the UK has helped position the business to benefit from movement of patients to home and to Omnichannel services.
Let me move on to medical.
As I discussed earlier in June we experienced a sharp increase in demand across our primary care sites. This directly correlates to the reopening of physician offices and resumption of performing elective procedures as patients started to feel more comfortable returning to their doctors and health care providers.
In addition to a stabilization in primary care volumes as the quarter closed our leading position in our lab business also puts us in a good place to respond to customer and patient needs. During the pandemic. We have a strong history in this channel and as customers need solutions for cobot, 19, and as our manufacturer partners develop and.
Launch testing solutions, we remain a partner of choice and a leader across alternate site settings of care.
The trends we witnessed in June combined with our improve outlook for the business over the remainder of this fiscal year give us confidence in our significantly improved outlook for this segment.
Turning to other.
Which now primarily consists of Canada and Mckesson prescription technology solutions following the separation of our investment in change healthcare in fiscal 2020.
We're encouraged by the trends we saw in Canada in the quarter as volumes began to approach pre co bid levels in our distribution and retail businesses.
Within the retail setting our focus remains on building and enhance customer experience through investments in people and reconfigured pharmacy formats. This has helped to strengthen our fundamentals and the role that community pharmacy plays in the Canadian Health care system, which is especially important in times like these are.
Owned Canadian pharmacies are continuing to evolve and will soon offer ecommerce and E prescribing platform, creating additional options for Canadian consumers, who want both a physical and digital shopping experience.
Within M. Rx Ts.
We're making progress with our investments to create technology offerings that resonate with our retail and biopharma customers since launching in September of 2019 access for patients a product we call Amp has helped automate access to therapies for complex and chronic diseases, reducing the time to fair.
RP by 18 days on average and we're continuing to expand the brands taking advantage of this offering.
The collaboration between our Rx Crossroads and cover Mimed businesses to develop Amp is a good example of how our business.
Evolves to meet the needs of our customers.
As part of our ongoing evolution on July Onest, we announced the re segmentation of our businesses effective in the second quarter of this fiscal year.
We believe that this new organization structure better positions mckesson to focus and execute against our growth strategies and to meet the changing needs of our customers.
With this re segmentation to new segments have been established international and prescription technology solutions.
Kevin Kettler has assumed responsibility for the new International segment, which combines a mckesson Europe and our Canadian business.
Nathan Mott will lead the new prescription technology solutions segment, which has been expanded to include the Rx Crossroads business, formerly reported as part of Mckesson life Sciences within our us pharmaceutical and specialty solutions segment.
In the quarter, we also appointed Tom Rogers as Executive Vice President and Chief strategy and business Development Officer, Tom brings more than 25 years of experience working in both emerging companies and large healthcare environments.
In summary.
We certainly faced unprecedented headwinds to begin fiscal 2021, but we're encouraged by the signs of recovery across our businesses as we exit our first quarter. We still believe the first quarter will be the trough of the recovery curve with the most material impacts in the business.
We are pleased our first quarter results exceeded our expectations, reflecting great execution by our teams.
The path to recovery over the remainder of our fiscal year is unlikely to be linear and we will continue to closely monitored of the progression of cobot 19.
Through our communities and its implications for our business. The pandemic has reinforced the need for us to be agile in response to both customer demand and the ways in which patients choose to consume health care.
One theme through the pandemic has been change and I believe mckesson is well positioned to respond to change as the macro environment around us around us continues to evolve Mckesson, we'll continue to evolve I believe we have exited the quarter in a much stronger position that we entered it stable fundamentals across the business paired with focused execution.
In against our strategic growth initiatives give me confidence that mckesson will adapt to the near term uncertainties and ultimately be positioned to thrive long term.
Thank you very much for your time with that I'll hand, it over to you Britt.
Thank you, Brian and good morning, everyone.
My comments today will relate to our existing segment structure is Brian discussed in his opening comments effective with the second quarter fiscal 2021 will begin to report our financial results in four reportable segments us pharmaceutical international medical surgical solutions and prescription technologies.
And.
We will issue a recast financials, a new segment structure had over second quarter earnings call to assist with your modeling under the new structure.
Our June quarter was a testament to mckesson's ability to execute during challenging times.
Our results speak to the dedication of our people the resilience of our business in the important leadership role that Mckesson plays in the healthcare supply chain.
This morning, I'll provide commentary on our first quarter results.
Provide an update on the key assumptions is underpinned our outlook for the balance fiscal 2021.
Throughout my comments. This morning, I'll provide an update of the recent trends we are observing in the implications to our fiscal 2021 results.
As expected our first quarter was severely impacted by the global pandemic as locked down and social just and see requirements placed unique pressures on our customers and patients.
We navigated the quarter with the combination of discipline and focus through what we continue to believe will be peak levels global locked down and restrictions.
In the first quarter. We finished ahead of the expectations that we laid out in may on our fourth quarter fiscal 2020 earnings call.
Those expectations included our assumption that patient visits in the physician specialty provider in oncology segments.
Currency interactions and are you ask Canadian and European markets would bottom out gradually improve beginning with our second quarter.
Through April and May the relative shape of the recovery curve was in line with this original guidance framework.
However, as we progress through June we began to see an acceleration of demand.
Volumes across our business has recovered in earlier pace than our original outlook should contemplated.
This increase in demand largely tracked easing of restrictions in openings of markets across the world.
Prescription transactions patient interactions and elective procedures began to recover sooner than we had anticipated and had favorable volume impacts were most pronounced in our medical surgical and specialty businesses.
Good turn now to our first quarter results.
In summary of our first quarter results and updated guidance assumptions can be found in our first quarter earnings slide presentation.
Which is posted on the investors section of our web site.
Before I provide more details on our first quarter adjusted results.
Want to point out one item that impacted our GAAP only results in quarter.
During the first quarter, we recorded an after tax gain of $97 million for insurance proceeds received in connection with the settlement with the shareholder derivative action related to mckesson's controlled substances monitoring program.
Now lets transition to a discussion of our adjusted earnings results for the first quarter, starting with our consolidated results on slide four.
First quarter consolidated revenues of $55.7 billion were flat compared to prior year.
Market growth in higher retail national account volumes within the us pharmaceutical and specialty solutions segment.
Were offset by lower prescription volumes in primary care patient visits primarily a result for the negative impact from coded 19.
Although flat to prior year. This result exceeded our original expectations for the quarter.
First quarter adjusted gross profit was down 4% year over year as lower prescription transaction volumes and mix results of the pandemic.
First quarter adjusted operating expenses decreased 2% year over year, driven by cost mitigation efforts in response to the headwind presented by the Cobot 19 pandemic.
These were partially offset by increased investments in the business.
Adjusted operating profit was $770 million for the quarter, a decrease of 24% as compared to the prior year.
When excluding the results of change healthcare from the prior year adjusted operating profit was down approximately 14% again ahead of our expectations.
Interest expense was $60 million in the quarter increase of 7% compared to prior year.
Our adjusted tax rate was 22.3% for the quarter, we continue to assume a full year adjusted tax rate of approximately 18% to 20%, which may vary from quarter to quarter and includes anticipated discrete tax items that we expect realized during the course of the year.
We anticipate recording a favorable tax discrete item in our fiscal second quarter, which would result in the second quarter adjusted tax rate of approximately 5% to 10%.
I would remind you that this could vary as result of the mix of our worldwide earnings.
First quarter adjusted earnings per diluted share was $2.77 down 16% in quarter compared to the prior year, primarily driven by the negative impact of the cobot 19 pandemic cross the business in the lapping of prior year contribution from the company's investment in change healthcare.
These items were partially offset by a lower share count compared to prior year.
Wrapping up our consolidated results our first quarter diluted weighted average shares were 163 million decreased to 14% year over year, driven by the successful exit our investment and change healthcare, which lowered our shares outstanding by approximately 15.4 million shares.
And due to prior year share repurchases.
Next I'll review, our segment results, which can be found on slide five through seven and I'll start with you on pharmaceutical and specialty solutions.
Revenues were $45.1 billion for the quarter, which were up 2% driven by market growth and higher retail national account volumes.
This was partially offset by branded generic conversions and the negative impact of cobot 19 on prescription transaction volumes.
Prescription transaction volumes were uneven in April and May.
Improved throughout the quarter and were above our expectations in June.
Oncology visits were approximately 70% of pre pandemic levels in April however, improved over 95% in June.
And telematics and visits in oncology practices now account for up to 15% of all sizes.
First quarter, adjusted operating profit decreased 2% $589 million.
Driven by lower volumes as a result of the pandemic and strategic investments.
Including our oncology portfolio.
Partially offset by growth in the provider solutions business.
Segment adjusted operating margin for the first quarter was 131 basis points decreased five basis points.
Next we'll talk about European pharmaceutical solution.
Where revenues were $6.2 billion for the quarter decreased 7% year over year on an FX adjusted basis revenues decreased 4% driven by the negative impact of the pandemic on the pharmaceutical distribution and retail pharmacy businesses.
Partially offset by two extra selling days in the period compared to the prior year.
First quarter adjusted operating profit was flat year over year at 35 million.
On an FX adjusted basis, adjusted operating profit increased 3% to $36 billion driven by lower operating expense in two additional sell days in the period when compared to the prior year, partially offset by lower volumes due to the pandemic.
The segment adjusted operating margin for the first quarter was 56 basis points, an increase of four basis points.
I'd like to spend a minute on the actions taken in the UK, which Brian discussed earlier.
The first quarter was a very difficult quarter and recovered pandemic has had a greater impact and our UK operations and the rest of our utopian operations.
Our teams have adapted to changing operating environment in the wake up call we'd 19.
We saw increased demand prior to the locked down but material reductions after the stayed home orders were imposed.
Volumes have remained steady however below pre pandemic levels.
In our UK business, we identified an opportunity to accelerate our transition to digital.
Our investment in ACO, and our digital capabilities led to strong growth in our online business moved quickly to increase capacity.
Revenues from our ACO business grew over 300% from pre pandemic levels.
Continue on strong growth trajectory.
Our investment digital health care strategy in the UK positions us to benefit from the movement of patients to digital environment.
However, given the severity of the cobot impact in the uncertain outlook, we are accelerating actions in our UK business.
During the quarter, we announced restructuring actions in the UK to adapt to the difficult and evolving operating environment in the wake of Cowen and to continue to better positioned the business for future profitability.
As a result, we took incremental charges in the quarter, which include further rationalization of our footprint in the UK along with additional cost optimization efforts.
Moving now to medical surgical solutions.
We are encouraged to see improved patient mobility and procedures, starting return versus what we saw at the onset of the pandemic.
For example, according to Acumedia April and person primary care visits were down nearly 70% and an improved to approximately 10% to 15% declined as of late June.
Revenues were $1.8 billion for the quarter, which were down 5% driven by the Pandemics impact and volume and our primary care business.
Mostly offset by growth in the extended care business.
First quarter revenues include increased volumes of personal protective equipment.
First quarter adjusted operating profit decreased 22% to 124 million driven by lower demand in the primary care business in part due to temporary closures physician offices across the US as result of shell through placed guidelines.
Segment adjusted operating margin for the first quarter was 689 basis points. The decrease of 147 basis points, driven primarily by customer and product mix.
And finishing our business review with other revenues were $2.6 billion for the quarter.
Decreased 13% year over year.
On an FX adjusted basis revenues decreased 10% driven by lower volumes in the Canadian business, which includes both the exit of an unprofitable customers the onset of fiscal year and the negative impact of the pandemic.
First quarter adjusted operating profit was $137 million down 50% on both reported and FX adjusted basis, driven primarily by the lapping of the prior year contribution of $108 million from the company's investment and change healthcare along with a negative impacted pandemic on the businesses within.
Other.
Excluding the prior year contribution from change under was down approximately 18% year over year.
Moving to corporate.
We just we recorded a $178 million and adjusted corporate expenses in the quarter, an increase of 30% year over year, which was primarily driven by the lapping of a prior year onetime gain from investment activities and an increase in opioid litigation costs compared to the prior year.
Excluding the prior year onetime benefit corporate expenses increased approximately 10% year over year.
For the first quarter, we reported net opioid related litigation expenses of $43 million.
Now on to cash which can be found on slide 10, we ended the quarter with a cash balance of $2.9 billion. During the quarter, we had negative free cash flow of $1.2 billion.
Our working capital metrics, and resulting free cash flow will vary from quarter to quarter impacted by timing, including the day week marks to close this quarter.
The dynamics of the current operating environment, resulting from the effects of covered 19 has introduced further volatility in our cash flow.
However, improving volumes and strong working capital fundamentals give us confidence we will continue to generate solid free cash flow.
Investment and growth opportunities remains a key priority for Mckesson and during the quarter, we made $170 million of capital expenditures, we continue to focus on internal investments in areas, such as technology and our strategic growth initiatives.
We returned cash to our shareholders through the payment of $74 million in dividends.
We have $1.5 billion remaining on our share repurchase authorization. We continue to expect weighted shares outstanding in the range of 161 to 163 million.
We also continue to anticipate free cash flow in the range of $2.3 billion to $2.7 billion for fiscal 2021.
Let me transition now and talk about our outlook for the balance of fiscal 2021.
We continue to believe we are well positioned in the markets. We compete with a clear strategy in a differentiated set of assets and capabilities.
We remain confident in our long term prospects, which are rooted in the important role we play in healthcare supply chain.
In May we outlined two key macro assumptions, which I am reiterating today.
First we do not assume second wave of Copas, 19, which would lead to shelter at home and economic Lockdown access.
Second we do not assume any systemic customer insolvency events.
Similar to my comments in May I'd reiterate what uncertainties that events will occur in the coming days and weeks. It could cause these underlying assumptions to change from what we know today.
As you think about our outlook I'd highlight the strong relationship of our performance with two key factors.
First the macroeconomic environment and the intersection of prescription volumes and patient behavior.
Second our ability to continue to execute our strategy is a disciplined approach to invest in position ourselves for growth in the areas of specialty oncology and Biopharma services.
This remains a dynamic environment.
While the situation has undoubtedly improved reality remains at the virus is not completely under control with many areas seeing increased positive cases in hospitalizations.
The impact of the pandemic is highly fluid in likely to continue evolving over the coming weeks and months.
We continue to expected trajectory of the recovery to quarterly closely to the level of mobility of patients.
Prescription transaction volumes and the demand for health care interactions with primary care physicians oncologists and elective procedure levels.
We continue to believe the first quarter will be the most severely impacted when we expect to see sequential revenue and adjusted operating profit improvement over the balance of the fiscal year. However, we do not believe the recovery in our business will be linear.
Based on what we've observed in the past 75 days, we believed in full recovery may take longer than originally contemplated.
However, we continue to expect growth in the second half of the year as compared to the prior year.
Let me provide a few details of our outlook.
As a result of earlier recovery and volumes versus original expectations. We now anticipate consolidated revenues to increase on the high end. The previously provided range of 2% to 4% growth for fiscal 2021.
We now expect to consolidated adjusted operating profit will decline between one and 4% for the full year. When you exclude the results of change healthcare from the prior year and this is up from our original guidance would decline between five and 8%.
As I mentioned earlier, we anticipate enterprise adjusted operating profit to grow sequentially throughout fiscal 2021.
We talk a little bit about the segments.
Given the earlier than anticipated recovery of the provider solutions business in the quarter and improved outlook for fiscal 2021, we now expect us pharmaceutical and specialty solutions full year segment adjusted operating profit to be in a range of down 2% to up 2% compared to prior year.
In the second half of our fiscal year, we continue to expect adjusted operating profit of flat 3% growth.
Due to the prior year.
In Europe, our first quarter segment results were above expectations, driven by increased cost mitigation activities in response to the pandemic.
As a result of this first quarter performance in modest improvement in the aggregate recovery timeline across Europe. We now expect European segment revenues to be in the range of down 3% up 1% compared to prior year. Additionally, we now expect segment adjusted operating profit to decline between four and nine.
9% for fiscal 2021.
The operating environment remains challenging in many markets due to the earlier recovery in the flattening of the recovery curve. We now expect second half adjusted operating profit to decline between four and 6% in Europe.
Turning to our medical surgical site.
As discussed in my opening remarks, we began to see volume improvements in the primary care business in the month of June.
As a result of the pace of the recovery within primary care in the segment and higher volumes within extended chair, we are updating our outlook for the segment.
We now expect fiscal 2021 segment revenue to increase between eight and 12%.
Segment adjusted operating profit in the range of down 3% to an increase of 3%.
We continue to expect growth in the second half of the fiscal year compared to the prior year now project to be between 10 and 15%.
Turning to other.
As a result of the return to more normalized volumes in the Canadian business in the back half June we now anticipate segment revenues to decline between five and 10% for fiscal 2021.
Excluding the impact of change healthcare, we continue to expect greater than 10% growth in the second half of the fiscal year when compared to prior year.
Within our corporate segment for fiscal 2021, we now anticipate that opioid related costs will approximately be a $160 million.
Based on higher opioid related costs and increased investment in the business, including technology.
Versus our original outlook, we now anticipate corporate expenses to be in the range of 690 $740 million.
We have a solid balance sheet healthy cash generation and financial flexibility, which underpins our investment grade credit rating.
These dynamics form the foundation for a balanced approach to capital deployment investing in growth areas wind to our strategy and returning cash to our shareholders.
Based on our solid first quarter results, our view the macro environment and our updated outlook on transaction volumes across the business. We are raising the full year fiscal 2021 adjusted earnings per share outlook to a range of $14 in 70 cents to $15 in 50 cents per diluted share from our previous outlook.
$13 in 95 cents to $14.75 per diluted share.
In closing, we're pleased with the results of our fiscal first quarter and we're proud of how we responded to a dynamic environment.
According our customers despite uncertainties that were brought on by this pandemic.
Our disciplined execution delivered solid results combined with our strong balance sheet and financial position, we're well positioned to to delivered growth in the second half of the year as compared to the prior year.
Yes, sure no environment continues to present, many unknowns on our businesses have continued to be resilient with strong execution and stable fundamentals.
With that I'll turn the call over to the operator for your questions in the interest of time I ask that you limit yourself to just one question, while others and opportunity to participate.
Turn it over to the operator.
Thank you you will likely signal that question. Please spreads Carla Touchstone telephone. If you are joining me today you can you give phone please make sure they need some changes channels totally hear signal to me Callaway.
Okay, and that's part one if you'd like.
Okay.
First question will come from Kobal with Robert W. Baird.
Hey, thanks, very much congrats on navigating the tough environment.
A question pretty simple, it's it's on PE and curious if you can give us sense on how much pp demand.
The gross or offset the challenges in medical surgical.
And then longer term.
Do you see opportunities impeded expand beyond your core customer base other industries that might be in need of these products and whether you have an interest in addressing that as well. Thanks.
Thank you thank you Eric.
It's probably goes without saying the demand for PDP E.
His up significantly whether you're talking about core healthcare markets or schools are workplaces.
We certainly we certainly see that increase demand for PE and and.
The that reflects.
That does reflect in the in the medical groups results for the quarter.
Our priority internally has been and continues to be to make sure. We support the frontline caregivers and that we get the necessary PE to them then ill quite honestly some of these customer segments. Historically didnt have a lot of demand for some.
The products like in 95 mass it just wasn't necessary in the way they ran their businesses. That's obviously changed and so we're working hard to source or sourcing teams are very active with various partners.
Manufacturers around the world relate to continue to make sure. We can meet the needs of those healthcare customers and we would not be looking to expand into industrial or other lines and tell we felt confident we could meet that is a core needs of the healthcare our healthcare customers today.
Like I guess, what I would add to that you probably noticed fit.
In addition to the strong volume as we saw in primary care in June.
He contributed to that and that was part of the reason why we increased our revenue guide for the year. If you recall original guidance for the medical segment was revenue to be down 3% to 8% year over year, we've now up that 8% to 12% growth in PE was a part of that in addition to the strong primary care volumes that we saw the back half of.
Yes.
Next question.
Next we'll be Chelsea, let's call it.
Yes, thanks for taking the question.
You guys noted a strong recovery in June maybe you can give us a sense of how July has looked and has volumes remain at the June levels or are you continues.
Further acceleration, particularly as you know we've seen more surgeons here in.
Seems like Texas, California.
Sure.
Because it sounds like you're saying you're not assuming us second wave. So is it kind of the assumption that.
Unlike the beginning of the depends on the balancing kind of shutdown.
Given that these dates largely stay open.
Which kind of changes how.
Volume should be impacted thanks.
Okay. Thank you Charles.
[music].
You know certainly April was a very soft month.
I think we signaled that when we when we talked about our guidance for the year April and may more or less track to to the assumptions that we had laid out is as we saw the recovery progressing.
That held up early part of June and then it really accelerated and that's pretty correlated to a kilo look at the timing of when states kind of relax their restrictions on on movement and local economy.
Markets got got open back up and people got back to the business of health care.
And we saw those volumes.
And strength and for us really through the conclusion of of our June quarter.
June ended right prior to the fourth of July holiday. So there's always nuances around timing of other events like that I think as we think about going forward you're exactly right. We are not.
We have not built this plan around a presumption of a second locked down so to speak we think economies will continue to stay open I do think if you reflect on what's happened in Texas, and Florida, and Arizona and what what's occurring now in other states as those states start to been there curves downward that's where we get to this.
Idea I think the word we use was linear.
I don't think it's going to be steady progression I mean based on states in season municipalities and how the virus accelerates or Decelerates, we'll see some variability, but we are not.
We're not anticipating a you know returned to shelter in place like we saw in in the March timeframe.
Next question.
Your next will be Michael Cherny, where does that give America securities.
Good morning, and congratulations on strong results I want to diabetes, a little bit to the pharma segment you had a comments in your release about the strength of National accounts, you talked about that going forward can you maybe bifurcate a little bit in terms of the pacing of recovery, you're seeing the differences you're seeing broadly.
Between those national accounts versus some of the independent pharmacies that you traditionally served and how those should dovetail going forward given the various different pacings of opens across the country.
Mike.
Sure.
I would say as a general characterization the pacing has been pretty consistent retail national account versus independent meaning the macro trend of when we saw volume soften in April start to recover and May continue to bounce back in June make those those trend lines.
Our largely consistent.
National chain, probably has a little less exposure to a particular state our community that might be experiencing a better or worse covert progression. So obviously there are some almost in built in risk mitigation from from being a a national chain, but by and large I think the independents that have held up.
Pretty well.
We have we stay obviously in close contact with them. We see many of for example, our health Mart participating in some of the testing or and I think you know people reflect now more than ever the important role of community care and pharmacists as a point of community care in the recovery. So.
I don't I don't think Theres anything I would draw than that and I think it goes without saying that.
Its national accounts, just based on their size have a greater proportion of the segment and I.
Don't usually you should take that adds one part of the segment grew faster than the other it gets just given the proportion that national accounts makeup within that segment they had a bigger impact.
Next question.
And next will be Tiffany will begin with one claims.
Great. Thanks, Good morning, Hi, Brian or bread, thanks for taking the question.
Yeah, I guess, if we go back about three months ago. There was a lot of chatter in the us prescription marketplace about mail order Rx taking share from retail Rx I guess I'm curious just based on reorder patterns that you might be seeing as the June quarter progress in into July.
There any notable trends from your own book of business just on the strength of Reorders in the mail order channel versus retail channel. Thanks.
Okay.
Thank you for the question Steven.
But we obviously one early in the lock down period, and payers and health plan started relaxing summer there are changing some of their their policies. There was there was an uptick in a in mail order. If you actually look at that trend lines for mail order and retail though.
After that sort of initial to take that initial period out they actually are tracking.
Pretty consistently.
So we don't you know there okay. One week, you can get a swing one way or the other but if you looked over you know if you looked over a period of a couple of months they are actually tracking.
I would say and kind of and lock in lockstep. So I don't I don't see any I don't see anything systemic in terms of the way the market is going to is going to change because of this.
Next question.
Your next will be similar picture looking at some stage.
Thank you question on the specialty business. Thank you mentioned, 70% volumes at one point in oncology.
Certainly the volumes don't look for your yes pharma volumes don't look like you saw that type of impact it's safe to assume that that was days. Its net administration has remained much more stable and then any commentary on the non oncology would be appreciated.
Eric Let me start and then Brian can add to it just to clarify my comments were really related to two visits and so what we saw at the beginning of the quarter right. After the pandemic is that visits ticked down to about that 70% level and we saw.
Pretty steady growth throughout the quarter to you know roughly 95% at the ended the quarter that I referenced and we also saw an increase in tele medicine visits, which I think health the practices.
From an efficiency standpoint, as well so a comment just to clarify was really based on visits.
One thing I would add to that is obviously, we add a lot of tremendous insight into oncology, where it a lot of other specialties and it's one of the you know it's one of the I guess nuances to the environment or in right now is that each specialty just like each of our market segments.
As Scott a bit of their own recovery rate Herv and timing just kinda dependent on what's the nature of the of the disease, what's the nature of the therapies with the interaction with physicians, what the applicability of Tele health versus not so we really watch this by by each of the various disease states.
Next question.
Next we'll be planes in tandem with Guggenheim.
Oh, yes, thanks for taking my questions I, just two quick financial ones.
You read the adjusted EPS number by 75 cents at the midpoint I just want to be clear that this doesnt include any of the gain from the insurance proceeds or the onetime benefit it sounds like it's coming into Q and then secondly.
You raised the operating profit in your EPS outlook.
But can you maybe discuss the impact on cash flows because obviously, we are the negative timing thing in one Q you maintained the free cash flow guidance in year. Despite reason the operating profit.
It seems like you have no we grew in the guidance such will make sure I have all those pieces clear. Thanks.
Sure. Thanks for the questions, let me try to unpack those for you as it relates to the guide first as it relates to the insurance proceeds as I mentioned those are GAAP only so those are not included in our adjusted earnings.
As it relates to the comments I made around tax I would just refer you that our full year expectation on the tax rate is still within 18% to 20%, but I was trying to do is to give a little bit more visibility into into the timing that we expect to see throughout the year.
So I think it and as you think about cash flow.
It's early its first quarter the year, we're trending as we had assumed or roughly as as we assumed in the first quarter.
Our cash flow as I mentioned in my comments is historically.
Varied from quarter to quarter, but I think the cobot environment places additional volatility on that and so what as we think about this throughout the rest of the years, we get more visibility into patterns and working capital demand you will certainly provide updates as appropriate, but I wouldn't read anything into that its early for.
From a product.
Give a full year update on the cash flow guidance.
Next question.
This will be Stephen Webster will do well.
[music].
Hi, Good morning. Thanks for the question I was hoping you could touch on trends within the generics market a little bit as we entered this coded period. There are some concerns around BTI in central drug shortages. So I guess, what if anything to do end up seeing on that front and then.
Kind of in line with that looks to us at least the generic depletion trends moderated a bit in the quarter lacking and with mckesson's experience in that if so do you have the view on what's driving that moderation and how sustainable this thanks.
So I'll start let let Brett add on a like I mean, I think that a generic market has continued to perform.
You know in a way consistent with the past several quarters or as you know we focus more on the spread the difference between the sell price on the acquisition price and we don't tend to comment on generic deflation too much but I would continue to characterize that market as stable at as consistent with what weve.
What we've seen over past.
Last quarters.
I think it's a I think that disruptions to generic supply from Cove, It had been well managed and quite minimal and.
May not even be attributable to covert per se.
We do we do have a dedicated and focused team that we stood up at the outside of outside of this a pandemic to work closely with suppliers not just existing suppliers, but other suppliers around the globe.
Forecast and track our views of inventory inventory availability, but I would say thus far.
Thus far through this certainly our first quarter the the supply situation has been well managed.
Next question.
Next we'll be Lisa Gill with JP Morgan.
Hi, Thanks, very much good morning.
I just wanted to go back can you comment right that you made around the macro economic environment I'm just curious.
Currently have Philips and tier expectations, I know theres been some concern around les Austin them today permanent but yet as we look at membership across the managed care companies coming in a little bit better than expectations I'm, just curious intent to what your thoughts are.
Going into the guidance and then if we think about that macro environment and go back to the allowance financial downturn.
I remember correctly, when we think about pharmaceutical utilization it was pretty inelastic rate had a little bit of an impact, but not very material. If I, just I want to better understand what's in the guidance.
Sure. Good morning, Lisa Thanks for that question ill just refer you back to some comments made on the May call and we track unemployment.
Levels very closely we track the solvency of our customers very closely worked very closely with them to make sure that.
They have all the resources that they need what I said in May would still hold we expect that the peak unemployment levels will be in the second calendar quarter, we still expect that to be the case obviously.
Unemployment has been.
Stubborn for the last.
18, 19 weeks, but we do believe that it will peak in this second calendar quarter.
And so I think at to your second question.
I think you're right I think we do believe that prescription transaction volumes will be not has affected as the overall economy will be and.
Thats given us the competence to really raise our revenue guide within that segment for the full year.
Next question.
Tobi Ltke coal Watson with Morgan Stanley.
Thank you.
Hi, good morning so.
You should have Kofi did exceed captured headlines last week and we've been getting questions from investors on what could.
The distribution infrastructure. It looks like you just wondering how do you envision distribution of closer to the casino and available in the market.
Where would it be it demonstrated a little more with Mckesson huh.
Thank you very.
Its a.
You know Earth early days I think to forecast a when the vaccine will be available, which manufacture it might be available from and what the best.
The best method of distribution for that vaccine will be or a year peds, whereas I am theirs.
Over 100 vaccines close to 150 in development Theres, probably 10 to 20 at the front end of that funnel.
We continue to work closely and are in discussions with all of those all of the manufacturers around these vaccine our company has a great capability in this area Oh, we administer the vaccines for children's program today.
We obviously have large a large channels in the medical business and in the pharmaceutical business that support community providers, who who administered these vaccines and it in you know over a decade ago. When we were way our nation was dealing with H. One N. One we continued its a proud moment.
And mckesson's history. The role we were able to play in a in managing that vaccine solution. So I think we had terrific capabilities.
Where an active dialogue with everybody our first and foremost goal will be to do whatever we can do to help accelerate the getting a vaccine to market you know that that's the most important thing we can do and what we're focused on right now.
Next question.
Next we'll be Robert Jones with Goldman Sachs.
Great. Thanks for the questions I guess, maybe just a follow on to that there seems to be a view that flu vaccines will be much higher utilize this year than in a normal year. So just curious how you're thinking about that and what's factored into guidance and then in Brian you made a comment during the prepared remarks around lab testing.
And the opportunity that mckesson's, playing in just the Toby testing processes. Most curious also there if you could maybe just expand a little bit about how big that opportunity is in what's factored into the into the guidance. Thanks.
Sure.
Thanks Robert.
So I'll start I guess, just a few comments on flu I mean flu is a component of our of our medical business Oh wouldn't.
No I wouldn't overemphasize the role of a flu vaccine there.
Every flu season tends to be its own season.
Depending on the severity of of the strand, depending on the effectiveness of of the vaccination. So we've lived through lots of different kinds of flu season, strong London and weak ones and I think you know our our best thinking at this point as this it would be a typical or or average fee.
Lose season now.
It's still quite early or to make you know to make that call with any specific insight into how flu may interact with covidien patient perception. So you something we'll we'll continue to monitor and watch and then relative to the comments about lab I mean, we you know by virtue of our.
Are our position in the alternate care markets in supporting nursing homes, and supporting physician offices, and we just have great reach into the community and so as the need for these based this testing moves into the community based setting we're well positioned to take advantage of.
That maybe just to build on Brian's comment the the flu vaccine itself within our medical business is a component of pharmaceutical distribution within that segment and it's not the vaccine itself is not material to the segment.
And as Brian mentioned, we've thought about this is more of a typical flu season that we've seen over the last several years now if it's a little bit greater than it has been in prior years again, the vaccine distribution itself is not material to the segment.
Operator, we have time for one more question.
Hey lead that question will come from George Hill.
Yeah.
Hey, good morning, guys and thanks for squeezing me in.
I guess Nobody's asked the opioid question I was a little surprised the opioid litigation expense.
Every year I guess, just you guys like any project any progress has been meat on the opioid litigation front over the last quarter. It kind of any update that process would be helpful. Thank you [noise].
Thanks, Thanks, George I'll take I'll take this one and I really.
I don't have any kind of material update you know, we do continue to be engage in discussions with attorneys generals and others.
We do remain hopeful that broad resolution can be achieved we think it's important that.
If theres a path to accelerate relief efforts for people in the communities impacted that that we find a way to take that path.
You can imagine the amount of focus on covert 19, a a over the past quarter, but we do continue to dialog. We do continue to be optimistic that abroad resolution can be reached than we do continue to prepare our defense in the event that it can't be and that's about a thought all I can add to that.
Well. Thank you everyone for for your questions and thank you for joining us on the call elicit. Thank you for helping us facilitate this call.
I want to conclude my remarks today, but just thinking all the frontline workers across the world, who are tirelessly day in and day out working to keep us healthy and safe and I certainly want to recognize the outstanding performance of our 80000 employees, especially their commitment to helping their communities and to help.
Thing each other and this time of need we wish you and your family's good health and wellness I look forward to the day, we can be together. Thank you all.
Thank you for joining today's conference call you may now disconnect and has a great.
[music].