Q1 2022 Mckesson Corp Earnings Call
At the 2022, which reflects continued operating momentum across our businesses. Despite the fact that our markets are still recovering from the impacts of COVID-19.
We're also making significant progress against our strategic priorities and our commitment to do what and the best interest of you our shareholders.
Before we get to our first quarter results I want to provide and update on the progress made towards the broad resolution of governmental opioid related claims on.
And on July 20, <unk>, we announced that Mckesson, along with 2 other distributors negotiated a comprehensive proposed settlement agreement, which if all conditions are satisfied but result, and the settlement of a substantial majority of opioid lawsuits filed by state and local governmental entities.
This broad resolution of his broad agreement becomes effective the agreement reached between the distributors and the state of New York and it's participating subdivision to settle the opioid related claims will become part of the broader settlement agreement.
Under the negotiated proposed settlement agreement and subject to final state territorial and political subdivision participation.
And we will pay up to $7.9 billion over a period of 18 years over the next several months, we will monitor participation of the eligible governmental entities to determinant of participation levels are sufficient to proceed. This is an important development and I am pleased with the progress we've made after years of negotiations.
And if we're able to reach a final settlement it would provide immediate relief to thousands of communities across the United States that have been impacted by the public health crisis.
While we strongly dispute the allegations made and these lawsuits we believe that bringing resolution to these outstanding claims is and the best interest of those impacted by this crisis. We also believe resolution is and the best interest of our shareholders and will allow us to further focus on the business and our role in protecting the safety and the Integra.
<unk> of the pharmaceutical supply chain, we remain committed to doing our part the fight against the opioid epidemic through efforts to continuously enhance our anti diversion programs and to advocate for reform at the state and national level and <unk>.
Settlement and cannot be finalized or plaintiffs instead choose to pursue their claims and court. We are prepared to mitigate litigate against those claims and we remain confident and our defenses.
We also recently announced that we entered into an agreement to sell several of our Mckesson and Europe businesses to the Phoenix Group, who we believe is the right and natural successor to Mckesson and the idea of leader of the European businesses going forward the.
The agreement includes our Mckesson, Europe businesses, and France, Italy, Ireland, Portugal, Belgium, and Slovenia as well as our German AG headquarters and Stuttgart, Our shared service center, and Lithuania are German wound care business, and our equity stake and our joint venture and the Netherlands. This transaction is.
At the close in fiscal 2023 subject to customary closing conditions, including the receipt of required regulatory approvals, our remaining European businesses, and the UK and Norway, Austria, and Denmark were not included in this transaction and we will continue to be operated by Mckesson.
We are exploring strategic alternatives for these remaining businesses as we align future investments to our growth strategies outside of Europe.
We believe fully exiting Europe is another step towards becoming a more streamlined and efficient organization.
Let me turn now to our performance and the quarter.
We are continuing to see the operating momentum we discussed on our fourth quarter of fiscal 2021 earnings call. Today, We're reporting adjusted earnings per diluted share of $5.56.
Ahead of our original expectations, resulting from the strength across our businesses and our roles and the COVID-19 response efforts across the geographies and which we operate our U S and international distribution businesses are playing an integral role and the pandemic response, and our operational excellence and capabilities continue.
And to be highlighted through our evolving partnership with the U S. Government's COVID-19 vaccine distribution efforts through July our U S. Pharmaceutical business had successfully distributed over $185 million, Madonna and J&J COVID-19 vaccine the administration sites across the United States.
And our medical business has now assembled enough kits to support the administration of more than 785 million doses for all vaccine types.
Also in the quarter of the U S government asked Mckesson to support their mission of sending millions of COVID-19 vaccines to countries and need all around the globe.
We are picking and packing with Verna, and Johnson, and Johnson, and COVID-19, vaccines and the temperature control of coolers and preparing these vaccines for pickup by international partners all of the direction of the U S government.
And is not managing the actual shipments of vaccines to other countries.
Through July we successfully prepared over 65 million of COVID-19 vaccines for shipment of abroad. We are humbled and honored to serve the U S government and this expanded role.
Our roles and Europe, and Canada are also continuing to evolve and we're partnering with local governments to distributed and administer COVID-19 vaccines, there as well through July and we've distributed over $45 million vaccine to administration sites and select markets across the geographies.
Based on our first quarter results are evolving roles and the COVID-19 response efforts at our confidence and the outlook for the remainder of our fiscal 2022, we are raising our adjusted earnings per diluted share guidance for $19.80 to $20.40.
From a previous range of $18.85 to $19.45 states.
As I mentioned in my opening remarks, we're making significant progress against our strategic priorities, we're simplifying the portfolio and increasing our focus on areas, where we have deep expertise and that are central to our long term growth strategy. Our progress to date is underpinned by execution against our top company priorities.
The first is the focus on the people and the culture the sector.
<unk> is our commitment to strengthen the core pharmaceutical and medical supply chain businesses.
And third our intentional efforts to simplify and streamline the business and finally, the continued to invest to advance our differentiated oncology and Biopharma services ecosystems.
Me now touch briefly on the progress, we're making across each of these priorities for.
First and foremost, we're prioritizing our people and advancing our company's culture as we strive to be recognized as an impact driven organization and the best place to work and healthcare.
We've been hard at work to transform and energize, our company's culture, our eye care and I lead value service The foundation as we work for our common goal.
Advancing health outcomes for all.
As an organization, we're committed to advancing diversity equity and inclusion for the sixth consecutive year of Mckesson was named a best place to work for disability inclusion and cats and earned the top ranking score of 100 on the 2021 disability equality index.
In addition, we mark progress and diverse representation and the U S with female executive representation of up 3% over the prior year and of 6% gain over the prior year and executive representation for persons of color.
Our second the company priority is to strengthen our core distribution businesses, where we have market, leading scale and capabilities across North America.
And the core enabled strong cash flow generation, which we in turn used to reinvest and the business and to return capital to our shareholders.
In addition to our work to help our customers and government partners and their pandemic response efforts, our pharmaceutical and medical surgical distribution businesses are continuing to improve and the recovery from the effects of the COVID-19 pandemic.
And in line with our expectations and elected procedures and primary care visits have improved throughout our first quarter. The prescription volume trends are showing signs of improvement as well.
And so positive are the trends, we've seen across specialty oncology patient visits which were at or above pre COVID-19 baselines and the first quarter.
And distribution volumes to our specialty provider customers continue to drive and support our growth.
And our Canadian distribution business and our operational excellence and scale was recently recognized through our new partnership with 1 of Canada's largest retailers as our primary distribution customer. This is a testament to the strength of our supply chain and Canada.
The renewed focus on growing the core has been enabled by our commitment to streamline the business over the past several years efforts that go beyond our recent announcement to exit the European region, which I commented on and my opening remarks over the past several years, we've committed to transforming our operating model, we've centralized back office functions across North America and <unk>.
Europe. The further rationalize costs through a reduction of our owned retail pharmacy footprint and a commitment to lower spend across the organization.
So out of our enterprise and.
Initiative, we call the pen smart, which helped us achieve our 3 year cost reduction target of $4 million to $500 million of annual cost savings by the end of our fiscal 2021.
Over time, we've identified businesses that are not central to Mckesson current strategic.
Strategic priorities of our direction.
As was the case and our exit of our position and change healthcare and the creation of a German wholesale joint venture with Walgreens Boots Alliance, we will continually review of our portfolio to ensure tight and focused on alignment to our strategy.
All of this work has enabled us to focus our time and investments on our strategic growth pillars, where we're working to build connected ecosystems and the growth areas of oncology and Biopharma services.
Which should serve to advance our already differentiated positions, we continue to be confident and the long term outlook of businesses that operate and these high growth markets.
Starting with oncology and ecosystem that Mckesson and strategically built over a period of nearly 15 years, beginning with our acquisition of Hong <unk> Therapeutics network, all the way back in 2007.
Which added at that time core specialty distribution capabilities 10 years ago, we deepen the breadth and the depth of our offering with the acquisition of U S Oncology network, which gave US practice management tight management for research and the Idaho Man EHR, which is 1 of the foundational pieces of on Tyler.
Task forward to today, and we are now supporting over 14000 and specialty position through distribution and GPO services.
We're also of the leading distributor and community oncology space and have over 4500 physicians and the US oncology network spread over approximately 600 sites of care and the U S.
And the innovative specialty therapies come to market, our leading position oncology distribution enables us to grow our connected oncology ecosystem and parallel as we grow our non affiliated and our U S oncology provider basis, we accelerate the growth of our oncology assets such as GPO services practice management site management for clinical research.
Search and specialty pharmacy, and our value proposition for on Tata, where we're providing real world insights both manufacturers and providers, although in its infancy and Todd of value is being recognized through expanded partnerships with manufacturers such as Amgen and its leading role and a large scale real world research.
The study known as my loan, which aims to improve treatments and outcomes for non small cell lung cancer.
New therapies coming to market and also provide additional challenges for patients providers and our Biopharma partners are prescription technology solutions business invest in innovation and aims to provide access adherence and affordability solutions for over 500 brands across nearly every therapeutic area or connectivity.
Over 50000, pharmacies, 750000 providers and 75% of EHR and the U S.
The enable over $5 billion prescription $5 billion of prescription savings for patients each year.
Prescription technology solutions into the fiscal 2021 with solid momentum and in the first quarter of fiscal 2022, we saw organic growth and the business and encouraging signs that patient engagement levels and prescription volume trends are continuing to improve.
Our market, leading technology offerings are helping patients get access to therapies, they need more quickly and efficiently and stay on those therapies longer to get better health outcomes and.
In closing, we believe that we have made significant strides against our strategic priority of the strengthening the core simplifying the business and investing and our growth areas of oncology and Biopharma services.
Announcing the proposed opioid settlement agreement is an important development.
In addition, our strategic intent to exit the European region positions us to become a more focused and agile company.
We believe both our and the best interest of our employees and the best interest of our customers and and the best interest of our shareholders.
While it's early in the fiscal year and the pandemic continue to present unknown I am confident and the fundamentals of the business and believe we are positioned well for long term growth and we will look to build upon this momentum over the remainder of our fiscal 2022.
Thank you for your time and with that I'll turn it over to you Brent for a few additional comments.
Thank you, Brian and good afternoon, everyone I'm pleased to speak with you today about our strong first quarter results, which reflect the importance of the products and services Mckesson and delivers the execution and momentum across our business, which include supporting the U S. Government's COVID-19, domestic and international vaccine and the kidney efforts and the recovery of.
And volumes and patient visits and impacted by the Covid pandemic and the prior year.
I'll begin my remarks today by sharing and update on our European businesses, followed by our first quarter results and I'll close with an update towards fiscal 2022 outlook.
The summary of our first quarter results and updated guidance assumptions can be found in our earnings slide presentation, which is posted on the investors section of our website.
And early July we announced an agreement to sell of our European businesses, and France, Italy, Ireland, Portugal, Belgium, and Slovenia to the Phoenix Group. This transaction includes our Germany headquarters and Stuttgart, and our European shared service Center and Lithuania and.
Purchase price for the transaction was approximately $1.5 billion U S dollars.
And the ultimate proceeds for this transaction and are subject to certain adjustments under the agreement and therefore, the proceeds may differ from the purchase price.
Assets involved and this transaction contributed approximately $12 billion and revenue and $75 million and the adjusted operating profit in fiscal 2021.
We've determined that this transaction shall not qualify for discontinued operations. The net assets included in the transaction will be classified as held for sale to.
And the held for sale of counting is effective at the start of our second quarter of this fiscal year.
We will re measure of the net assets to the lower of carrying amount of fair value less cost to sell and we estimate that this will result, and a GAAP only charge of between 500 the $700 million.
And our second quarter of fiscal 2022.
Due to held for sale of accounting treatment, we will discontinue reporting depreciation and amortization on the assets involved and the transaction.
As a result of the held for sale of the County, We would guide to approximately 26 of adjusted earnings accretion in fiscal 2022. This will be included in our updated outlook now outline those later in my remarks.
Mckesson will operate these businesses and record revenue and income until the transaction is closed which is expected to occur in fiscal 2023.
We're committed to exploring strategic alternatives for the remaining European businesses, and we will provide details on the plans for the remaining businesses and they become available eggs.
Exiting Europe at this time is the right force of actually for Mckesson, and our shareholders and it will sharpen the focus on our growth strategies of oncology and Biopharma services, as we develop and grow and connected ecosystem.
Let me now turn to our first quarter results before I provide more details on the first quarter adjusted results I want to point out 2 items that impacted our GAAP only results and the quarter.
First during the June quarter, we committed to donate personal protective equipment and related products. The charitable organizations to assist and COVID-19 recovery efforts and the quarter, we recorded a $155 million of pre tax inventory charges within our medical surgical solutions segment for inventory, which no longer and tend to sell.
And we'll instead of direct the previously mentioned charitable organizations.
And secondly on or May 6 earnings call, we outlined and initiative to rationalize the office space in North America to increase efficiencies and support increased employee flexibility.
These actions will result, and the realization of annual operating expense savings of approximately $60 million to $80 million when fully implemented our guidance does not assume a material benefit and fiscal 2022.
And the June quarter, we reported approximately $95 million of charges associated with this initiative.
Moving now to our adjusted results for the first quarter, beginning with our consolidated results, which can be found on slide 7.
First quarter adjusted earnings per diluted share was $5.56, and increase of 101% compared to the prior year.
This result was driven by the recovery and prescription volumes and primary care patient visits from the COVID-19 pandemic as we lap as we lap the most significant pandemic impacts and Lockdowns and Q1 of fiscal 2021 and it also included a lower tax rate and the contribution from COVID-19 vaccine distribution and kitting program.
And with the U S government.
Consolidated revenues of $62.7 billion increased 13% to the prior year driven by growth in the U S. Pharmaceutical segment, largely due to higher volumes and retail national account customers and price increases on branded and specialty pharmaceuticals, which was partially offset by branded to generic conversions and.
Adjusted gross profit was $3.1 billion for the quarter of 19% compared to the prior year.
Adjusted operating expenses and the quarter increased 6% year over year led by higher operating expenses to support growth and our core businesses and strategic investments.
Partially offset by the contribution of our German wholesale business and the joint venture with Walgreens Boots Alliance.
Adjusted operating profit was $1.1 billion for the quarter and increase of 55% compared to the prior year, which reflects double digit growth in each segment.
Interest expense was $49 million and the quarter and decline of 18% compared to the prior year driven by the retirement of approximately $1 billion of long term debt and fiscal 2021.
Our adjusted tax rate was 11, 3% for the quarter due to discrete tax items that were reported during the quarter on.
Our full year adjusted effective tax rate guidance of 18% to 19% remains unchanged and our first quarter diluted weighted average shares were $158 million a decrease of 3% year over year, driven by $1 billion of shares repurchased in the first quarter.
Moving now and where first quarter segment results, which can be found on slides 8 through 12, and I'll start with U S pharmaceutical.
Revenues were $50 billion and increase of 12% driven by higher volumes from retail and national account customers and price increases on branded and specialty pharmaceutical partially offset by branded to generic conversions.
Adjusted operating profit and the quarter increased 16% to $682 million.
And by the contribution from Covid, 19, vaccine distribution and growth and specialty product distribution to.
So our providers and health care systems, which was partially offset by higher operating cost and support of the company's oncology growth initiatives.
Turning to prescription technology solutions for.
Very pleased with the strong growth and scale that we're building and this higher margin segment. The drivers for our prescription technology solutions business has continued to move and the right direction for.
We're seeing expansion and many of our services businesses as we continue to add more manufacturing partners and programs for our existing solutions such as electronic prior authorization, our access and adherence services and 3 PL.
Second our technology based platforms like relay health support 19 billion clinical and financial transactions annually from claims routing and the growing discount card market to alerts and edits that make the practice of pharmacy clinically safer and administratively more efficient.
And we continue to invest and innovate to build the connected ecosystem of Biopharma services for next generation access and adherence solutions and.
It's showing accelerated adoption and growth with new brands.
This year Amp is bringing its network enabled approach the hub services and the support for oncology and specialty drugs covered under the medical benefit.
We also continued to expand our clinical decision support capabilities and provider office workflow across every major EHR protecting.
And for Technology network spans every touch point and the patient journey and Doctor's office to benefit verification to dispensing pharmacy, which allows us to address the barriers and the patient journey by adding unique automation that accelerates time to therapy and lower patient out of pocket costs.
And the June quarter revenues were $881 million and increase of 34% and adjusted operating profit increased 62% to $139 million driven by higher volumes of technology and service offerings to support biopharma customers and organic growth for access and adherence solutions and recovery.
Of the prescription volume from the COVID-19 pinned on.
Moving now on the medical surgical solutions.
Revenues were $2.5 billion and the quarter up 40% driven by improvements and primary care patient visits increased sales of COVID-19 tests.
And the contribution for a contract with U S government to prepare and distribute ancillary supply related to the COVID-19 vaccine provided a benefit of approximately 25 cents in the quarter and where.
Above our original expectations.
For the quarter adjusted operating profit increased 107% the $257 million driven by improvements and primary care patient visits and the contribution from kitting and distribution of the ancillary supplies for the U S government COVID-19 vaccine program.
Next let me speak about international revenues and the quarter were $9.2 billion.
And increase of 8% year over year.
Excluding the impact and the divestiture of our German wholesale business segment revenue increased 28% year over year and was up 14% on and FX adjusted basis.
Revenue was primarily driven by the contribution of our German wholesale business and the joint venture with Walgreens Boots Alliance, which was completed during the third quarter of fiscal 2021, and the recovery of pharmaceutical distribution and retail pharmacy volume and the COVID-19 pandemic.
First quarter, adjusted operating profit increased 133% year over year to $170 million.
On an FX adjusted basis, adjusted operating profit increased 107% to $151 million led by the recovery of pharmaceutical distribution and retail pharmacy volume and the COVID-19, pandemic and distribution of COVID-19, vaccines and test kits in Europe and Canada.
Moving on to corporate.
For the quarter adjusted corporate expenses were $154 million, a decrease of 7% year over year, driven by decreased opioid litigation expenses.
The reported opioids and opioid related litigation expenses of $35 million for the first quarter.
To estimate fiscal 2020, 2 opioid related litigation expenses to approximate $155 million.
I would remind you and while we've negotiated the comprehensive proposed settlement agreement until we know the scope of participation and proposed settlement youre not and are positioned to revise the opioid litigation expenses outlook.
Let me now turn to our cash position, which can be found on slide 14.
We ended the quarter of the cash balance of $2.4 billion.
During the quarter, we had negative free cash flow of $1.8 billion.
As a reminder of working capital metrics and the resulting free cash flow vary from quarter to quarter and are impacted by timing, including the day and week. The marks the close of a given quarter.
You made of $159 million of capital expenditures and the quarter, which includes investments and technology data and analytics to support our strategic initiatives on the of oncology and Biopharma services.
As our business performed at a very high level. We were also able to return $1.1 billion of cash to our shareholders and the June quarter.
This included $1 billion of share repurchases pursuant to an accelerated share repurchase program, which resulted in an initial delivery of $4.3 million shares and the quarter.
Additionally, we paid $69 million and dividends.
We of $1.8 billion remaining on our share repurchase authorization and we are updating our guidance for diluted weighted shares outstanding the range from $154 million to 156 billion for fiscal 2022, which incorporates plans to repurchase an additional $1 billion of stock over the remainder of the fiscal year.
Let me transition and speak to our outlook for the balance of fiscal 2022 for the full list of fiscal 2022 assumptions. Please refer to slide 16 through 19, and a supplemental slide presentation I'll begin by reiterating a couple of key macro level of assumptions that underpin our fiscal 2020.
And 2 outlook.
We expect prescription and patient engagement volumes will demonstrate steady improvement from the levels at the end of our fiscal 2021 through the first half of our fiscal 2022 and return to pre COVID-19 levels and the second half of our fiscal 2022.
For fiscal 2022 of our updated guidance for adjusted earnings per diluted share is the range of $19.80 to $20.40.
Up from our previous range of $18.85 to $19.45.
Approximately equally split between our first and second half of the fiscal year.
Our updated outlook for adjusted earnings per diluted share reflects 15% to 18, 5% growth from the prior year and our guidance assumes core growth across all of our segments.
And the U S. Pharmaceutical segment, we now expect revenue to increase 5% to 8% and adjusted operating profit to deliver for 5 to 7.5% growth over the prior year.
Our U S. Pharmaceutical segment continues to exhibit stable fundamentals our outlook for branded pharmaceutical pricing remains consistent with the prior year for mid single digit increases in fiscal 2022.
And the generics market remains competitive yet stable as volumes have shown signs of recovery.
COVID-19 vaccine contribution contributed approximately 30 and the first quarter of fiscal 'twenty..2 we are updating our full year outlook to approximately 45 to 55 cents.
The 45 to 55 range reflects the anticipated contribution of earnings for the fair value of services performed as the U S government centralized distributor of COVID-19 vaccine, including work preparing vaccines for international missions.
Our current outlook remains aligned to the volume distribution schedule provided by the CDC and the U S government, which excludes booster shots and vaccines for pediatrics, which have not been approved by the FDA.
We will continue to invest and are leading and differentiated positioning and oncology. These investments will represent an approximate <unk> <unk> headwind in fiscal 2022.
Normalizing for the COVID-19 vaccine distribution and our ongoing and growth investments. We continue to expect approximately 5% to 8% core adjusted operating profit growth.
And our prescription technology solutions segment, you see revenue growth of 20% to 25% and adjusted operating profit growth of 17% to 22%.
This growth reflects the opportunities, we see to accelerate service and transaction contributions benefiting from our technology platforms.
Now transitioning the medical surgical and we continue to partner with the U S government under a contract for the kitting and distribution of ancillary supplies and are updating our outlook to 35% to 45% of contribution in the segment related the kitting and distribution.
The program scope and duration is evolving and our updated assumptions and reflects the current outlook provided by the U S government and.
The revenue outlook assumes a 3% decline to 3% growth and adjusted operating profit to deliver 6% to 12% growth over the prior year and we can.
Continue to expect year over year core adjusted operating profit growth of approximately 10% to 16%.
Finally, and the international segment, our revenue guidance and the 1% decline of 4% growth as compared to the prior year and as a reminder of this reflects the contribution of our German wholesale business for a joint venture with Walgreens Boots Alliance.
For adjusted operating profit our guidance is growth in the segment of 26% to 30% due to the previously mentioned benefit and the discontinuation of depreciation and amortization, which followed the announcement of our agreement to sell certain European assets.
Our strong performance and the first quarter and the contribution from COVID-19 vaccine distribution and the segment.
Turning now to the consolidated view, our guidance assumes for years to 7% revenue growth and 7% to 10% adjusted operating profit growth compared to fiscal 2021, and we continue to expect corporate expenses and the range of $670 million to $720 million.
Let me now turn to cash flow and capital deployment.
We were pleased to recently announce the completion of the cash funded upside the tender offer.
The successful tender offer resulted in the early retirement of $922 million of our outstanding debt.
Additionally, we announced the early retirement of of 600 million Euro note for a total reduction in debt of approximately $1.6 billion.
These actions occurred during the beginning of our second quarter. It further strengthened our balance sheet and financial position and they are in line with our previously stated intent to modestly delever and as a result of these actions for updating our interest expense guidance for fiscal 2022 to $180 million to $200 million.
We're also reiterating our free cash flow guidance of approximately $3.5 million to $3.9 billion, which is net of property acquisitions and capitalized software expenses.
Last quarter and mentioned that we anticipated the use of cash to purchase shares of Mckesson Europe through exercise of the put right option available to noncontrolling shareholders that expired in June of fiscal 2022 the.
The remaining put rate options resulted and payments of approximately $1 billion and the quarter, which was generally in line with our expectations.
As a reminder, this is reflected and the financing activity section of our cash flow statement.
As the result of this activity and cast and holds approximately 95% of Mckesson Europe's outstanding common shares and we.
Anticipate income attributable to Noncontrolling interest and the range of 175 of $195 million and fiscal 2022.
And our commitment to return cash to shareholders through dividend and share repurchases was recently highlighted by our board's approval of a 12% increase to our quarterly dividend of <unk> 47 per share.
And our fiscal 2022 guidance continues to include share repurchases of approximately $2 billion for the full year.
In closing we're pleased with the strong results of our first quarter, we remain focused on driving growth as we invest against the strategic high growth opportunities and oncology and Biopharma services.
And this focus combined with our commitment to further evolve the portfolio will drive significant value to our customers shareholders and patients.
Our outlook for fiscal 'twenty, 2 reflects this focus and execution with healthy adjusted operating profit and adjusted earnings per share growth and return of capital to our shareholders and.
And with that Holly, let me turn it back to you for Q&A. Thank.
Thank you Brad I'll now turn the call over to the operator for your questions and the interest of time I ask you limit yourself to just 1 question for allow others and opportunities to participate and operator.
Thank you if you'd like the signal with the questions. Please press star 1 on your Touchtone phone and if youre using.
Joining us today using a speaker phone. Please make sure of the mute function is turned off for of all of your signal for each of our equipment again the star 1 if you'd like to ask the question.
And we were the first to Brian <unk> of Jefferies.
Hey, good afternoon, guys congrats on the very strong quarter.
Yes.
And I think about the guidance it looks like it assumes a lower margin profile.
Just curious of what Youre thinking in terms of.
Any of the puts and take on the margins as we look forward to the next 3 quarters.
Yes, Brian Thanks for that question I would remind you that this is our first quarter and we had a very strong first quarter.
We're still in an evolving environment, we're very encouraged by the utilization trends and the improvement that we're seeing.
We think about our U S pharmaceutical business our growth as I mentioned in my remarks was driven in large part by the growth of our largest customers.
So that does impact the mix and that certainly impacts of the mix and the first quarter and and our <unk> business. We have very healthy growth as I mentioned across all of our different capabilities and some of the growth that we're seeing and that business.
Again mix impacted by some of our 3 PL growth.
Very encouraged by the growth of our of our access and adherence solutions, particularly our amp product, but I think as you think about this it is really a reflection of the first quarter. It's a reflection of the continued improvement and utilization and it's a reflection of some of the mix within some of our segments.
Great and we can go to the next question and thank you. We will go next to Steven Valiquette of Barclays.
Great. Thanks, and good afternoon, everyone. Thanks for taking the question.
And I guess, if I go back to when the cats.
And the acquired the European assets 7.8 years ago, and 1 of the drivers of the deal with the increase of mckesson's generic drug purchasing power.
<unk> and the sale.
Phoenix and my sense is you're probably not too worried about any dis synergies related to the.
Less generic purchasing power of you went through the transactions and I guess I'm, just curious to hear a little more about the.
Mckesson's purchasing power today, whether it's claris 1 of other factors such that the additional European and purchasing power is less critical and.
And the fixture we're not missing anything around those 2 operating well I guess is there any post the deal agreement between Mckesson, and Phoenix and generic purchasing collaboration or without even explore.
And.
Thank you for the questions, maybe I'll start and if you wind the clock back to <unk>.
Almost a decade ago, and we expanded into Europe.
And I think there were multiple elements for the company and strategically go to Europe, 1 of them 1 of many it was.
But the opportunity to make sure we stay leading and our generic procurement capabilities and scale I think over the last years.
Continue to invest and that capability and we have a very successful partnership and <unk>.
Claris 1.
And we're very confident that we have not just the scale, but also the procurement expertise and that we.
We have a very contemporary of generics procurement operation that will continue to be of leading generic operation. After the divestiture of the European assets that we've discussed so we're quite confident and are.
John.
The productivity and the yield the results, we speak and Claris, 1 and we believe that will continue to be the case for the future.
And we'll go to the next question and then the next we will go to Michael Cherny of Bank of America.
Good afternoon, congratulations on the quarter.
And just wanted to dive and it gets a little bit more on the pharma distribution outlook cleared the results were strong and the quarter the claim towards the higher reported growth on a go forward basis as you think about the dynamics of the market maybe aside from the Claris 1 question, but what has been the pace and health of recovery of your non large national true.
And customers you called them out of the specific contributors for the quarter can you give us a sense for how the rest of your book of business. The rest of your customers are handling the potential or hopefully recovery and utilization across their platforms, where the effects of it in terms of your outlook for the rest of the year.
Sure Mike I'll start with a couple of comments. So first off we are pleased at the trajectory of the recovery that we have seen and we.
And more or less and in alignment with the expectations. We set out at the beginning of the year and I think it's the.
It's not just isolated to a particular segment I think.
And you look at the market overall, we continue to see really through the first quarter steady progression along the trend line that we signal and we thought would be the case so.
We continue to be encouraged by that we continue to think that we will.
Reach.
All recovery, meaning pre COVID-19 levels and the second half of our fiscal year, obviously, we track the trends regularly.
We saw something and that would cause the deviate from that we would.
Share to share with you, but right at this point in time and the recovery has been more or less and line and how we thought were very pleased about that and we expect that we will get to the full recovery and the second half of of.
And this fiscal year.
And maybe I would just add and I think the balance of our customers and the channels that we serve and what we're seeing and those various channels is reflected in the guidance that we gave you of 5% to 8% operating profit growth so on.
All of the channels are recovering and a recovering as Brian mentioned in line with our expectations and Theyre all contributing to that overall core operating profit growth.
The next question and we will go next to Lisa Gill of Jpmorgan.
Okay.
Okay.
Thank you and let me add my congratulations as well.
Brian and Brian and I, just want to understand Biosimilar. So you talked about operating profit how does have an impact of our biosimilars, having and then as we think about the comments, Brian that you made both around oncology and bio services.
And how do we think about that going forward, especially on the oncology side.
What type of investments are you, making how important our biosimilars at the.
The programs are going to make acquisitions.
Do we think about that.
Thank you.
Thank you for the question Lisa.
And maybe start with Biosimilars and then round into the oncology question for a biosimilar.
Biosimilars, we think we're very well positioned given our strength and the specialty business and including the oncology elements of that it's still from our perspective is early early days, there's just under it doesn't and the marketplace. Today, we think the pipeline does look good and that given the assets we have and on the.
Apology, and Biopharma and our footprint and the specialty space, we will benefit from that and we have seen a growing impact of biosimilars over over the last several quarters as it relates to oncology.
And we use the word ecosystem and that's really just to try to introduce this notion that there are many assets debt mckesson as it relate to our oncology businesses, whether it's distribution and specialty distribution and GPO health economics outcome research and the latest addition to that portfolio.
Of.
Of assets.
As the data and insights business that we call on Tata and when we think of the oncology ecosystem. We think of the there's all kind of self reinforcing and adding momentum to each other we add providers that at scale for GPO and add more customers and data to on top of that as on Todd and matures as partnerships.
And we get more insights, we funnel that back to providers, which makes it the more attractive solutions provider to them. So that's really how we're thinking about it each each and to that itself is the good business, we think but together, we think there's real differentiation and strength and Lisa I would just add on and that we're really pleased with the <unk> and the develop.
Net of Biosimilars are really adding to the operating profit growth in the segment. It's growing over time, we think that it will continue to grow and the channel matters, where we have more services to provide and as Brian mentioned GPO services. The good example of that certainly is more profitable for us and we will see higher adoption rates of the adoption rate.
<unk> continues to build.
And that I think is reflective of the growing operating profit contribution that we're seeing from biosimilars, but we do think longer term there is a larger opportunity.
And greater next question.
The Eric Percher Nephron research.
Thank you.
The international DNA dynamics and your.
You're asking thank you for that detail.
And maybe a 2 part of Brett 1 is when we think about the remaining European business can you provide us some sense of scale I think the last time, we got a celesio number without Canada was around $230 million of op profit and.
And then on the DNA could the same circumstances exist and the remaining EU business should you get to the shale.
Yes, great questions, Eric and thank you for those questions and I mean, we're not going to break out the international business and into its piece parts of just don't think the pets.
Something that we're ready to do at this point and time.
And I would just say that every transaction that could happen and the future we will evaluate that.
Based on the facts of the transaction for this particular transaction, we deemed that these assets would be and the held for sale.
Perspective, but I can't really comment on what future transactions might look like it's difficult to know how those transactions may or may not come together and what the specific details would be.
Next question, operator and net.
<unk> will be Charles <unk> of Cowen.
Yeah. Thanks, Thanks for taking the question just wanted to just talk about the the guidance here for the remainder of the year.
Obviously the.
Large outsized performance of the quarter.
At least relative to what.
I think consensus was expecting maybe if you could talk about how this came in at least relative to what you were expecting coming into this quarter and as we think about the rest of the year if I look at the pieces.
It seems like we're getting better.
A benefit from the DNA also a tax benefit.
Is that really the big drivers here relative to your expectations coming in and maybe any kind of thoughts around that as we think about the remainder of the year.
Relative to how you guys were.
And thanks.
Yes. Thank you for that question, maybe I'll just start with as you look at some of our macro assumptions.
Talked about these and may that we assume that we would continue to see growing patient.
Activity and prescription volumes and we saw that we saw that and the first quarter and so that was in line with our expectations, we see that continuing to build and continuing to improve and so from just from a very macro utilization perspective, we're seeing the improvement that we expected to see we're what we're seeing and on the trajectory that we expected to see and.
And so we're very encouraged by that our businesses each of our segments had very strong performance and.
So we're very encouraged by that it is our first quarter the.
The.
Certainly utilization will continue to evolve over the rest of the year.
But we're very encouraged by that the strong operating performance of the utilization that we're seeing the patient activity that we're seeing and we expect that will continue.
Along the lines that we thought it would certainly the vaccine distribution and kitting program continues to evolve and it was a little bit higher than we had anticipated and we've increased the guide for that generally speaking utilization is as strong as in line with what our expectations were and we expect that will continue.
Through the remainder of the year.
And you had asked the question on tax the <unk>.
1 thing that I would remind you on taxes, we don't guide tax by quarter. We guide you on an annual basis, we did not change our guidance for the full year effective tax rate and I think if you look over the last few years the annual guidance around the tax rate that we've given is pretty much been in line with the original guide.
Next question.
And we'll go to Kevin Kelly and Bill of UBS.
Yes.
Thanks for taking my call.
I wanted to ask the guidance question, a little bit differently, because it is unusual for mckesson to.
Sort of raise guidance.
For all of the segments right. After the first quarter and I'm wondering if it's just something about the way it's COVID-19 related.
Or not and having to raise your revenue expectations for all of your segments versus what you guided to just a couple of months ago.
Is there anything else specific was it just conservatism on your part.
Because we can't just point of script growth or patient volume and it's got to be some sort of larger macro things happening here of that.
Thats driving that.
And I know you've kind of addressed it but maybe talk specifically about the conservatism or when you went into the year. What was what were the overhangs debt, possibly lifted that are allowing you to do this across the board.
Well, let me start I appreciate the question and let me phrase it a little bit differently, we don't provide conservative guide.
Guidance as we provide guidance is based on what we see and our markets and what we're seeing within our businesses I would remind you that when we gave you our guidance 1 of the things that we've talked about it and that the markets that we operate and have not fully recovered and so we're coming off of a year of 1 of the booths dynamic environments that we are operating.
And when we provided that guidance, we were very clear that our markets had not fully recovered we expected that they would.
But certainly it was going to evolve over time, our businesses continued to operate at a very high level and I think you saw that and the performance. This quarter. We're very encouraged by the utilization trends that we see we're very encouraged by the performance at each of the businesses is.
And as shown and we're seeing really good reaction and response to a lot of the products that we have the specifically and the <unk> business. As an example, so I think what Youre seeing is an environment that is continuing to recover not necessarily on and even basis over the last year and a half and the business that is performing very well.
And in those situations.
Next question.
And next will be Ricky Goldwasser of Morgan Stanley.
Yes, hi, good afternoon.
It goes back to kind of especially and especially on takata.
And you talk Brian and thoughts of contacts and relationships.
And between providers and Biopharma, etc.
I'm proud of our payers and customers as well.
And is that sort of kind of thinking and if John is.
And that sort of the growth opportunity that you're looking at this kind of like the interested and capex opportunities to grow debt oncology business beyond just the.
The pipeline of drugs.
Thank you Ricky.
There is lots of interest and data and insights and understanding of patient and provider behavior as relates to.
These <unk> our primary focus in on top of that is really the leverage that data and the working relationships and the scale of our physician relationships to generate insights that help the development of discovery and ultimately of the launch and adoption of oncology products.
And likewise to take the early lessons, we get and the research and the development and and launch planning around these products to ensure that providers are most able to react to adopt and get great patient outcomes for Matt. So we see it at the very virtuous cycle really anchored and provider and.
And in the Biopharma company, but they are there may be several other interested parties and the data and insights that we can generate and thats something that certainly consider as the business matures.
Operator, we have time for 1 more question.
Certainly that question will come from no longer think of credit Suisse.
Yeah.
Hi, This is Adam on for John today. Thanks for taking the question I just wanted to follow up on the assumption of a return to pre COVID-19 utilization and the second half of your fiscal year.
1 of your competitors this morning.
Thanks, and I'll return to pre Covid prescription utilization and the June quarter.
And as the difference and comments just a function of customer channel mix or I guess, the way pre COVID-19 as being measured or what else should we be thinking about when attempting to bridge those comments.
So thank you for your question and I'll give you..1 example, and our medical business and as an example, what we saw on the June quarter was the primary care patient visits improved from the fourth quarter on back to about 95% of pre COVID-19 levels, So continuing to see the improvement, but not back at pre.
Covid level. So when we speak about utilization, we are seeing pre COVID-19 levels for oncology and for specialty, but we're not seeing that quite yet for primary care of patient visits as an example, continuing to improve on the trajectory that we.
Laid out and our earnings call and that we had expected, but that's 1 example for our business that is perhaps a little bit different.
Yes.
Great well. Thank you everyone. Thank you for your insightful questions and thank you for joining us on this call and thank you Jenny for helping facilitate the call Mckesson.
The Mckesson is off to a very strong start and our fiscal 2022 I'm incredibly excited.
Just about the recovery of the market, but frankly, the execution by our teams, which is generating the performance in the business. So I want to be sure to thank our more than 75000 employees for their commitment to be together to be of team.
To focus on doing good for our company for our customers and for the health care industry as the.
Global leader and healthcare, we are committed to doing our part to serve our employees our customers our partners and our communities as they continue the <unk>.
And damage response effort. So in closing I just want to wish you all and your families. Good health and wellness have a great evening. Thank you.
And thank you for joining today's conference call. You may now disconnect and have a great day.
[music].
John.
And.