Q4 2022 Mckesson Corp Earnings Call
Yeah.
Those measures to GAAP results can be found in today's earnings release and presentation slides.
The presentation slides also include a summary of our results for the quarter and guidance assumptions with that let me turn it over to Brian .
Thank you Rachel and good afternoon, everybody today, we announced our fourth quarter results, marking a solid finish to our strong fiscal 2022.
Thanks to the dedication and excellent execution from team Mckesson, we made outstanding progress against our company priorities and in our transformation to a diversified health care services company.
We achieved 31% growth in adjusted earnings per diluted share when excluding the impacts attributable to COVID-19 related items and net gains associated with Mckesson ventures equity investments, we have good momentum across the enterprise, we saw strength in our core distribution business and our strategic growth pillars of oncology.
<unk> and Biopharma services, we remain focused on the company priorities, which are foundational to our sustainable long term growth and shareholder value creation.
My remarks today will be centered around these themes.
Before I.
Jump into company priorities I do want to talk briefly about the recent developments in opioid litigation.
In February we announced the approval of the proposed opioid settlement agreement 46 of the 49 eligible states and the district of Columbia, and all eligible territories joined the settlement representing more than 98% of the eligible political subdivisions that have brought opioid related suits against us as calculated.
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The resolution delivers much needed relief for the impacted communities that will collectively provide thousands of communities across the United States approximately $19 $5 billion over 18 years. The agreement became effective on April 2nd.
The approval of the settlement agreement also removed a significant portion of operational and financial uncertainty in the business, allowing us to redirect resources for more focused execution on our company strategies.
In addition to the 46 states participating in the previously announced agreement on April 4th an agreement was reached in the Alabama matter in which Mckesson will pay $141 million and an additional $33 million in attorneys fees and costs to resolve the opioid related claims of the state of Alabama and its subdivisions.
On May 3rd an agreement was also reached in the Washington matter in which Mckesson will pay $197 million consistent with the state of Washington allocation under the previously announced comprehensive settlement framework as well as certain additional attorneys' fees and costs. This resolution will result in the settlement of the state of <unk>.
Washington, and its litigating subdivisions that will bring the total number of states settling opioid related claims with Mckesson to 48 or 49 eligible states and the district of Columbia.
As a company we remain deeply concerned about the impact the opioid epidemic is having on individuals' on families and communities across the nation and we continue to be committed to be part of the solution. This includes our controlled substance monitoring programs advanced customer purchasing analytics and many many other initiatives.
Let me now take you through our company priorities and the progress we made in fiscal 2022. We are excited about these initiatives as we continue to deliver strong results and improve our strength as an organization.
After our fiscal 2022 discussion I'll walk you through each of the operating segments and lay out how they are positioned for growth as we head into fiscal 2023.
For the last several years the enterprises centered it's strategic it's operational and financial decisions around our set of company priorities and the results have been outstanding we fundamentally change the trajectory of the company from decline in financial performance to sustainable growth across the business through.
Through the focused execution of the priorities, we improved efficiency, we defined our differentiated and strong market positions and we established the right to play and win in oncology in the bio pharma services markets now let me briefly walk you through the progress on each of them.
I'll start with our first priority.
Which is our focus on people and culture.
Our eyecare values, our enterprise first mindset and our commitment to team Mckesson our commitment to each other we're critical to successfully navigating the last few years, we are committed to being the best place to work in health care and our best talent strategy is accelerating our business momentum in fiscal 2022, we made.
And our workforce, including the frontline workers through additional labor investments in the U S pharmaceutical and medical surgical segments in the back half of our fiscal year our.
Our company culture, our purpose our mission and the investments we've made in our teams underpin our performance as a business.
Our people and culture strategy of integrated with our continued focus on ESG initiatives, ensuring we not only do good business, but we do business the right way.
As an impact driven organization, we embrace our responsibility to enable lasting changes in the communities. We serve over the past year, we made great progress in many areas, particularly around advancing access to care health equity and climate action for health.
Promote diversity equity and inclusion we have set specific and measurable goals to increase representation of both women and people of color amongst our leadership ranks, we released our employment information report, including our EEO, one data to improve transparency and accountability and equal employment opportunities. We also launched companywide <unk>.
<unk> training fostering positive behaviors and teaching ways to address bias in the workplace.
Our commitment to diversity starts with our board as evidenced by the recent successful completion of our board refreshment in April we announced the election of Roy Dunbar as a new director of the board. Mr. Dunbar brings decades of experience in technology operations in health care and will be instrumental in guiding the companys strategic priorities.
In addition to the appointment of Mr. Dunbar in fiscal 2022, we elected a new independent chair of the board and introduced three other new board members with diverse backgrounds and experience women and people of color now represents 50% of our board of directors and we look forward to benefiting from their leadership and their stewardship.
Moving to our second priority, which is driving sustainable core growth.
At the core of our offering is the pharmaceutical and medical surgical distribution solutions.
Building upon the momentum in fiscal 2022, we continue to innovate and invest in our distribution assets and capabilities.
Some of the latest advancements over the past year include automated picking and packing solutions and robotics, which helped us improve productivity. So we can pick more accurately pack medications faster and ultimately serve our customers better.
We're also expanding the reach of our core business by entering adjacent markets, while maintaining operational excellence is.
A great example of this is our patient home delivery service leveraging our scaled distribution network, we help our partners deliver medical surgical products directly to patients' homes nationwide with an increasing demand and virtual and home care, we've seen significant growth in this channel in the past few years.
Our best in class customer service and deep expertise in distributing medical surgical products enables us to capture the market opportunity, ensuring the right product to the right patient at the right time.
We also continue to partner closely with the U S government and its COVID-19 response effort, it's been more than a year now since we started shipping the COVID-19 vaccine and ancillary supplies through March 31, we have successfully distributed over 380 million Madonna and Johnson and Johnson COVID-19 vaccines to administration.
Sites across the United States and in support of the U S government International donation mission.
Though the contract with the U S government to serve as a centralized distributor is expected to end in July . This experience has been a strong testimony to our vast and scaled supply chain capabilities and I'm incredibly proud of the way our employees rose to the challenges brought on by the pandemic through our focus on meeting the needs of the health care community.
In early fiscal 2022, we announced our intent to exit the European market, which aligns with our company priority to streamline and simplify the business over the past 12 months. We've made significant progress as we have successfully entered into agreements to sell the operations in 10 of the 12 countries.
We've completed the divestiture of the Australia, and UK businesses, and our German joint venture with Walgreens Boots Alliance, bringing all of the in process transactions to closure and exploring strategic alternatives for the remaining countries.
Is a top priority in fiscal 2023.
The actions, we're taking in Europe build upon our deliberate efforts over the past years to maximize the organization's operational efficiency and focus our resources on the highest growth opportunities.
The last company priority that we're excited about is the expansion of our oncology and Biopharma services ecosystem at our Investor Day in December 2021, we shared details about our differentiated assets and capabilities. In these two areas. We believe that these ecosystems can help solve complicated problems and importantly.
Lee improve patients' lives.
The goal to help ease the frictions and eliminate inefficiencies in the health care system and to improve patients' lives is what motivates us.
Tenuously to innovate and to execute.
Our biopharma ecosystem represents a scaled network of assets and capabilities that are highly differentiated within the ecosystem, we're expanding the reach of our products and services that aim to improve access affordability and adherence.
In the past year, we help patients save more than $6 billion on branded and specialty medications.
We help prevent more than 9 million prescriptions from being abandoned due to affordability challenges and we help patients ask their medicine more than 67 million times.
We created an ecosystem that is more efficient and more valuable to the customers and patients in each of the pieces would be standing alone.
Cohesive business strategy and coordinated go to market solutions are both critical enabling continued growth in this segment.
Our oncology ecosystem, we're strategically positioned to improve cancer care with a range of services and solutions, our distribution and GPO capabilities continued to provide patients access to life saving drugs, including Biosimilars.
Combined with our reach through the U S oncology network, we help promote awareness and bring more affordable treatment options to both providers and patients.
A great example is our U S oncology research, which continues to play a central role in accelerating research and science is one of the largest community based oncology research program. It has contributed to more than 100 FDA approved cancer therapies.
Last year, nearly 900 physicians actively accrued patients to clinical trial.
Through on Takata were leveraging the reach and resources across the ecosystem to generate real world data and evidence we have published more than 200 real World studies, and leading industry publications for over 70 oncology indications.
We are now serving the top 15 global life Sciences companies, providing them valuable services to accelerate research and commercialization.
As I reflect on our progress against the company priorities I am very excited to see the meaningful impact its brought to our business our customers and to patients. The strategy is working and we will continue mckesson's growth journey into fiscal 2023, I'm confident in our ability to continuously execute innovate and deliver.
Profit growth for the long term.
Now, let me turn to the performance over the past 12 months and how we're positioned for success heading into fiscal 2023 first I want to share an exciting update on our ESG initiatives at the beginning of fiscal 2022, we committed to set science based greenhouse gas reduction targets, we've already submitted our targets to the science base.
Targets initiative for official validation through.
Through initiatives across operations and supply chain management, we're setting measurable and specific goals to reduce both scope, one and scope two emissions building a more sustainable business and ultimately serving the health of patients and communities.
Next let me provide some observations on volume and utilization trends, we're encouraged by the prescription volume in medical visit levels across the business. We've seen continued improvement in pharmaceutical prescription volume oncology visits in primary care patient visits.
Recovery in certain markets like extended care may be lagging we're seeing other markets recover close to pre COVID-19 levels, we anticipate the positive trends to continue in fiscal 2023.
And U S. Pharmaceutical we saw stability in the distribution fundamentals reflected in solid growth in adjusted operating profit in fiscal 2022, our ability to drive sustainable growth in this business drives from a few factors as.
As I mentioned earlier, we continue to invest in the core distribution assets, expanding and strengthening our capabilities and unlocking new efficiencies in the business on.
On the generics and branded front the fundamentals of the pricing environment remains stable and generally track in line with our expectations. Our balanced approach of managing a broad portfolio of pharmaceutical products allows us to strengthen our competitive position and enables us to be resilient and flexible to market movements we remain.
Focused on the investment and expansion of our oncology ecosystem, we're pleased with the growth momentum across our oncology assets from provider solutions in the U S oncology network to our data and our insights business on totter.
They are critical pieces to the long term growth of this segment and we're excited to capture the market opportunity and further our progress in fiscal 2023.
In prescription technology solutions, we saw another year of adjusted operating profit growth driven by expansion of our product offerings as we bring more brands onto the platform and increased transaction volume as the market recovered.
A good example of growth in this segment as our access for more patients or Amp solution, which was developed and launched about three years ago. The solutions focused on automating benefit verification and hub enrollment for patients and in fiscal 2022, we saw accelerated growth with 25% increase in the number of brands on the program.
It has contributed to the overall growth across the enterprise and more importantly helped patients get on therapy is up to eight days faster and stay on therapy longer driving better health outcomes.
We anticipate innovations like this will continue to fuel growth and strengthen our differentiated product offerings, our future innovations and investments will be centered around expanding the reach of our current products into adjacent markets, such as specialty brands and medical benefits.
We continue to invest into the future growth of this segment.
Moving on to medical surgical which has performed exceedingly well this past year.
Excluding the benefit from COVID-19 items, the underlying medical surgical distribution business grew at a double digit rate for adjusted operating profit.
Our lab business that we highlighted before is just one of the drivers for this outstanding growth trajectory.
Covering in the primary care market and our expansion of selling prescription drugs into the non acute channel also contributed to the segment.
Looking ahead as a leader in the alternate site markets. We believe that this segment is well positioned as more site of care moves into the communities our experience and our relationships in every channel and setting of the alternate site markets enable us to capture this growth opportunity in the years ahead.
In the international segment, our strategy and commitment to the Canadian operations remains unchanged.
And Canada is a leader in pharmaceutical distribution in the country and has a portfolio of valuable assets, including the retail banner groups Rexall specialty pharmacies and digital offerings, such as well that we will continue to build and grow this business.
In summary, we're extremely pleased with the progress we've made in fiscal 2022 to further our transformation into a diversified healthcare services company.
Looking ahead to our fiscal 2023, our guidance of $22 90 to $23 60.
Adjusted earnings per diluted share includes organic growth of the underlying businesses improved operating leverage and a balanced approach to capital deployment.
Excluding the contribution from COVID-19 related items in both fiscal 2023 and fiscal 2022 and net gains from Mckesson ventures in fiscal 2022, we expect adjusted earnings per diluted share to grow 9% to 14% year over year, we expect the adjusted operating profit growth.
In our U S pharmaceutical prescription technology and medical surgical segment to be in line or above the long term financial framework, we laid out at our Investor Day last December .
We anticipate the market to remain dynamic, particularly as it relates to supply chain and inflation, we're confident in the resiliency of our business model and our ability to minimize any potential impacts our fiscal 2023 guidance does not assume a material headwind from supply chain disruption or sustained price inflation.
Brad will walk you through the additional details that we've included in the outlook as.
As we look ahead to fiscal 2023, we're excited and energized to build on the momentum and to capitalize on our strong market position, we're advancing our transformation to a diversified health care services company, extending our long tradition of innovation and evolving our business, while reaffirming our strong commitment to addressing the changing needs of our customers there.
<unk> and the broader healthcare industry, our success in building differentiated assets and capabilities positions us well to support better health outcomes and to accelerate profitability and healthy growth for the company.
I want to conclude my remarks by acknowledging our employees, who are dedicated to bringing insight products and services to our customers and partners.
Thanks to their execution and their commitment to mckesson and to each other we're improving care in every setting one product one partner and one patient at a time, we are truly enabling better health for all.
Thank you for your time this afternoon, and now I'm going to hand, it over to Brent.
Thank you, Brian and good afternoon.
Today, I'll discuss our fourth quarter and full year fiscal 2022 results then I'll outline our fiscal 2023 guidance.
At our Investor Day in December we discussed the transformation underway at Mckesson.
Distribution remains a core part of our company. However, we continued to advance and grow is diversified healthcare services company built on differentiated assets and strategies, we are executing and delivering sustainable earnings growth across our businesses.
As we articulated that our confidence is based on three interconnected factors.
Successful focus to advanced Mckesson's oncology and Biopharma services ecosystem, leveraging our best in class assets and capabilities.
The effective allocation of capital, including streamlining our portfolio and.
The momentum we've been generating through operating and working capital execution. We remain confident that we will achieve the long term targets that we provided for fiscal 2023 and beyond.
Let me start by discussing our focus to streamline the portfolio with an update on Europe .
In early fiscal 2022, we announced our strategic intent to exit the European region.
Transactions to complete a full exit of our European operations allow mckesson to streamline the portfolio wining future investments for our growth strategies in North America.
We've made good progress and we remain committed to this set of actions.
July of 2021, we announced the transaction with the Phoenix group to sew operations in six countries and other certain assets.
Transaction is proceeding well and we anticipate it will close in the second half of fiscal 2023.
We have successfully closed the following transactions in.
In the fourth quarter of fiscal 2022, we completed the sale of our Austrian business to quadruple the management and the sale of Mckesson's remaining share of our German joint venture to Walgreens Boots Alliance.
Recently, we completed the sale of Mckesson's U K retail and distribution businesses two of <unk>, which closed on April six.
During the fourth quarter of fiscal 2022, we recorded a GAAP only charge of $343 million related to our agreement to sell the UK retail and distribution business.
Finally, we continue to explore strategic alternatives to exit our remaining operations in Norway and Denmark.
In fiscal 2020 to our European operations, including held for sale accounting treatment impacts contributed $409 million of adjusted operating profit or $1 97 per diluted share.
For fiscal 2023, we anticipate our remaining European operations will contribute approximately 85 to $1 15, which includes accretion resulting from the held for sale accounting for the transaction with the Phoenix Group.
As I mentioned on our third quarter earnings call, we intend to deploy capital through share repurchases to offset the dilution, resulting from the European divestitures.
Let me now move to a review of our fiscal 2022 results.
My comments today will refer to our adjusted results on a year over year basis, unless I state otherwise.
Fiscal 2022 was another year of strong execution for Mckesson.
We're exiting the year with solid operating performance delivering fiscal 2022 fourth quarter earnings per share of $5 83.
And for the full year earnings per share of $23 69.
Our full year results included revenue and profit growth across every business segment.
In addition to growth in our core businesses fiscal 2022 earnings per diluted share also included the following three items.
The first is the dollar 79 related to the U S government centralized COVID-19 vaccine and kitting distribution program, which included 89 cents related to COVID-19 vaccine distribution and 90 cents related to the kidding distribution and storage of ancillary supplies.
88 cents was related to COVID-19 tests and finally 47.
Related to net gains associated with Mckesson ventures equity investments.
Excluding these items and the impact of fiscal 2021 inventory impairment charges related to personal protective equipment and other related products.
2022 earnings per diluted share increased 31% year over year.
For the fourth quarter consolidated revenues of $66 1 billion increased 12% driven by growth in the U S. Pharmaceutical segment due to increased volumes of specialty products, including higher volume from retail national account customers and market growth.
Partially offset by branded to generic conversions.
Gross profit was $3 4 billion.
6%.
Primarily driven by our medical surgical solutions segment.
<unk> from prior year inventory charges on PPE related products.
And increases in patient care visits and our primary care business.
Gross profit was also positively impacted by increased volume with new and existing customers in our prescription technology solutions segments.
Operating expenses in the quarter increased 4% due to increased volumes in our medical surgical solutions segment, which were partially offset by the impact of held for sale accounting on announced divestitures in the international segment.
Operating profit of $1 2 billion for the call.
<unk> was an increase of 3% led by solid operating performance across the segments.
Partially offset by the distribution of COVID-19, vaccines and ancillary supplies in the U S government.
And lower contribution related to COVID-19 tests.
When excluding the impact related to the distribution of COVID-19 related products net gains associated with test adventures equity investments in the prior year PPE impairments in the surgical segment operating profit increased 8%.
Moving below the line interest expense was $43 million in the quarter, a decrease of 17% due to the net retirement of approximately $1 1 billion of long term debt in fiscal 2022, including a previously announced tender offer in the second quarter of fiscal 2022.
Our tax rate was 21, 9% for the quarter.
Wrapping up our consolidated results.
Fourth quarter diluted weighted average shares outstanding were $149 2 million, a decrease of 7% year over year, resulting from share repurchases throughout fiscal 2022.
Moving now to fiscal fourth quarter and full year segment results, which can be found on slides seven through 12, and starting with U S. Pharmaceutical.
Revenues were $53 7 billion.
An increase of 14%.
Given by increased volume of specialty products, including higher volume from retail national account customers and market growth, partially offset by branded to generic conversions.
Operating profit decreased 4% to $780 million due to lower demand and COVID-19 vaccine distribution.
We offset by growth in distribution of specialty products to providers and health systems.
The contribution from our contract with U S government for the distribution of COVID-19 vaccines declined sequentially.
As demand continued to lessen along with continued easing of COVID-19 restrictions.
COVID-19 vaccine distribution provided provided a benefit of approximately six cents per share in the fourth quarter.
Compared to 26 cents in the third quarter of fiscal 2022.
As a reminder, fiscal fourth quarter operating profit growth included previously announced investments made in response to the competitive labor market.
On our earnings call in February we reiterated our expectation for additional labor related expenses.
Ensure continued service continuity through the second half of our fiscal year.
When excluding the impact of COVID-19 vaccine distribution.
And the previously outlined labor investments.
Pharmaceutical segment delivered operating profit growth of 4%.
For the full year operating profit increased 8% to $2 9 billion.
Driven by growth in distribution of specialty products to providers and health systems and the contribution from COVID-19 vaccine distributions.
In the prescription technology solutions segment revenues were $1 billion.
An increase of 29%.
As a result of volume growth related to Biopharma services, including third party logistics services and increased technology service revenue.
Resulting from the growth in prescription volumes.
Operating profit increased 11% to $162 million driven by growth from access and adherence solutions groups.
For the full year operating profit was $590 million an increase of 26%.
Next medical surgical solutions revenues were $2 9 billion, an increase of 6%.
Growth in the primary care business.
Operating profit increased 55% to $298 million.
In the fourth quarter operating profit in the medical surgical solutions segment included 22 cents of earnings per diluted share contribution related to COVID-19 tests.
<unk> <unk> of earnings per share per diluted share contribution related to the kitting distribution and storage of ancillary supplies for COVID-19 vaccines in the U S government.
Excluding the impacts of these COVID-19 related items in the prior year inventory charges on PPE related products.
Operating profit increased 26% due to growth in the primary care business.
For the full year operating profit increased 50% to $1 2 billion.
When excluding the impacts of COVID-19 related items and prior year inventory charges on PPE and related products.
Operating profit increased 22%.
During the fourth quarter, COVID-19, and the direction of the disease continues to demonstrate variability.
The demand for COVID-19 related products and services has fluctuated over the course of the pandemic. However direction generally followed the volume COVID-19 chase levels.
Forecasting COVID-19 vaccine distribution in testing demand more than a few months at a time remains difficult we continue to attract new guidance and variance in.
In the fourth quarter of fiscal 2022, we experienced increased demand in January related to spiking cases due to the <unk> variant.
We experienced a 60% volume increase related to COVID-19 test in January compared to the average in the third quarter.
In February and March Covid cases decline month over month with a corresponding decline in Covid test volumes in.
In March we experienced approximately a 90% decrease related to COVID-19 test volumes compared to the third quarter average.
Declines in February and March led to lower earnings contribution from COVID-19 test in our fiscal fourth quarter.
We anticipate that the pace of Covid test volume and vaccine demand will follow a similar fluctuating pattern in fiscal 2023.
And we anticipate that fiscal 2023, Covid volume and earnings per share contribution will be materially lower in fiscal 2022.
Let me address our international results revenues were $8 5 billion on a reported basis on.
On an FX adjusted basis revenues were $8 8 billion, an increase of 3% driven by sales to new customers in the Canadian business and year over year volume recovery and our distribution businesses.
Partially offset by the divestiture of our Austrian business, which closed during the fourth quarter of fiscal 2022.
Operating profit increased 7% to $147 million.
On an FX adjusted basis operating profit increased 10% to $152 million due to the.
Duction of depreciation and amortization on European assets under agreement to sell and increased volumes in the pharmaceutical distribution business.
For the full year operating profit on an FX adjusted basis increased 40%.
And in our corporate segment expenses were $183 million in the quarter, an increase of 46% during.
During the quarter Mark to market valuations related to our equity investments within our Mckesson ventures portfolio resulted in net losses of approximately $6 million compared to net gains of $44 million in fourth quarter of fiscal 2021.
Corporate expenses were $579 million for the full year, which were approximately flat compared to the prior year.
In fiscal 2020 to Mckesson had net gains related to our equity investments within our Mckesson ventures portfolio of approximately 98 million or <unk> 47 per share.
This compares to net gains of approximately $132 million or <unk> 60.
For the full year fiscal 2021.
As a reminder, our mckesson ventures portfolio hold equity investments in several growth stage digital health and services companies and we are pleased with the insights and the portfolio results that we've obtained.
The impacts for our consolidated financials can be influenced by the performance of each individual investment quarter to quarter and as a result, mckesson's investments may result in gains or losses, the timing and magnitude of which can vary for each investment it is difficult.
To predict when gains or losses on our venture portfolio companies may occur and therefore, our practice has been and will continue to not include venture portfolio estimates in our guidance.
And finally in the fourth quarter, we incurred opioid related litigation expenses of $26 million and incurred $130 million for the full year fiscal 2022.
Turning now to our cash position and capital deployment on slide 13.
For the fiscal year, we generated $3 9 billion and free cash flow, which included $535 million of capital expenditures.
We continue to focus capital deployment to drive value for our shareholders. Since fiscal 2018, we have returned $11 billion of cash to shareholders through share repurchases and dividends.
Of this amount over $9 billion has been returned through share repurchases, reducing our total average shares outstanding by nearly 31%.
In fiscal 2022, we returned $3 5 billion through share repurchases, including $1 $5 billion in the fiscal fourth quarter.
Additionally, we paid dividends of $277 million for the full year.
When combining share repurchases with dividends paid we returned approximately 97% of free cash flow to shareholders in fiscal 2022.
Our strong balance sheet and cash flow generation, along with disciplined capital allocation continues to provide us with the financial flexibility to invest in our strategies pursue strategic opportunities and return capital to shareholders, all while maintaining a strong capital structure.
Let me spend a few minutes now discussing our outlook for fiscal 2023.
We entered fiscal 2023 with solid momentum building upon the strong fiscal 2022 results.
Rather than outlined in each assumption I'll instead walk you through the key items beginning with additional details.
Our fiscal 2023 consolidated guidance.
A full list of our assumptions can be found on slides 14 through 19 of our supplemental slide presentation.
We remain confident in the fundamentals of our North American healthcare services and distribution businesses, we will continue to invest in innovative product offerings that further enhance our leading roles in the oncology and Biopharma services ecosystems.
Our fiscal 2023 guidance assumes flat to 4% reported revenue growth and 4% to 10% operating profit decline compared to fiscal 2022.
Excluding the impacts related to the U S government centralized COVID-19 vaccine and kitting distribution programs.
COVID-19 tests and net gains associated with Mckesson ventures equity investments, which were recorded in fiscal year 2022.
We anticipate operating profit to increase 3% to 9%.
We anticipate a full year tax rate of approximately 18% to 20% and corporate expenses in the range of $520 to $590 million.
In the fourth quarter of fiscal 2022, we finalized the broad settlement of opioid related claims of states and municipalities. While we've reached a broad settlement. There are cases that remain open as it relates as it relates to opioid litigation expenses. We previously communicated that we anticipate a substantial reduction in fiscal year.
2023, resulting from the settlement for.
For fiscal 2023, our current approximation is $40 million and it can vary based on a number of factors, including remaining nongovernmental suits trials and pace of legal proceedings, we will continue to update you accordingly.
Wrapping up our consolidated guidance for fiscal 2023 earnings per diluted share outlook is $22 90, a $23 60.
Which includes 20% to 60 contribution attributable to the following COVID-19 related items.
5% to 20 related to the U S government's vaccine distribution.
Western <unk> <unk> related to the kitting storage and distribution of ancillary supplies.
And 15% to 35 cents related to COVID-19 tests.
Excluding the impacts of these COVID-19 related items from both fiscal 'twenty through 'twenty guidance in fiscal 2022 results in a 47 related to net gains associated with testing ventures equity investments in FY 'twenty to our fiscal 2023 guidance indicates approximately nine to 14.
10% growth over the prior year.
This estimated year over year growth is consistent with our long term financial targets that we provided at our December Investor day event and represented solid organic growth in our underlying businesses.
Disciplined capital deployment and continued expansion of oncology and Biopharma services ecosystems moving.
Moving now to our segments in the U S. Pharmaceutical segment, our outlook reflects the efficiency and durability of our core distribution platform and continued expansion of our oncology ecosystem.
We anticipate reported revenue increased 7% to 10% and operating profit to approximate approximately be flat to 4% decline year over year.
Our outlook includes approximately 5% to 20.
Related to COVID-19 vaccine distributions for the U S government in the first quarter of fiscal 2023, which is aligned with the current contract timing and volume distribution schedule provided by the CDC in the U S government <unk>.
This compares to 89 and full year fiscal 2022.
When excluding the impact of COVID-19 vaccine distribution for the U S government.
We anticipate 3% to 5% operating profit growth, which is consistent with the long term growth target. We provided for the U S. Pharmaceutical segment at our recent Investor day event.
Yeah.
In the prescription technology solutions segment, we anticipate revenue growth of 17% to 23% and operating profit growth of 14% to 20%.
This outlook reflects momentum of organic growth across our solutions and services as we expand partnerships with biopharma manufacturers generate higher transaction volumes and increase the number of brands on our access and adherence platforms.
Three 4% to 38% in operating profit to declined by 22 and 28%.
This year over year decrease includes the loss of operating profit contribution from businesses and transactions. We've closed to date and that we expect to close three fiscal 2023.
In Canada, we have a strong position as a leader in healthcare distribution, we anticipate continued organic growth in our pharmaceutical distribution business, including strategic sourcing efforts.
Let me conclude our fiscal 2023 outlook with a few comments on cash flow and capital deployment is.
Does that communicated an investor day are capital allocation strategy prioritizes strategic drop complemented by a return of capital to our shareholders.
Share repurchases and a modest yet growing dividend.
Our investment grade credit rating remains a priority and underpins our financial flexibility.
Flexibility positions us for the continuation of sustainable long term value creation for our shareholders.
Fiscal 2023, we anticipate free cash flow of approximately 3.2% to $3.6 billion, which is net of property acquisition and capitalized software expenses.
As a reminder are working capital metrics, and resulting cash flows vary from quarter to quarter impacted by timing, which could include the timing of plan European divestiture activity.
As disgusted Investor day, we intend to offset the dilution related to our European divestitures with capital deployment.
As indicated on slide 18, our fiscal 2000 twenty-three outlook incorporates plans to repurchase approximately $3.5 billion of shares.
A significant portion of the share buyback consumption is associated with offsetting the year over year impact of the European divestitures.
As a result of the share repurchase activity.
We estimate weighted average diluted shares outstanding for fiscal 2023 to be in the range of approximately 142 $144 million.
The progress, we're making a cross our strategic priorities include air commitment to streamline the business supports are strong cash flow.
This cash flow provides us with the flexibility to deploy capital through organic and inorganic investments in our business and returning capital shareholders to share repurchases and dividend.
In closing physical 20 twenty-two was another strong year from the cash we continue to make great progress on our transformative journey from a distribution focused company to a leading diversified healthcare services company accelerating and expanding oncology and Biopharma services ecosystems are.
Our strategies are working and we're delivery for our customers partners patients and our shareholders.
We are well positioned to capture the vast opportunities in the growing markets oncology and Biopharma services.
We have a strong financial outlook, and our financial framework and execution physician us to deliver sustainable profit growth cash flows and shareholder value creation.
Great confidence in our teams and our products and services and in our strategy.
Thank you and with that I'll turn it over to the operator for Q&A.
Thank you.
Signal with questions. Please press star wandering a touchtone telephone.
Joining us today using a speaker phone. Please make sure the neat function is turned off by your signal to reach our equipment.
<unk>, if you would like to ask a question first.
First question comes from Michael G with Bank of America.
[noise] afternoon.
Good afternoon, and thanks for obviously a ton of details.
So I wanted to think about just the cadence of the year for Ken a little break just to make sure should.
Should we assume based on the timing of the a C. C contract that pharma growth should be heavier than the first quarter of the year and how should we think about any other components of cadence and how should filter through the year relative to some of the more identifiable items like the COVID-19 benefits and other components.
Yeah. Thanks for that question, Mike as we didn't really outline it we don't talk about quarterly guidance, but I can indicate for you that on a consolidated basis. What we would expect is that our earnings growth will you be heavier in the second half of the year as opposed to the first half of the year.
As I laid out in my comments, we have less contribution from COVID-19 related items in physical twenty-three than we did in fiscal 2002.
Fact in all cases, crossbow pharma and our medical segment with a declining COVID-19 related contribution. So what we do expect is that we would indicate you expect a heavier proportion of earnings in the second half of the year, a modestly heavier proportionate in the second half of the year than the first half.
Next question please.
Okay. The next question from Eric <unk> with my phone research. Please go ahead.
Okay. Thank you.
Brian and break.
Standard question on initial guidance as you've looked at your budget for the year I'd be interested to hear what the risks and opportunities look like recognizing the 70 rainy.
Range on $23 and potentially 40 cents of that attributable to COVID-19. So you're feeling that there is relatively little Darien and what are the factors that would drive you higher low.
Thanks for the question, Eric I'll start and and certainly Brian can add on.
One thing for sure as we think about this as we talked about the variability that we've seen in COVID-19 and sort of the pace of Covid.
One that will watch for and I, certainly can go up or down, particularly in the case of Covid tests.
So that could be at risk it can be a positive or negative.
Clearly as we've talked about with the macro environment. We are pleased with the fact that we're seeing prescription volumes continue to increase and as the economy continues to her as she said patients continued to be more mobile is COVID-19 restrictions continue to ease. It certainly is an opportunity for us to see <unk>.
Fiction volumes continued to improve not only in our pharma business, but really crosses I talked about and or prescription technology business as well.
We certainly have the opportunity to deploy capital we've laid out for you R assumptions wrong capital deployment, but we have a lot of flexibility in a good financial framework and the other one I would point out to you is really the timing around our European divestitures, we've laid out for you that we would expect the transaction with the Phoenix group.
B in the second half of the year, but clearly that timing could could move is is.
As we continue to move through that transaction.
[laughter] complaint.
Okay next question comes from Charles Ryan Kelly.
Yeah.
Yeah. Thanks for taking the question.
But you talked about how.
Your COVID-19 related businesses really tracks with.
The incidents of Covid in the country.
Seeing cases rise at least the dead, that's what the data seems to be showing but.
But at the same time right. It seems like there is overall less testing.
So are the less emphasis.
You can talk about maybe transit you are seeing currently and what doesn't endemic AIDS.
It looked like or how are you guys thinking about that as we.
We think we move into an endemic days for Covid. Thanks.
Thanks, Charles it's.
Obviously, it's been a little bit hard to predict over the last two years.
We saw our lap sort of spike in testing really hit us in January of this year and then we've seen COVID-19 casket volumes fall off pretty significantly since then.
There is a new variant circulating.
Initial indications are it is probably the same medical profile as the as the previous variant, but the wildcard will be patient behavior to do people get into a routine testing that I feel the need to retune leaked routinely test to employers passed as they bring people back and that's that's a little bit difficult to forecast. So what we have.
Giving you as a guide in FY twenty-three based on our most of our best and current view of the market.
Maybe just getting back to the question that that Eric asked as we think of like a year things that can get us to the higher the low end of the range clearly Covid test has a lot of variability in that.
We've given you our best estimate based on trends that we've seen which is really that is Brian talked about that declining level of cases in testing, but certainly if the variant does come back in cases begin to rise again that would be something that we would watch for an <unk>.
We would anticipate that COVID-19 testing would follow the.
Trajectory of cases.
Next question for you.
I think our next question comes from Lisa with J P. Morgan.
Precisely.
Hi, I'm here [laughter]. Thank you very much for all the detail I did try one to understand a couple of things and you know if we think about the guidance. One I know you made a comment earlier on when you think about supply chain and information that you have some things built into your guidance you talked about the information on the side of of wage inflation one.
Did you carry that through and K 2023 on a permanent basis and then secondly.
If I think about your medical supply business.
Historically had a private label product that was coming if I remember correctly from Asia.
Has there been any impact.
Judith applied.
Cain said constraints on that side of the business.
Thanks for the question I'll I'll take it off and Britt can add whatever additional comments you'd like I mean, starting on the.
Labor costs front, it's obviously been a pretty dynamic labor market, we don't actually think of it as a single market, we think of it as micro markets around where we have locations in facilities we.
We did make investments.
Largely until the frontline teams at our medical on our pharmaceutical business in the back half of our last fiscal year. We've we've talked about that and we have contemplated some labour investments in our FY twenty-three outlook based on the status of the market today and the.
<unk> and the indicators that we see today, that's something we will continue to track I mean, I think mckesson is a great place to work, where they have a really strong employee value proposition.
Click with competitive wages, but benefits and development and career progression and mean and work that has really meaning and purpose behind it. So I think we feel good about we feel good about.
Where we stand as we enter the year, but it's certainly the last several months have been labor markets like most of us have Nazis and will continue to monitor and track that closely.
On the on the supply chain front.
Think our supply chains have been remarkably resilient and medical and pharmaceutical over the many many twists and turns of the of the last few years I would say that they continued to be <unk>.
Resilient.
Anticipate very modest levels of disruption.
And cost inflation in FY 2003.
Private brand program as you might recall, we don't own physical plant and equipment and manufacturer resorts and so our teams have been very aggressively thinking about expanding and broadening and rotating our sources of supply and thus far we've been able to maintain very good inventory position.
Yeah, maybe just leave.
<unk>, we have a very comprehensive sourcing strategy and we resource our products really in a very diverse way across many different countries and one of the things that were really proud of them focused on his or her approach to responsible and sustainable source thing, we've really taken a lot of actions along those lines saucer.
Diversify our partners across the products that we serve song.
Feel like we have really good strong sourcing program in place and how we feel well positioned.
Next question please.
Our next question comes from Stevensville account with Barclays.
Oh, Thanks, good afternoon, everybody so relative.
Relative to our own EPS created we had built previously from FY 222 to 23 biggest source of upside from our view is 85 to about 15 EPS. So expect from the European assets. So I guess in that piece I was curious too is there any color on whether or not that will be heavily front end loaded in the first quarter of two or maybe more evenly spread throughout the year.
Here and then at the risk of maybe looking too far and should we assume that all of that 85 cents above 15 was essentially disappear and your physical twenty-four. Thanks.
Yeah, I'd say that the cadence.
Would be very similar to what I gave you a consolidated basis now we do expect that the transaction that we talked about with Phoenix is gonna close in the second half of fiscal 2023, So I guess it would be more first three quarters lower than.
Then just half and half.
As it relates to 24 I think it's a little early to start talking about that we talked to you about the fact that Norway and Denmark are still two countries that we're evaluating opportunities towards to fully exit. This it's too early to really talk about any.
Transactions along those lines that we still operate those businesses. We will just continue to evaluate opportunities that to exit that but those are those continue to be countries that we operate in.
[noise] next question please.
Mmk, we'll take our next question from Ricky Goldwasser with Morgan Stanley .
[noise], Yeah, hi, good afternoon. So two clarification question. So why don't we think about that European contribution I think Thats page 16 in your slide deck.
Dollar 97 is to take here is that European contribution.
<unk> will be replaced by by box even for that I think I have an $85 15, an asset that you stay alone, but if you divest and that we should think about this.
Replace it all with with a capital allocation three bypass and then similar to that if we think about the.
Cost inflation, that's sort of embedded in results.
In the slide to talk about you see an adjuster COVID-19 Kosten distributions segment would've gone, 2% anything on the call you said, there's puke asked for that and for hiatus and.
And inflation thin.
4%. So should we think about that two per cent difference is if the costs and inflation into something that we can think about is we tried to quantify what it is embedded in your 23 guidance.
Thanks for the questions Ricky let me try to take those in order. Let me first talk about Europe . We've tried to lay out here for you is transparently as we could with the European contribution was in FY 2002, and then we talked about what we thought the operations would contribute and twenty-three.
We fully intend to exit Europe , and what we've also said is that when we do that the loss contribution from those from those earnings we would replace with capital deployment principally share share buybacks. When we've tried to lay it out for you and and so yes. The way we've laid it out for you is that you should think about Europe eventually going away.
Replaced by capital deployment as it relates to the comment in the U S. Pharmaceutical segment, let me break it up this way.
When you think about excluding the COVID-19 related items, which again, we've talked about those pretty transparently since the beginning we had 2% growth year over year. We did talk about beginning on our second quarter earnings call that we were making additional investments into R. R. U U S based businesses too.
Have continuity of service through labor expenses that accounted for about 2% of the year over year impact in the U S pharmaceutical business in the fourth quarter and so I wanted to just make that comment it's nothing different than we've talked about before we talked about you know.
The contribution that we'd be making the investment we'd be making about 20 cents for the year that for the U S. Pharmaceutical segment was about 2% in the quarter. So that's why we called that out just as a sort of a confirmation of what we've talked about previously.
Next question please.
Okay, we'll take our next question from Kevin Kelly with UBS.
Thanks, Thanks for taking my question.
A lot of the margin change the guidance from the change in margins across the segments can be explained by COVID-19, but when I look at say, Pts and medical surgical is there anything else, we should think about in terms of the mix or.
Or benefits you've talked a little bit about what you expect on the farm aside is there anything in those two segments.
Outside of Covid that we should be thinking about that might impact margins.
For 23.
As we think about twenty-three wouldn't think that there'd be much change in terms of the mix within those two businesses were continuing to see good strengthen our primary care business in the medical business. We expect that will continue into FY twenty-three <unk> business.
We had strong growth and rubbing lines, we had 26% growth in operating profit. So we ensuring performance at the margin line as well and we expected or.
Adherence and access programs will continue to have growth as we move into 2003. So now.
I wouldn't I will guide you to any different mixed in twenty-three than we've seen in 2002.
Next question please.
Your next question comes from Eric <unk> with it.
That'd be better.
Hi, Thank you good afternoon fair.
Fairly simple and I hope your.
Your competitor, who reported today had $115 million of opioid expense last year said that their expense next year would be down only modestly you.
You had 130 expense and you're saying that it'll be $40 million, that's a really big delta between the two companies for the same situation.
<unk> on what the Delta is between you two have you excluded the.
[noise] injunctive relief costs, the the data the tracking the integrity costs that come with the the program and this $40 million or what might explain this substantial.
Substantial delta an opioid litigation expense, thanks very much.
I don't know that we can speak to the Delta we can speak to the guidance that we provided.
We look at the litigation the litigation calendar open issues that are ahead of us.
This is our best view based on what we know today, what we would anticipate to spend in and defending.
Ourselves against the suits.
And that that number we provide it was $40 million.
And as I pointed out there are some factors that could drive that number in either direction that could be the patience of any trials were trials themselves.
And any of the work that goes into any trials that do happen. So we've given you our best estimate based on our analysis of what remains and again, it's Bryan it's really can't comment on how how somebody else's thinking of August .
That is.
Legal expense, Netherlands, right I mean that is.
The $40 million for legal defense right.
Consistent as it's been since we began reporting this to you three years ago.
Next question please.
And can take our next question from Elizabeth Anderson with Evercore ISI.
Hi, guys. Thanks, so much for that question I was wondering if you could talk about the valid contribution of pricing increases to the revenue growth and you'll see the remaining segments in the outlet that you provided for 2023.
Yeah. Thanks for the question.
We didn't touch on that we historically have talked about the environment around with branded inflation and generic inflation.
We don't see any change and interact why twenty-three outlook to what we've seen in FY 2022, So we see relative stability in both branded.
Brand price inflation from the generics perspective, we <unk>.
Continue to see a stable but competitive environment.
It is supported by the strong sourcing operations that we have in our focus is on providing our customers stability of supply could pricing and our ability to do that through good sourcing and disciplined.
<unk> to the sell side, so from our perspective as we look at the.
Pricing environment's around branded an engineer X, we see relative stability in twenty-three compared to 22.
Next question please.
Okay. Our next question comes from Georgetown with Deutsche Bank [noise].
[noise] Hey.
Hey, good evening, guys and I. Appreciate you taking my question I guess I would ask you if you could talk a little bit about instead of the pharmaceutical segment.
Difference between what's happening in the core wholesaling business person has the more manufacturer facing services businesses and I guess are they kind of both performing inline and positively or is there a meaningful divergence on how the what I would call. The the pharmacy facing business is performing versus the manufacturer facing businesses performing.
Yeah, Let me, let me start and then certainly Brian can add it onto this.
Pharma services are I think as you've captured a manufacturer services those businesses are captured in our Rx solutions segment as we've talked about that business continues to generate a really good revenue top line and profit growth, we're seeing more brands being added to our platforms. We're seeing good.
Acceptance and in the marketplace of our access and an ear and solutions and both of our businesses as I talked about what we are seeing improved transaction volume from prescriptions and that certainly is benefiting or a prescription.
Prescription technology solutions segment very well.
New and an existing brand so I see both both of those businesses are benefiting from the macro factors of seeing improved transaction volumes clearly the growth of our technology solutions in our <unk> and our access and adhere solutions are really good.
[noise] good growth.
To say [laughter].
Crazy <unk> segment too.
To give your visibility into how that businesses performing and we're quite pleased that both core pharma and <unk> business.
Or forward guide for FY twenty-three as in line and in the case of Rx, Yes, exceeding what we said in December we thought was the long run growth targets. So we're very pleased with both of those businesses and feel a are very well positioned.
Okay well. Thank you. Thanks for your patience I know, we ran a few minutes longer than we normally do is typical it a year and are you a kickoff call I want to thank everyone for your time and for joining this call. We really appreciate your thoughtful questions and certainly your interest in Mckesson. Thank you Cody for facilitating the call for us just.
To conclude Mckesson delivered a strong fiscal 2022 with double digit adjusted operating profit growth and I'm excited about the continued progress of our company priorities in the fiscal 2023, I'm confident about our ability to deliver strong growth solid financial results and shareholder value creation.
That's all due to the people that make up team mckesson across all areas of our business I want to thank them for their hard work and their dedication to executing on our strategies for living our culture, and our values and bringing positive changes to our partners our customers and the patients that we impact.
Thanks, again, everybody I hope you all have a terrific evening.
Thank you for joining today's conference call humanity.