McKesson Corporation Annual Report (Form 10-K) for the fiscal year ended March 31, 2025

Executive Summary

McKESSON CORPORATION, a leading healthcare company, has reported its financial results for the fiscal year ended March 31, 2025. The company operates in four main segments: U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International.

Overall, the company had a strong performance in fiscal 2025, with revenues increasing by 16% to $359 billion compared to the prior year. Gross profit increased by 4% to $13.3 billion, while total operating expenses remained flat. Diluted earnings per share from continuing operations attributable to McKesson Corporation increased by 15% to $25.72.

Some key highlights for the year include:

• The company onboarded a new strategic partner in its U.S. Pharmaceutical segment.
• McKESSON completed the sale of its Canadian retail disposal group and recorded a $667 million charge to remeasure the assets and liabilities to fair value.
• The company recorded $298 million in restructuring charges related to an enterprise-wide initiative to drive operational efficiencies.
• McKESSON received $444 million from its share of antitrust legal settlements, which was recorded as a gain in the U.S. Pharmaceutical segment.
• The company recognized a $258 million net discrete tax benefit related to the sale of intellectual property between its foreign subsidiaries.
• McKESSON recorded a $108 million charge related to its estimated liability for opioid-related claims.
• The company recognized a $100 million net gain related to the recapitalization of one of its equity investments.
• McKESSON returned $3.5 billion to shareholders through $3.1 billion in share repurchases and $345 million in dividend payments.

Trends and Uncertainties

The company continues to face uncertainties related to opioid-related litigation and claims. McKESSON is a defendant in many legal proceedings across the U.S. and Canada related to the distribution of controlled substances. While the company has not concluded that a loss is probable in any of these matters, an adverse judgment or settlement could have a material adverse impact on its financial position, cash flows, or results of operations.

Another area of uncertainty is the bankruptcy proceedings of the company’s customer, Rite Aid Corporation. In fiscal 2024, Rite Aid filed for Chapter 11 bankruptcy, leading McKESSON to record a $725 million provision for bad debts. During fiscal 2025, the company reassessed its estimates and recorded a $206 million credit. However, Rite Aid filed for a second Chapter 11 bankruptcy in May 2025, and the company continues to evaluate the impact on its reserves.

Segment Performance

U.S. Pharmaceutical Revenues in the U.S. Pharmaceutical segment increased by 18% to $327.7 billion, driven by higher volumes from retail national account customers and growth in specialty pharmaceuticals. Operating profit increased by 44% to $4.0 billion, primarily due to the reversal of the Rite Aid bad debt provision, growth in specialty pharmaceuticals and retail customers, and an increase in antitrust legal settlement proceeds. These were partially offset by a LIFO inventory charge, higher operating expenses, and a charge related to opioid-related claims.

Prescription Technology Solutions (RxTS) RxTS revenues increased by 9% to $5.2 billion, driven by increased volumes from third-party logistics and higher technology services revenues. Operating profit increased by 5% to $875 million, primarily due to the contributions from technology services, partially offset by the absence of a prior year gain related to the fair value adjustment of a contingent consideration liability.

Medical-Surgical Solutions Revenues in the Medical-Surgical Solutions segment increased by 1% to $11.4 billion, with growth in sales to primary care customers partially offset by lower contributions from kitting and distribution of COVID-19 vaccine supplies. Operating profit decreased by 19% to $773 million, primarily due to higher restructuring charges and a decline in the contribution from the primary care business, partially offset by lower expenses from business rationalization initiatives.

International Revenues in the International segment increased by 4% to $14.7 billion, including a $455 million unfavorable impact from foreign currency exchange fluctuations. The segment reported an operating loss of $213 million, compared to an operating profit of $319 million in the prior year, primarily due to a $605 million charge to remeasure the assets and liabilities of the Canadian retail disposal group to fair value.

Total Operating Expenses Total operating expenses were flat compared to the prior year at $8.9 billion. This included a $667 million charge to remeasure the Canadian retail disposal group, a $206 million credit related to the Rite Aid bankruptcy, a $108 million charge for opioid-related claims, and $286 million in restructuring charges.

Other Income and Expenses Other income, net increased by 53% to $202 million, primarily due to net gains on the company’s investments in equity securities, partially offset by charges related to the termination of the U.K. pension plan and a loss on an equity method investment.

Interest expense increased by 5% to $265 million, primarily due to higher average debt balances and the absence of a prior year gain on debt extinguishment, partially offset by increased capitalized interest and changes in the company’s derivative portfolio.

The company’s reported income tax rate increased to 20.1% from 16.6% in the prior year, primarily due to the impact of non-cash charges related to the Canadian retail disposal group and discrete tax benefits recognized in the current and prior year.

Cash Flows and Liquidity

Operating activities provided $6.1 billion in cash, an increase of $1.8 billion compared to the prior year. This was primarily driven by higher net income, increased cash from accounts payable, and higher antitrust legal settlement proceeds, partially offset by increased inventory purchases and higher income tax payments.

Investing activities used $733 million in cash, a decrease of $339 million from the prior year, primarily due to lower capital expenditures and proceeds received from investments in equity securities.

Financing activities used $4.0 billion in cash, an increase of $623 million from the prior year, primarily due to higher share repurchases and dividend payments, partially offset by lower net commercial paper borrowings.

At March 31, 2025, McKESSON had $6.0 billion in cash, cash equivalents, and restricted cash, and a debt-to-capital ratio of 125.3%. The company’s working capital decreased to negative $6.2 billion, primarily due to an increase in the current portion of long-term debt and higher drafts and accounts payable, partially offset by an increase in receivables and inventories.

Outlook and Conclusion

McKESSON had a strong financial performance in fiscal 2025, with growth in revenues, gross profit, and earnings per share. The company continues to face uncertainties related to opioid-related litigation and the Rite Aid bankruptcy, but has demonstrated its ability to navigate these challenges.

Looking ahead, the company remains focused on driving operational efficiencies through its restructuring initiatives, expanding its specialty pharmaceutical and technology services offerings, and returning capital to shareholders. With its strong liquidity position and access to capital markets, McKESSON is well-positioned to continue executing on its strategic priorities and delivering value to its stakeholders.