Financial Trends -- 8.4/10
| Metric | CY23Q1 FY24Q4 | CY23Q2 FY24Q1 | CY23Q3 FY24Q2 | CY23Q4 FY24Q3 | CY24Q1 FY24Q4 | CY24Q2 FY25Q1 | CY24Q3 FY25Q2 | CY24Q4 FY25Q3 | CY25Q1 FY25Q4 | CY25Q2 FY26Q1 | CY25Q3 FY26Q2 | CY25Q4 FY26Q3 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenue ($M) | $68,910M | $74,483M | $77,215M | $80,898M | $76,355M | $79,283M | $93,651M | $95,294M | $90,823M | $97,827M | $103,150M | $106,158M |
| YoY Growth | — | — | — | — | 10.8% | 6.4% | 21.3% | 17.8% | 19.0% | 23.4% | 10.1% | 11.4% |
- Revenue grew from $68.9B (CY23Q1) to a record $106.2B (CY25Q4), a 54% increase over 12 quarters. The massive step-up in CY24Q3/Q4 was driven by GLP-1 distribution volumes and specialty pharma
- YoY growth has remained in double digits for 8 consecutive quarters, ranging from 6.4% (CY24Q2) to 23.4% (CY25Q2). The acceleration in CY25Q2 reflects peak GLP-1 distribution ramp
- FY26Q3 (CY25Q4) revenue of $106.2B implies an annualized run rate exceeding $400B, making McKesson one of the largest companies in the US by revenue
- Gross profit dollars grew from $3.2B to $3.7B over 8 quarters (+15%), demonstrating that the distribution toll road generates more absolute profit as volume scales -- even as margin percentages compress
- Gross margin compressed from 4.70% (CY24Q1) to 3.47% (CY25Q4), primarily due to mix shift toward high-revenue, low-margin GLP-1 pass-through distribution. This is optically concerning but economically benign
- Seasonal pattern: Q1 (Apr-Jun) consistently shows the highest gross margin (~4.0-4.7%) due to favorable product mix, while Q2/Q3 quarters settle at ~3.4-3.5%
- Operating income reached a record $1.62B in CY25Q4 (FY26Q3), up 32.3% YoY. The FY2026 run rate implies annual GAAP operating income approaching $5.7B
- CY24Q3 trough of $578M was an anomaly driven by one-time charges. The 143.3% YoY rebound in CY25Q3 reflects the normalization and underlying operating leverage
- FY2026 guidance calls for 13-17% adjusted operating profit growth, which management is tracking ahead of given Q3 results. Operating leverage is being driven by scale efficiencies and AI/automation gains (138bp improvement in opex/gross profit ratio in Q3)
- Adj EPS grew from $7.27 (CY23Q2) to $9.34 (CY25Q4), with a peak of $10.12 in CY25Q1 (FY25Q4). The 5-year adj EPS CAGR is 18%, reflecting both operating profit growth and buyback-driven share count reduction
- YoY growth has been strongly positive in 7 of the last 8 comparable quarters, with standout growth of +63.8% (CY25Q1) and +39.5% (CY25Q3)
- FY2026 full-year guidance of $38.80-$39.20 (midpoint $39.00) has been raised 3 times from the initial $36.75-$37.55. This represents 17-19% YoY growth vs. FY2025 actual of ~$33.10
| Metric | Initial (May 2025) | After Q1 | After Q2 | After Q3 (Current) |
|---|---|---|---|---|
| Low | $36.75 | $37.75 | $38.25 | $38.80 |
| High | $37.55 | $38.55 | $38.85 | $39.20 |
| Midpoint | $37.15 | $38.15 | $38.55 | $39.00 |
- FY2025 FCF of $5.2B was a record, up 44% from FY2024, reflecting strong operating cash flow and disciplined working capital management
- FY2026 guidance of $4.4-4.8B is lower YoY due to working capital timing (GLP-1 distribution creates large but temporary working capital swings). However, TTM FCF of $9.6B per the Q3 earnings call is exceptionally strong
- FCF yield of ~4.3% ($4.6B midpoint / $108B market cap) is reasonable for a company compounding EPS at 17-19% annually
- Diluted shares declined from 136.6M (CY23Q2) to 123.7M (CY25Q4), a reduction of 12.9M shares (-9.4%) over roughly 10 quarters
- Buyback cadence is remarkably consistent at ~3-4% annualized reduction, funded by the $2B/year repurchase program. This mechanical EPS accretion adds 3-4 percentage points to EPS growth on top of organic operating profit growth
- Capital allocation discipline: Management maintains investment-grade credit while returning substantial capital. The buyback program is a core pillar of the 18% 5-year adj EPS CAGR
McKesson delivered outstanding financial performance across every major metric through FY26Q3. Revenue grew to a record $106.2B in the December quarter, with double-digit YoY growth sustained for 8 consecutive quarters, driven by GLP-1 distribution volumes and specialty pharma. The business model -- a high-volume, low-margin toll road controlling ~41% of US pharmaceutical distribution -- generates enormous absolute dollar profits despite optically thin ~3.5% gross margins.
Adjusted EPS of $9.34 in FY26Q3 brings the FY2026 9-month total to $27.46, tracking comfortably within the raised $38.80-$39.20 full-year guide. Management has raised EPS guidance every quarter for 3 consecutive fiscal years, demonstrating a reliable under-promise/over-deliver culture. The 5-year adj EPS CAGR of 18% reflects the combined power of operating profit growth, margin efficiency gains (AI/automation driving 138bp opex leverage), and disciplined share repurchases reducing the float ~3-4% annually.
FY2025 FCF of $5.2B (+44% YoY) was a record, and TTM FCF of $9.6B is exceptionally strong. The FY2026 FCF guide of $4.4-4.8B is lower due to working capital timing, not deterioration.
Minor deductions: (1) Gross margin compression from 4.7% to 3.5% as GLP-1 pass-through revenue dilutes margins -- this is structural and economically benign, but optically concerning to some investors; (2) The CY24Q3 operating income trough of $578M introduced volatility that complicates trend analysis.
Score: 8.4/10 -- Double-digit revenue growth, strongly accelerating operating income and EPS, robust FCF generation, and a flawless guidance raise cadence. Minor ding for gross margin percentage dilution from GLP-1 mix shift.