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McKesson (NYSE: MCK)
Q2 2025 Earnings Call
Nov 06, 2024, 4:30 p.m. ET

Summary of McKesson’s Second Quarter Earnings

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to McKesson’s second quarter fiscal 2025 earnings conference call. Please note that today’s conference is being recorded. I now hand the call over to Rachel Rodriguez, Vice President of Investor Relations. Please go ahead, Rachel.

Rachel Rodriguez — Vice President, Investor Relations

Thank you, operator. Good afternoon, everyone, and welcome to McKesson’s second quarter fiscal 2025 earnings call. Today, I am joined by Brian Tyler, our Chief Executive Officer, and Britt Vitalone, our Chief Financial Officer. Brian will start the discussion, followed by Britt, and we will then open the floor for questions.

During today’s call, we will share forward-looking statements about McKesson’s operations and future results. Please refer to our cautionary statements found in the earnings release, presentation slides on our website at investor.mckesson.com, and the Risk Factors section of our recent annual report and other SEC filings for details on risk factors that may affect our results. We will also discuss non-GAAP financial measures, and reconciliations to GAAP results can be found in today’s earnings release and presentation slides. The slides also summarize our quarterly results and provide updated guidance.

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Now, I will turn the call over to Brian.

Brian Scott Tyler — Chief Executive Officer

Thank you, Rachel, and good afternoon, everyone. I appreciate your participation in our call. Today, McKesson reported strong results for the second quarter, achieving record revenue of $93.7 billion.

Adjusted operating profit rose by 7% to $1.3 billion, with adjusted earnings per diluted share climbing 13% to $7.07. Our cash flow was robust this quarter, enabling us to return more capital to shareholders and invest strategically for our future. We are pleased with the growth in our oncology and biopharma services platforms, as well as the strength in our Pharmaceutical Distribution business. Our priorities continue to guide our strategy and reinforce our effects as a diversified healthcare services organization.

Due to our excellent second quarter performance, we have raised our fiscal 2025 guidance for adjusted earnings per diluted share, now expected in the range of $32.40 to $33, up from the previous range of $31.75 to $32.55. Before discussing business specifics, I want to address the upcoming 2024 presidential and congressional elections. Like many of you, we are closely monitoring these developments and their potential effects on healthcare policy. Our approach remains consistent and pragmatic, and we anticipate collaborating with the new administration and Congress on healthcare matters that matter to us all.

We believe it is our responsibility to utilize our resources to educate and advocate for policies that improve health outcomes for all. Public policy is a significant factor in the ever-evolving healthcare landscape, and it’s vital we navigate it effectively.

To that end, let’s review some key market trends affecting our business. We’ve observed steady pharmaceutical utilization trends, aiding the growth of our distribution operations. Our ClarusONE generic sourcing operation enables competitive pricing and reliable supply. We maintain strong collaborations with suppliers to deliver quality services while ensuring fair compensation for our contributions.

Our oncology platform has seen steady growth in patient visits across the US Oncology Network. Likewise, the Sarah Cannon Research Institute is consistently enrolling more patients, broadening access to innovative clinical trials. This trend strengthens our ability to support community-based providers and improve patient outcomes.

In the biopharma segment, strong demand for our commercialization services continues. This growth is fueled by new brand launches and our strategic expansions into high-growth therapeutic areas. The increasing prevalence of GLP-1 medications and related services exemplifies how we support biopharma in the commercialization aspect.

In the Medical segment, we have established a solid footprint across alternate care sites. The market fundamentals remain intact, suggesting a shift towards these alternate care settings. Nevertheless, we have noted some softness in primary care markets recently, as demand for specific product categories stabilized post-COVID. To address these challenges, we are implementing operational efficiencies and enhancing our distribution capabilities for better customer support.

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McKesson Reports Strong Growth and Strategic Advances in Fiscal Q2

In the face of market challenges, McKesson remains dedicated to sustainable growth with a focus on innovative services and employee well-being.

Let’s explore how McKesson is addressing its company priorities, starting with the importance of a strong workforce.

At McKesson, our employees are essential to our success. We prioritize their development and wellness. In October, employees across McKesson participated in our annual Wellness Day, also known as “Your Day, Your Way.” This company-sponsored day off allows staff to relax and focus on their health as a token of appreciation for their hard work.

An inclusive workplace is crucial to our culture. We recently received recognition as one of the Best Places to Work for Disability Inclusion for the ninth consecutive year, achieving a perfect score of 100.

Next, let’s delve into our core business strategy aimed at sustainable growth. In the U.S. Pharmaceutical segment, we formed a new strategic partnership this quarter, contributing to notable year-over-year growth.

This segment showcases our extensive distribution capabilities and our commitment to operational excellence. October marked the launch of InspiroGene by McKesson, a dedicated business supporting the commercialization of cell and gene therapies. Over the last few years, we’ve been building this initiative, which includes services like third-party logistics and specialty pharmacy support. InspiroGene is a crucial step in tackling the challenges of bringing these complex therapies to the market and enhances our offerings in oncology.

Focusing on oncology and biopharma services, we’re expanding the U.S. oncology network. In September, we signed an agreement to acquire a controlling interest in Core Ventures, a community oncology revitalization initiative established by the Florida Cancer Specialists & Research Institute. This transaction, pending regulatory approval, will result in McKesson owning 70% of Core Ventures, integrating over 530 community providers across Florida into our network, granting them access to our drug purchasing services, clinical trials, and electronic health records.

In addition to Core Ventures, we welcomed Illinois CancerCare and Tennessee Cancer Specialists, adding another 118 providers to our oncology network. Once the Core Ventures deal is finalized, we anticipate the U.S. Oncology Network will provide services for about 3,300 providers across 740 sites in 31 states.

Turning to our biopharma services, we offer technology-driven solutions that improve access to prescription medications, addressing significant patient challenges. Our prior authorization service is one such solution, enabling electronic prior authorizations at the point of prescribing. This helps patients receive their medications nearly 13 days sooner on average. Integrated tech-driven hub services also assist patients after approval, providing a suite of support services.

Our affordability programs, which saved patients over $2 billion in out-of-pocket costs this quarter, include automated coupon services and an electronic prescription platform that enhances medication-processing efficiency.

As we look to modernize our operations, we’re committed to continuous improvement. Recent initiatives include updating our cloud services and leveraging AI and automation to enhance customer interactions. A notable collaboration involves Ontada and Microsoft, utilizing Azure AI to process vast amounts of oncology documents for improved clinical insights.

Additionally, we announced plans to sell our Rexall and Well.ca businesses in Canada, allowing us to concentrate on expanding our core strategic areas. Our commitment to the strength of our Canadian distribution and biopharma sectors remains firm.

In closing, McKesson’s fiscal second quarter shows strong results driven by focused execution. I commend our team for their dedication to advancing our business priorities and driving growth across our pharmaceutical distribution and strategic initiatives.

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McKesson Reports Strong Q2 Results, Driven by U.S. Pharmaceutical Growth and Strategic Initiatives

Britt Vitalone — Executive Vice President, Chief Financial Officer

Thank you, Brian, and good afternoon. As Brian highlighted, we achieved solid results in the second quarter, largely due to strong performance in our U.S. Pharmaceutical segment. Our enterprise strategy has led to impressive operating performance and healthy cash flow.

In Q2, adjusted operating profit rose by 7% to $1.3 billion, while adjusted earnings per diluted share climbed 13% to $7.07 compared to last year. These outcomes exceeded expectations and surpassed our long-term growth targets. Before explaining the adjusted results in detail, I will share three significant updates, starting with our Canadian divestiture.

In September, we announced the sale of our Canada-based Rexall and Well.ca businesses for approximately $148 million, adjusted purchase price. A revaluation of the net assets for this transaction led to a GAAP-only charge of $643 million in the second quarter. Due to held-for-sale accounting, we stopped recording depreciation and amortization on these assets in September, which positively affected our second-quarter results by $0.04 per share. For fiscal 2025, we anticipate held-for-sale treatment will enhance adjusted earnings by approximately $0.15. McKesson Canada will continue operating Rexall and Well.ca until the deal closes, contingent on standard closing conditions and regulatory approvals. After the sale, we will continue to supply wholesale distributions to these businesses.

This transaction allows McKesson to concentrate on expanding our oncology and biopharma services platform. We have a unique distribution capability in Canadian biopharma services, providing solutions that promote better health outcomes. Additionally, we initiated a series of companywide projects aimed at modernizing our operations and enhancing customer satisfaction, which are essential for our long-term growth. These include announced initiatives within the Medical-Surgical segment.

In Q2, we recorded charges of $227 million related to operational modernization, including $147 million connected to the Medical-Surgical cost optimization program. We expect to complete these costs by the end of the first half of fiscal 2026, with a payback period of under two years. Furthermore, the modernization program will focus on enhancing technology and customer engagement, aligning with our growth as a diversified healthcare services company, particularly in oncology and biopharma services.

We foresee considerable savings from these initiatives, anticipating the associated costs will be largely concluded by fiscal 2028. Over the next five years, we expect approximately $250 million in benefits, with an annual run rate of about $100 million by the conclusion of fiscal 2030. Lastly, following Rite Aid’s emergence from bankruptcy in August 2024, we reassessed our previous estimates related to reserved balances, leading to a reversal of $203 million in our U.S. Pharmaceutical segment.

Now, let’s review our adjusted results, starting with the second quarter. Consolidated revenues reached $93.7 billion, reflecting a 21% increase, primarily driven by solid growth in the U.S. Pharmaceutical segment, following the addition of a new strategic partner and increased prescription volumes influenced by retail national accounts and GLP-1 medications. Without accounting for the new strategic partner, consolidated revenues grew 8% compared to last year.

Gross profit stood at $3.2 billion, rising by 7% due to robust specialty distribution growth within the U.S. Pharmaceutical segment and increased distribution volumes linked to our new strategic partner. Operating expenses climbed 7% to $2 billion, reflecting higher costs to support growth within the U.S. Pharmaceutical segment.

We remain committed to effectively managing our cost structure, as shown by our operating expense to gross margin ratio while investing in product innovations and partnerships. Operating profit increased by 7% to $1.3 billion, supported by growth in both the U.S. Pharmaceutical segment and our Canadian distribution business, though partially offset by decreased volumes in the Medical-Surgical Solutions segment.

Interest expense grew to $72 million, attributable to higher average loan balances during the quarter. The effective tax rate stood at 21%, consistent with our guidance, bolstered by recognizing net discrete tax benefits totaling $44 million. The average diluted shares outstanding decreased by 4% to $129.3 million, contributing to a 13% rise in second-quarter earnings per diluted share to $7.07, surpassing our prior guidance expectations.

Shifting to segment results for the second quarter, detailed in Slides 8 through 11, U.S. Pharmaceutical revenues were $85.7 billion, an increase of 23%. This growth arose from heightened prescription volumes, including notable increases in retail national accounts, specialty products, and GLP-1 medication, countered by a decline in expected biosimilar volumes. Our new strategic partner significantly aided this quarter’s growth, while revenue growth excluding this partner was about 8% in the segment.

GLP-1 medication revenues reached $10.4 billion, marking a growth of approximately $3.3 billion or 47% year-over-year. We anticipate continued growth in GLP-1 medications, albeit with fluctuations from quarter to quarter. For the quarter, operating profit increased 11%, reaching $902 million, driven by the distribution of specialty products to health systems and providers, alongside ongoing expansion in our oncology platform.

In our Prescription Technology Solutions segment, revenues climbed to $1.3 billion, reflecting an 11% increase, supported by rising prescription volumes in our logistics and technology services. Segment operating profit also rose by 4% to $218 million, driven by increased demand for our technology solutions and a growing affordability product suite, despite higher investments aimed at future growth.

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McKesson Reports Solid Financial Growth Amid Market Challenges

Quarterly Revenues Dive 4% in Primary Care but Surge Internationally

Revenues rose 4% this quarter to $2.9 billion, largely thanks to increased sales of specialty pharmaceuticals and higher demand related to illness season in the primary care channel. It’s important to note that illness seasons can vary significantly. Factors such as the timing and severity of these seasons influence sales in various products, which include seasonal vaccines, illness testing, foot traffic in clinics, and over-the-counter products. However, the operating profit for the second quarter declined by 4% to $243 million, primarily due to reduced volume levels in primary care compared to the previous year, affected by customer and product mix.

We believe these results align with our expectations. Moving on to our international operations, revenues reached $3.7 billion, marking a 7% increase, while operating profit rose 12% to $100 million. This growth was partly due to heightened pharmaceutical distribution volumes in Canada compared to last year. The second quarter included an earnings increase of $0.04 per share related to the accounting for the planned sale of our Canadian businesses, Rexall and Well.ca.

Corporate Expenses Reflect Investment Strategies

Turning to corporate expenses, we reported $172 million, which included pre-tax losses of $15 million or $0.09 per share from our equity investments within the McKesson Ventures portfolio. In the same period last year, these losses stood at $10 million or $0.06 per share. As previously mentioned, the impact of McKesson Ventures on our financials can vary quarter to quarter based on each investment’s performance.

Let’s discuss cash flow and capital allocation, as shown on Slide 13. We concluded the quarter with $2.5 billion in cash and cash equivalents. Over the quarter, our free cash flow reached $1.9 billion, which included $218 million spent on capital expenditures related to technology and analytics, aimed at supporting our growth priorities. This robust cash flow indicates effective operations and disciplined working capital management. For the second quarter, we returned $1.6 billion to shareholders, which comprised $1.5 billion in share repurchases and $80 million in dividends.

Guidance Hike Signals Confidence in 2025 Financial Outlook

It’s vital to keep in mind that our cash position and working capital metrics can be affected by timing, particularly the day of the week when the quarter ends, leading to potential variability. Now, let’s turn to our fiscal 2025 outlook. Based on our second-quarter performance, we are raising and refining our guidance for fiscal 2025 adjusted earnings per diluted share to a range of $32.40 to $33. We maintain confidence in our varied oncology and biopharma services and the strategy to enhance McKesson as a diverse healthcare services company.

In our U.S. Pharmaceutical segment, our core distribution business continues to show strong value. We project revenue growth between 16% and 19%, with operating profit expected to rise by 9% to 11%. This updated forecast takes into account our strong second-quarter performance and anticipated growth in specialty distribution, particularly from our Plasma and Biologics businesses and retail national accounts.

In July, we began a partnership with a new strategic ally, further validating our distribution strengths and customer value. We expect this collaboration to yield additional revenue in full-year fiscal 2025, which is included in our overall forecast. Additionally, we signed an agreement in September to acquire a controlling interest in Community Oncology Revitalization Enterprise Ventures, or Core Ventures, established by Florida Cancer Specialists & Research Institute.

This $2.49 billion cash transaction will grant us 70% ownership, with financing sourced from a mix of cash and debt. Completion of the deal is subject to customary closing conditions and regulatory approvals. This acquisition is a significant step in expanding our oncology platform, aiming to improve patient access to quality cancer care while managing costs.

Once finalized, Core Ventures will be included in McKesson’s U.S. Pharmaceutical segment. We anticipate that this acquisition will contribute approximately $0.40 to $0.60 per share in the first year after approval, increasing to around $1.40 to $1.60 by year three.

Prescription Technology Solutions Faces Revenue Challenges

No financials from this transaction have been reflected in our updated fiscal 2025 outlook. It is expected to enhance our oncology strategy and offer expanded cancer care access. In the Prescription Technology Solutions segment, we expect revenues to increase 8% to 12%, a slight drop from earlier guidance, with operating profits expected to rise 11% to 15%.

This revised outlook accounts for ongoing product launch delays and slower ramp-up of manufacturer programs in our logistics operations. Despite these challenges, we remain optimistic about achieving operating profit growth at or above our long-term targets. As communicated earlier, we recognize that revenue and profit growth might not proceed in a straight line and can vary each quarter due to several factors, including product launches, utilization trends, and supply chain challenges.

Returning to Medical-Surgical Solutions, we expect revenue growth of 1% to 5%, while operating profit is estimated to align with the lower end of initial projections at 6% to 8%. As market conditions have normalized post-COVID, we’ve observed reduced volumes in primary care, leading to declines in both sales and profit in the first half of the fiscal year. To adapt to these conditions, we’ve implemented business rationalization initiatives aimed at improving operational efficiency and cost optimization.

We believe these changes will lead to approximately $100 million in cost savings during the fiscal year.

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McKesson Corporation Projects Robust Growth Amid Business Realignment

Fiscal 2025 Outlook Shows Strong Revenue and Earnings Increase

Beginning with the third fiscal quarter, McKesson Corporation anticipates a payback period of less than two years. The company’s updated full-year outlook takes into account first-half results, current market trends, and the impact of its earlier announced business rationalization initiatives.

The Medical-Surgical business boasts a comprehensive range of products and services tailored for alternate care sites, driven by a strong customer focus. Confidence remains high in delivering long-term growth through a diversified product portfolio that meets the evolving needs of customers. In the International segment, revenue is expected to rise by 5% to 9%, and operating profit is projected to increase by 16% to 20%. McKesson is particularly pleased with the second-quarter performance of its Canadian distribution business, anticipating ongoing growth through fiscal 2025.

Strategic Business Divestitures and Future Plans

As previously mentioned, McKesson has announced plans to sell its Canada-based Rexall and Well.ca businesses, awaiting customary regulatory approval. This transaction is expected to close during the fiscal fourth quarter. The updated outlook includes an anticipated earnings increase of approximately $0.15 due to held-for-sale accounting related to this sale.

The company is also committed to exiting its European operations, with Norway being the last remaining country where a sale has not been arranged. Contributions from Norway are included in the fiscal 2025 outlook while plans to exit this market are firmly set.

Corporate Financial Projections and Cash Flow Expectations

In the Corporate segment, expenses are expected to range from $510 million to $560 million, which includes an impact of $15 million in losses tied to equity investments within McKesson Ventures during the second quarter. Interest expense is projected to be around $240 million to $260 million, reflecting higher loan balances and increased interest rates. Income from non-controlling interests is anticipated to fall between $180 million and $190 million, driven largely by ClarusONE’s generic sourcing operations.

McKesson forecasts its effective tax rate for the full year to be around 17% to 19%, with the tax rate in the third quarter expected to be higher than in the fourth quarter due to the timing of specific tax items. Free cash flow is projected to be approximately $4.8 billion to $5.2 billion.

Working capital and free cash flow may fluctuate each quarter based on various timings, such as the day marking the close of a quarter. McKesson plans to increase its full-year share repurchases to approximately $3.2 billion from a previous estimate of $2.8 billion. Consequently, they expect the weighted average diluted shares outstanding to be between 127 million and 129 million.

Anticipated Growth Metrics for Fiscal 2025

In concluding guidance for fiscal 2025, McKesson expects revenue growth of 15% to 17% and an operating profit increase of 13% to 15% compared to the previous year. Earnings per diluted share are anticipated to be in the range of $32.40 to $33, reflecting an 18% to 20% growth versus fiscal 2024. The strong execution of strategic growth initiatives is evident in the second-quarter results.

Beyond solid operating performance, the company’s modernization efforts are making McKesson more efficient, leading to distinct competitive advantages. The fiscal 2025 outlook looks promising with continued operational momentum over the second half of the year, coupled with a disciplined approach to capital allocation. McKesson remains committed to investing in long-term opportunities that promise greater returns and bolster shareholder value. Moving forward, the floor is open for a Q&A session.

Questions & Answers:

Operator

Thank you, sir. [Operator instructions] Our first question comes from Lisa Gill with JPMorgan.

Lisa Gill — Analyst

Thanks very much, and good afternoon. I appreciate the details, Britt. I want to focus on key drivers impacting the U.S. Pharmaceutical business.

Recently, we observed changes in Part D affecting out-of-pocket costs for seniors. Can you discuss the specifics of what is driving this higher growth rate? While Part D may not influence Canada, strong volumes there are noted as well.

Britt Vitalone — Executive Vice President, Chief Financial Officer

Thank you for your question, Lisa. We’ve experienced consistent growth in utilization trends over several quarters. No significant changes were noted this quarter compared to those in the last few months. In our U.S. Pharmaceutical segment, we are pleased to have onboarded a new strategic partner, reflecting our broad set of services and capabilities.

The expansion of our specialty capabilities and product sales to specialty providers has continued to improve. Additionally, our oncology platform has grown, highlighted by the inclusion of 118 new providers year-to-date, which enhances our growth dynamics.

Rachel Rodriguez — Vice President, Investor Relations

Next question, please.

Operator

Next, we have Kevin Caliendo with UBS.

Kevin Caliendo — Analyst

Thank you for the opportunity. There has been considerable volatility within the RxTS and Medical segments. Has forecasting this become more challenging? Although guidance for revenues has decreased, it seems income remains steady. Is there a reason for this resilience in EBIT despite recent cost-cutting on the medical side?

Britt Vitalone — Executive Vice President, Chief Financial Officer

Thanks for bringing that up. It’s important to note that numerous factors create variability from quarter to quarter. Some key influencers include utilization trends, the timing of new product launches, delays in product rollouts, and supply chain shortages, among others. We monitor these elements closely, appreciating the impact they have on our overall business performance.

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McKesson Corporation Discusses Growth and Strategic Changes in Latest Earnings Call

Company Shows Consistent Annual Growth Amid Some Revenue Outlook Adjustments

McKesson Corporation’s consistent annual growth continues, even as it navigates challenges within its 3PL business segment. Despite recent product delays, which have been attributed to regulatory and customer issues, the company projects only modest changes to its revenue outlook. The 3PL sector accounts for roughly 50% of McKesson’s revenue within this segment, though it contributes less than 5% to the annual operating profit (AOP) guidance.

Insights from Leadership on Financial Performance

Rachel Rodriguez, Vice President of Investor Relations, facilitated the call, which included analyst Daniel Grosslight from Citi. Grosslight praised McKesson’s performance and shifted the focus towards the Med-Surg segment. He inquired about the guidance suggesting a significant increase in adjusted operating profit, asking for clarity on the company’s expectations from the second to the fourth quarter, as well as its long-term outlook.

Britt Vitalone, Executive Vice President and Chief Financial Officer, responded by highlighting improved performance in the Med-Surg business, particularly in primary care, which showed signs of growth late in the second quarter. The company anticipates about 20% growth in the second half of the year compared to the first half, underpinned by cost-saving measures expected to reach around $100 million.

Long-Term Perspective on Healthcare Trends

Brian Scott Tyler, Chief Executive Officer, shared his insights regarding the broader trends impacting the healthcare market. He noted that McKesson is well-positioned to navigate cost pressures in healthcare, particularly with an increasing focus on lower-cost care settings. Tyler emphasized the company’s extensive product range and its commitment to maintaining its growth trajectory over the long term, despite short-term fluctuations.

Strategic Moves in Community Oncology

Charles Rhyee from TD Cowen turned the discussion to US Oncology, especially in light of the acquisition of Florida Cancer Specialists (FCS). He sought information on the market share McKesson is expected to capture post-acquisition and the strategy implemented for deciding on new acquisitions versus partnerships within the oncology field.

Tyler disclosed that McKesson has a long-standing commitment to community-based oncology, with a focus on delivering accessible and high-quality care. The approach includes acquiring practices or forming agreements to expand their network, tailored on a case-by-case analysis of each market’s dynamics.

Future of Biosimilars in McKesson’s Portfolio

An inquiry from Brian Tanquilut of Jefferies brought attention to the biosimilar landscape. Vitalone acknowledged that the introduction of biosimilars has impacted McKesson’s guidance. He shared insights into how biosimilars enhance clinical choices and patient value, indicating the potential for improved margins in specialty provider areas such as oncology.

McKesson remains committed to harnessing its capabilities to adapt and thrive within the changing healthcare market.

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McKesson Discusses Growth Strategies and Recent Acquisitions in Investor Call

In a recent earnings call, McKesson executives highlighted significant opportunities for growth within their business segments, particularly in biosimilars and oncology services.

Opportunities in Biosimilars

Executives reiterated their belief in the potential for increased margins by expanding their services. They specifically noted the growing market for biosimilars, especially in Medicare Part B, as a promising avenue. The ongoing development and introduction of biosimilars will enable McKesson to enhance its capabilities, thereby providing greater value to their services.

Long-Term Financial Guidance Remains Steady

When questioned on long-term guidance, Britt Vitalone, Chief Financial Officer, confirmed that the target for consolidated adjusted operating profit remains stable at 6% to 8%. There were no adjustments made to their financial targets, which reflects a commitment to maintaining consistent growth in operating income.

Acquisition Insights: Florida Cancer Specialists

Addressing the acquisition of Florida Cancer Specialists, Brian Scott Tyler, Chief Executive Officer, shared insights on the integration process. He emphasized that any new practice added to their network must meet stringent criteria, ensuring that all entities benefit from shared best practices. This approach not only enhances the practice being integrated but also fosters a culture of continuous learning and improvement across the US Oncology Network.

Managing Inventory and Market Demands

As questions about inventory management arose, Britt Vitalone explained the fluctuating demand for GLP-1 medications. He highlighted McKesson’s focus on aligning their working capital management with customer demand, ensuring that they meet supply needs effectively while maintaining efficiency in their operations.

InspiroGene: A New Venture in Cell and Gene Therapy

Regarding the new InspiroGene business segment, Brian Scott Tyler expressed excitement about its potential. Esteemed for its innovative approach, InspiroGene aims to consolidate various capabilities within McKesson to address complex supply chains and patient support needs associated with cell and gene therapies. As these therapies evolve, McKesson anticipates offering more support and solutions to streamline their integration into the market.

Product Sourcing and Differentiation

In response to inquiries about product sourcing, Brian Scott Tyler outlined McKesson’s strategy regarding its medical product mix. While specific percentages were not disclosed, he emphasized the importance of product differentiation and customer preference over merely competing on price. This strategic focus is designed to strengthen the company’s market position in the long run.

Looking Forward

The discussion concluded with a clear message about McKesson’s commitment to leveraging their capabilities and acquiring new advancements to enhance their market presence. With a structured approach to growth, McKesson aims to navigate the evolving healthcare landscape effectively.

Growth Strategies in Private Labels and Oncological Care: Key Insights from Recent Earnings Call

Private Label Expansion: Striking the Right Balance

The company is focused on increasing its private label products by sourcing them under its own brand. The commitment to grow private labels arose from a desire to offer customers choices. For those who prefer national brands, those options will remain available. Meanwhile, a strong emphasis on private labels will cater to consumers seeking value and quality. Although exact figures on the growth of private brands aren’t disclosed for competitive reasons, management confirmed ongoing investments in their expansion.

Rachel Rodriguez — Vice President, Investor Relations

Next question, please.

Operator

Our next question comes from George Hill with Deutsche Bank.

George Hill — Analyst

Good evening. I have a question regarding Sarah Cannon. Could you please share the current percentage of oncologists leveraging the Sarah Cannon relationship compared to six months or a year ago? What can you tell us about the impact of this partnership on practices concerning patient access to clinical trials?

Brian Scott Tyler — Chief Executive Officer

The participation of USON clinicians in clinical trials is on the rise. This growth follows a strategic restructuring as part of our joint venture initiative. We aimed to create a framework that fosters better collaboration between USON and SCRI to boost participation rates. This alignment not only benefits our company but also enhances patient care in local communities by providing convenient access to advanced treatments.

We expect this upward trend to continue in the coming years.

Britt Vitalone — Executive Vice President, Chief Financial Officer

To quantify that growth, the number of accruals has increased by approximately 20% since our joint venture began, which reflects our focus on enhancing patient care.

Rachel Rodriguez — Vice President, Investor Relations

Next question, please.

Operator

Our next question comes from Allen Lutz with Bank of America.

Allen Lutz — Analyst

Good afternoon. Britt, can you elaborate on the performance of ClarusONE? You noted growth this quarter, especially with an influx of new clients. How should we interpret the timing of generic contract benefits in terms of our P&L versus working capital?

Britt Vitalone — Executive Vice President, Chief Financial Officer

Adding a major client will indeed boost our joint venture’s volume. Our approach to partnering with over 200 clients through ClarusONE involves various strategies. We aim to optimize costs while ensuring sufficient supply chains. We’re exploring long-term agreements to stabilize product availability, which ultimately enhances cost-efficiency and service reliability for our customers.

Rachel Rodriguez — Vice President, Investor Relations

Next question, please.

Operator

And our next question comes from Erin Wright from Morgan Stanley.

Erin Wright — Analyst

Thanks for your insights. Regarding Med-Surg, there seems to be a noted normalization in utilization. Excluding the anticipated $100 million in savings, can you discuss the growth trends and factors contributing to subdued growth? Are seasonal illnesses impacting this? Could you also provide an update on cost-saving initiatives?

Britt Vitalone — Executive Vice President, Chief Financial Officer

A lot is indeed happening here. The cost-saving initiatives are just beginning to take shape in the third quarter, but we are optimistic about achieving around $100 million in savings in the latter half of the year. Seasonal illnesses have varied year-to-year, and while we’re seeing some normalization, it’s essential to note that illness patterns can be unpredictable. Last year presented a milder illness season compared to previous years. We anticipate that the trends for the remainder of the year will resemble the first half, especially concerning the severity of illnesses.

Rachel Rodriguez — Vice President, Investor Relations

We can take one more question.

Operator

Lastly, we have Michael Cherny with Leerink Partners.

Michael Cherny — Analyst

Good afternoon. Regarding RxTS ramp-up dynamics, I understand quarterly fluctuations are normal. However, as you analyze this ramp-up leading to year-end, where do you believe you have the most influence compared to external market conditions?

McKesson’s Second Quarter Results Show Positive Trends for Future Growth

CEO Highlights Seasonal Growth and Business Stability

Brian Scott Tyler — Chief Executive Officer

Thank you. I’d like to share a few points about our outlook. First, our visibility into current programs and their growth paths comes from evaluating our sales pipeline. As a reminder, we will experience our typical seasonal boost during the second half of the year due to the blizzard season.

This seasonality typically drives growth similar to what we witnessed last year, aiding our overall performance. While Britt pointed out that third-party logistics (3PL) can introduce some revenue volatility, we don’t expect this to significantly impact our Annual Operating Plan (AOP).

Considering the progress we’ve made thus far in the year, we feel confident about the second half of our fiscal year. Thank you for joining the call, and I truly appreciate your insightful questions.

Commitment to Business Excellence and Employee Dedication

Lisa, I’d like to thank you for facilitating this call. McKesson has reported strong outcomes in our fiscal second quarter. The improved guidance for fiscal 2025 reflects our confidence in the resilience of our business, as well as our commitment to our strategic priorities.

I must acknowledge the hard work of our over 50,000 employees. Their consistent efforts and dedication to our customers illuminate our mission: Together, we aim to enhance healthcare in every environment, one product, one partner, and one patient at a time.

Thank you once again for joining us despite the distracting news around us. I wish you all a wonderful evening.

Operator

[Operator signoff]

Duration: 0 minutes

Call Participants:

Rachel Rodriguez — Vice President, Investor Relations

Brian Scott Tyler — Chief Executive Officer

Britt Vitalone — Executive Vice President, Chief Financial Officer

Lisa Gill — Analyst

Kevin Caliendo — Analyst

Daniel Grosslight — Analyst

Brian Tyler — Chief Executive Officer

Charles Rhyee — Analyst

Brian Tanquilut — Analyst

Elizabeth Anderson — Evercore ISI — Analyst

Eric Percher — Analyst

Stephanie Davis — Analyst

Stephen Baxter — Wells Fargo Securities — Analyst

George Hill — Analyst

Allen Lutz — Analyst

Erin Wright — Analyst

Michael Cherny — Analyst

More MCK analysis

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