Britt Vitalone
Executive Vice President and Chief Financial Officer at McKesson
Thank you, Brian, and good afternoon. As Brian mentioned, McKesson had another solid quarter with earnings per share results that exceeded our expectations, resulting in an increase to our full year guidance. These results reflect the continued growth in our US Pharmaceutical segment, including our leading oncology and specialty capabilities and our Canadian pharmaceutical distribution operations within the International segment.
I'm also pleased that our Board of Directors approved two actions in July. First, a 15% increase to the quarterly dividend to $0.71 per share, marking the 8th consecutive year of dividend increases. And second in additional $4 billion of share repurchase authorization, bringing the total share repurchase authorization to approximately $10 billion as of July of 2024. These actions demonstrate the confidence that the Board and management have in the execution of our strategic priorities as we continue to focus on capital deployment to drive value for our shareholders.
My comments today refer to our adjusted results unless I state otherwise. I'll start with a consolidated results, followed by a review at the segment level and conclude with an update on our outlook. Consolidated revenues were $79.3 billion, an increase of 6%, led by growth in the US Pharmaceutical segment, resulting from increased prescription volumes, including higher volumes from specialty products, retail national account customers and GLP-1 medications.
Gross profit was. $3.1 billion, an increase of 4%, primarily a result of specialty distribution growth within the US Pharmaceutical segment, including our provider solutions business and higher distribution volumes in our Canadian business included in the International segment. These were partially offset by lower contributions from the primary care channel in the Medical-Surgical Solutions segment.
Operating expenses increased 7% to $1.9 billion, principally to support growth in the US Pharmaceutical segment. Year-over-year results were also impacted by increased technology investment across the enterprise and the lapping of prior year integration costs result related to the SCRI joint venture and Rx Savings Solutions. Operating profit was $1.3 billion, an increase of 12%, driven by $110 million of pre-tax gains associated with McKesson Ventures' equity investments included in corporate expenses, compared to pre-tax losses of $7 million in the first quarter of fiscal 2024. Year-over-year results benefited from continued growth in the US Pharmaceutical segment, partially offset by lower volumes across the primary care channel in the Medical-Surgical Solutions segment.
Interest expense was $70 million, an increase over the prior year, resulting from higher average balances of our loan, loan portfolio throughout the quarter and a prior year gain on debt extinguishment of $9 million. The effective tax rate for the quarter was 13%, driven by the recognition of net discrete tax benefits of $125 million in the quarter. As a reminder, we had a net discrete tax benefit of $147 million in the first quarter of the prior year. As we've discussed previously, we provide annual effective tax rate guidance as the timing and amount of discrete tax items are difficult to predict.
First quarter diluted weighted average shares outstanding was 130.7 million, a decrease of 4%. Wrapping up our consolidated results, earnings per diluted share increased 8% to $7.88, ahead of our expectations driven by pre-tax gains associated with McKesson Ventures' equity investments, a lower share count and operating profit growth in the US Pharmaceutical segment.
Turning to first quarter segment results, it can be found on Slide 7 through 11 and starting with US Pharmaceutical. US Pharmaceutical segment delivered solid revenue and operating profit growth. Once again, first quarter results demonstrate the continued momentum across all customer segments and our ability to drive sustainable, long-term growth. Revenues were $71.7 billion, an increase of 7%. Revenue growth reflects positive utilization trends, leading to increased prescription volumes, including higher volumes from specialty products, retail national account customers and GLP-1 medications.
In the quarter, revenues for GLP-1 medications were $8.8 billion, an increase of approximately $1.8 billion, or 26%, when compared to the prior year. On a sequential basis, revenues for GLP-1 medications increased $1.3 billion, or 17%, as supply constraints moderated in the quarter. We anticipate continued GLP-1 medication growth year-over-year, however, with variability from quarter-to-quarter.
For the quarter, operating profit increased 6% to $815 million, driven by growth in the distribution of specialty products to providers and health systems. Within the US Pharmaceutical segment, our comprehensive platform of leading oncology assets continues to grow and deliver value for customers and patients. Our ongoing investments in the oncology platform further differentiate our capabilities. More than 2,600 providers in the US Oncology Network, continued to experience solid growth with same site visits, increasing 6% in the quarter.
US Oncology Network has further strengthened by a set of broad capabilities, including provider solutions, GPO services, data and insight through Ontada and clinical trial capabilities through our Sarah Cannon Research Institute joint venture, which includes clinical trial matching and accelerated clinical trial setup. We remain excited about our leading and differentiated oncology offerings and intend ongoing investment to sustain the growth and progress we're seeing against our strategic priorities.
Moving to Prescription Technology Solutions. Prescription Technology Solutions segment delivered revenues of $1.2 billion, an operating profit of $223 million, both flat to the prior year. First quarter results reflect growth across our technology services, products, including increased demand for our affordability solutions, including growth in eVoucher and ePrescribe. Revenue included 18% sequential growth in third-party logistics. However, these results were lower than anticipated due to drug product launch delays, which had an approximately 7% impact on segment revenue growth in the quarter.
Operating profit was impacted by lower contributions from our access solutions, due to the mix of transactions and services we provide across our access program and higher expenses to support future growth across the business. We remain confident that the segment operating profit will grow at or above the long-term growth target rate on an annual basis.
Turning to Medical-Surgical Solutions. First quarter results in the segment were below our expectations. Revenues were $2.6 billion, an increase of 1%. And operating profit was $200 million, a decrease of 15%. These results were driven by higher volumes of specialty pharmaceuticals, offset by lower volumes across the primary care channel, including customer mix and product demand shifts and the lapping of prior year nutritional product strength in the extended care channel.
Next, let me address our International results. Revenues were $3.7 billion, an increase of 6%. And operating profit was $102 million, an increase of 13%, driven by higher pharmaceutical distribution volumes in the Canadian business compared to the prior year. In wrapping up our segment review, corporate expenses were $35 million in the quarter, which included pre-tax gains of $110 million or $0.62 per share related to equity investments within the McKesson Ventures' portfolio, compared to pre-tax losses of $7 million, or $0.04 per share in the first quarter of fiscal 2024.
As we've previously discussed, McKesson Ventures' impact on consolidated financials can be influenced by the performance of each individual investment quarter-to-quarter, which may result in gains and losses, the timing and magnitude, which can vary for each investment.
Let me turn to cash and capital deployment, which can be found in Slide 12. We ended the quarter with $2.3 billion in cash and cash equivalents. For the first quarter, we had negative free cash flow of $1.5 billion, which included $167 million in capital expenditures. In the quarter, free cash flow was impacted by the timing of tax payments and working capital investments to support the onboarding of new customers in US Pharmaceutical segment.
We returned $609 million of cash to shareholders, which included $527 million of share repurchases, and $82 million in dividend payments. As a reminder, our cash position, working capital metrics and the resulting cash flows can each be impacted by timing, which includes the day of the week that a quarter ends on and therefore can vary from quarter-to-quarter.
Now let me discuss our fiscal 2025 outlook. We continue to make progress against our strategic priorities, leveraging our broad capabilities across the enterprise. As a result of our first quarter performance and confidence in the outlook over the balance of the year, we are raising our guidance range for fiscal 2025 adjusted earnings per diluted share to $31.75 to $32.55. Looking ahead to the remainder of fiscal 2025, we remain confident in our differentiated oncology and biopharma services assets and our strategy to advance McKesson as a diversified healthcare services company.
Let me start with our segments. In the first quarter, we experienced strong momentum across our US Pharmaceutical segment, including our broad oncology offerings. The breadth of our capabilities in leading portfolio of assets across oncology have led to value creation for our customers, partners and shareholders over the last five years. Our fiscal 2025 outlook for the US Pharmaceutical segment is a continuation of this momentum.
Our outlook also contemplates the impact of the distribution contract with Optum, that went into effect in July of 2024. Thanks to dedicated effort from our employees. We delivered a seamless onboarding experience in July. As we previously outlined, startup costs associated with this contract implementation were not material to first quarter results. However, we made investments in working capital during the quarter in advance of the contract start date. We are pleased to expand our pharmaceutical distribution relationship with Optum. And this is a testament to our leading distribution and sourcing capabilities, including our strong customer value proposition.
We now anticipate US Pharmaceutical revenues will increase 13% to 16%. When compared to prior guidance, we anticipate lower contribution from branded pharmaceuticals, which includes lower volumes for HUMIRA, and we anticipate operating profit to increase 8% to 10%. In the Prescription Technology Solutions segment, we anticipate revenues to increase 14% to 18%, and operating profit to increase 11% to 15%, a modest decline from the prior guidance. The updated outlook for the segment reflects the lower-than-anticipated first quarter results and the impact of product launch delays.
During the first quarter, demand for our access solutions, including prior authorization volumes related to GLP-1 medications, demonstrated a slower rate of growth compared to the prior year, including the mix of transactions and services across our various access programs. And volatility, driven in part by product delays and shortages. These results were lower than our expectations in the first quarter.
As we previously communicated, we remain confident in the long-term growth rate targets on an annual basis. However, we anticipate the growth trajectory in this segment will vary from quarter-to-quarter, driven by several factors that include utilization trends, the timing and trajectory of new product drug launches, the evolution of a products program support requirements as it matures, which could result in the shift to other services or a program termination, product delays and supply shortages, the annual verification programs that we provide for our customers that occur in our fiscal fourth quarter, and the size and timing of investments to support and expand our product portfolio.
We see solid market demand for our differentiated suite of solutions and services that help improve patients access affordability and adherence to medication, as well as help to support biopharma manufacturers throughout the life cycle of their products. We continue to build differentiated, technology-enabled solutions that can seamlessly be used in the workflow of payers providers and pharmacies, and we remain confident that our market-leading assets, depth of services and capabilities and continued investment in innovation, position us for growth in line or modestly above our long range targets.
Moving to Medical-Surgical Solutions. We anticipate revenues to increase 3% to 7%, in operating profit to be at the low end of the initial guidance range of 6% to 8%. Over the last few years, including the period covering COVID, the Medical-Surgical environment has been dynamic and experienced volatility across the customers and products within the primary care channel and sites of care. McKesson's unparalleled breadth of services and capabilities led to strong performance.
As market conditions have normalized, we've noted instances of general market weakness in the primary care channel. This led to lower sales and operating profit contributions in the first quarter. Our updated full year outlook reflects the results from the first quarter and the trends we are seeing in the market. We anticipate that these trends will continue through the second quarter.
As Brian noted in his remarks, in response to the market conditions, today, we are announcing a series of initiatives within the Medical-Surgical Solutions segment to drive operational efficiencies and increase cost optimization efforts. In addition to delivering improved operating performance, these actions will result in greater alignment across the organization, while continuing to invest to better serve our customers, partners and patients.
We'd estimate total charges between $100 million and $150 million, consisting primarily of employee severance and other employee-related costs, facility and other exit-related costs as well as long-lived asset impairments. This restructuring program is anticipated to be substantially complete by the end of the first half of fiscal 2026. These initiatives will lead to improved margins, a streamlined infrastructure, and operating leverage.
We anticipate the benefits from this program will begin in the second half of this fiscal year. We are well positioned with leading assets and capabilities across all the alternate sites of care, and we remain confident in our ability to continue delivering long-term growth.
Finally, in the International segment. We anticipate revenues to increase 4% to 8%, in operating profit to increase 8% to 12%. We are pleased with the first quarter performance in our Canadian business and anticipate continued growth in fiscal 2025. We also remain committed to exit Norway, as part of the completion of our European exit. As a reminder, Norway remains the only operating country in Europe that we have not yet entered into an agreement to sell. Contributions related to operations in Norway are included in the fiscal 2025 outlook for the segment.
In the Corporate segment, we anticipate expenses to be in the range of $495 million to $555 million, which incorporates the impact of $110 million of pre-tax gains related to equity investments within the McKesson Ventures' portfolio in the first quarter, as well as increased technology spend. We're pleased with the development and contributions from our enterprise technology organization, including the pace-over technology investments focused on supporting growth, innovation and efficiency. Our investments in AI will continue to focus on improving the customer experience.
We continue to evaluate the enterprise technology operating model approach to effectively support the development of our strategy and needs of the organization, our customers and partners. We anticipate an increased level of investment in the technology operating model, to accelerate the organization and improve business continuity, compliance and operating efficiency.
Wrapping up our outlook. We anticipate interest expense to be approximately $245 million to $265 million, reflecting the impact from increased average balances of the company's loan portfolio and higher interest rates throughout the first quarter and our outlook for the remainder of fiscal 2025. We anticipate income attributable to non-controlling interest to be in the range of $175 million to $185 million, reflecting the success of ClarusONE's generic sourcing operations.
And we anticipate the full year effective tax rate will be in the range of approximately 17% to 19%, reflecting the positive discrete tax items recognized in the first quarter. As a reminder, the timing and amount of discrete tax items are difficult to predict, and therefore, we do not provide quarterly effective tax rate guidance.
Turning to cash flow and capital deployment. We anticipate free cash flow of approximately $4.8 billion to $5.2 billion. Our working capital metrics and resulting free cash flow will vary from quarter-to-quarter impacted by timing, including the day of the week that marks the close of the quarter. Our guidance reflects plans to repurchase approximately $2.8 billion of shares in fiscal 2025.
As a result of the share repurchase activity, we estimate weighted average diluted shares outstanding to be in the range of approximately 128 million to 130 million. We will continue to execute our disciplined capital allocation strategy, creating value for our shareholders. This discipline has led to a return on invested capital approaching 28%.
Wrapping up fiscal 2025 guidance. We anticipate revenue growth of 13% to 15% and operating profit growth of 10% to 15%, as compared to the prior year. Fiscal 2025, we anticipate earnings per diluted share of $31.75 to $32.55, which represents growth of 16% to 19%, as compared to fiscal 2024. Our guidance assumes that the first half of the fiscal year will deliver less contribution than previously anticipated, with the second half delivering approximately 53% of the full year earnings.
In closing, our fiscal 2025 outlook incorporates continued momentum across the business. We remain confident in our leading positions in growth pillars across oncology and biopharma services platforms. We are confident the actions we are taking now will sustain the growth we have delivered over the past several years. We have a strong and stable financial foundation, which positions us to execute on our capital allocation strategy. We remain positioned to deliver for our customers and our partners and to create sustainable shareholder value.
With that, we can move to the Q&A.
