Britt Vitalone
Executive Vice President & Chief Financial Officer at McKesson
Well, thank you, Brian. Today, I'll discuss our fourth quarter and full year fiscal 2023 results and then I'll provide an overview of our fiscal 2024 outlook including our updated long-term adjusted segment operating profit growth targets. My comments today will refer to our fiscal 2023 adjusted results, unless I state otherwise. We delivered strong fourth quarter results. Earnings per diluted share was $7.19, an increase of 23% compared to the prior year. These results were right in line with the guidance we provided on our third quarter earnings call. Our results demonstrate the breadth of McKesson's strength as a leading diversified healthcare services company with strong performance in growth in each of our core operating businesses.
For the full year, earnings per diluted share increased 9% year-over-year to $25.94, driven by a lower share count and growth in the U.S. Pharmaceutical segment, partially offset by lower contributions in the International segment as a result of the completed divestitures of McKesson's European businesses. Full year earnings per diluted share also included $2.36 related to the following certain items, which can also be found on Slide 23 in the appendix to our earnings presentation; $0.78 related to the U.S. government centralized COVID-19 vaccine distribution program; $1.12 related to COVID-19 tests and the kitting, storage and distribution of ancillary supplies for the U.S. government; $0.65 related to the early termination of the Tax Receivable Agreement or TRA with Change Healthcare; and $0.19 related to net losses associated with McKesson Ventures equity investments.
Excluding these certain items, earnings per diluted share increased 15% year-over-year, above our previously communicated long-term growth rate target. Our strong full year results are broad-based and reflect our ongoing commitment to deliver sustainable growth and long-term shareholder value. Before I turn to our consolidated results, I want to highlight one item that impacted our fourth quarter GAAP only results. We remain focused on strategically managing the company to deliver differentiated customer value as well as long-term financial growth and profitability.
In support of delivering sustainable value, innovation and growth, during the fourth-quarter of fiscal 2023, we announced a broad set of initiatives to simplify our infrastructure, drive operational efficiencies and increase cost optimization. These initiatives include headcount reductions and the exit or downsizing of certain facilities. During the fourth quarter, we recorded charges of $16 million related to these initiatives, which include severance and other employee-related costs within our Prescription Technology Solutions segment, asset impairments and accelerated depreciation, including certain asset impairments primarily within our U.S. Pharmaceutical segment and real estate charges within corporate. We anticipate total charges of approximately $125 million within our Prescription Technology Solutions and U.S. Pharmaceutical segment as well as corporate to be substantially completed by the end of fiscal 2024.
Moving now to our consolidated results. Our consolidated revenues increased 4% to $68.9 billion in the fourth quarter and for the full year increased 5% to $276.7 billion. Fourth quarter and full year results were driven by growth in the U.S. Pharmaceutical segment, including increased specialty product volumes from retail national account customers, partially offset by lower revenues in the international segment as a result of the completed divestitures of McKesson's European businesses. Excluding the impact of the European business operations, including these completed divestitures, revenues increased 13% in the fourth quarter and 12% in the full year when compared to fiscal 2022.
Gross profit was $3.1 billion for the quarter, a decrease of 8%. For the full year, gross profit was $12.2 billion, a decrease of 7%. Excluding the impact of our European business operations and completed divestitures, gross profit increased 9% in fourth quarter and 8% in the full year, primarily as a result of growth in the U.S. Pharmaceutical and Prescription Technology Solutions segments. Operating expenses decreased 14% in the quarter and 13% for the full year, largely driven by completed European divestitures in our international segment and lower opioid litigation costs. Excluding the impact of our European business operations and the completed divestitures, operating expenses increased 8% in both the fourth quarter and the full year.
Fourth quarter operating profit increased 4% to $1.3 billion, driven by growth in the U.S. Pharmaceutical segment including solid contributions from our generics program and Prescription Technology Solutions growth more than offsetting the impact from completed divestitures in the International segment. Full year operating profit increased 3% to $5 billion, primarily led by growth in our North American businesses, partially offset by these completed divestitures in our international segment and lower contributions from COVID-19 related items year-over-year. When excluding the impact related to the distribution of COVID-19 related products, a pre tax benefit of $126 million related to the early termination of the TRA with Change Healthcare in the third quarter and net gains or losses associated with McKesson Ventures equity investments, operating profit increased 9% in the fourth quarter and 8% for the full year when compared to fiscal 2022.
Moving below the line. Interest expense was $70 million in the quarter and $239 million for the full year. The increase was primarily due to impacts from higher interest rates. Effective tax rate was 12.9% for the quarter and 18.8% for the full year in line with our original guidance. As a reminder, our effective tax rate can vary quarter-to-quarter, driven by our mix of income and the timing of discrete tax items. Wrapping up our consolidated results, fourth quarter diluted weighted average shares outstanding was 138 million, a decrease of 8% year-over-year.
Turning to our fourth quarter and full year segment results, which can be found on slides 7 through 12 and starting with U.S. Pharmaceutical. For U.S. Pharmaceutical business, it's a scaled efficient business and comprises the breadth and depth of services and capabilities, including our growing oncology platform and we're pleased with the momentum in this segment. Fourth quarter revenues were $61.7 billion, an increase of 15% year-over-year, driven by growth across all customer segments, including increased volume of specialty products, higher volumes from retail national account customers and market growth, which was partially offset by branded to generic conversions.
Fourth quarter operating profit increased 10% to $861 million and for the full year increased 6% to $3.1 billion, driven by growth in the distribution of specialty products to providers and health systems and increased contributions from our generics program. We remain pleased with the performance of our generics program led by stable market fundamentals and the strength of our sourcing operations. We continue to provide solid value to our customers and partners delivering low cost and stable supply.
Our contract with the U.S. government for COVID-19 vaccine distribution provided an operating profit benefit of approximately $21 million or $0.11 per share in the fourth quarter compared to $12 million or $0.06 per share in the fourth quarter of the prior year. For the full year, this contract provided a benefit of $149 million or $0.78 per share compared to $186 million or $0.89 per share in fiscal 2022. When excluding the impact of COVID-19 vaccine distribution, U.S. Pharmaceutical segment delivered operating profit growth of 9% in the fourth quarter and 8% for the full year compared to fiscal 2022 results, which were ahead of the segment's long-term growth target.
In the Prescription Technology Solutions segment, fourth quarter revenues were $1.2 billion, an increase of 16% year-over-year, driven by growth in prescription volumes in our third-party logistics business and access and adherence solutions transaction volumes. First quarter operating profit increased 35% to $218 million and full year operating profit increased 15% to $679 million, driven by growth in access and affordability solutions. Fourth quarter results were also positively impacted by annual customer verification support activities as well as increased volume growth, partially due to the commercial success of the brands we serve.
Through a comprehensive suite of solutions and services, McKesson helped patients access to their medicine over 24 million times in the fourth quarter, the highest number of patients assisted in the segment's history. The segment produced strong fourth quarter results and full year performance was in line with our original guidance.
Moving now to Medical-Surgical Solutions. In the fourth quarter, revenues were $2.7 billion, a decrease of 6% year-over-year and operating profit was $248 million, a decrease of 17%. For the full year, operating profit declined 4% to $1.2 billion. Fourth quarter and full year results were impacted by lower sales of COVID-19 tests and lower contribution from kitting, storage and distribution of ancillary supplies, the U.S. government's COVID-19 program, partially offset by growth in the primary care business including favorable sourcing activities in illness season testing compared to the prior year.
Contribution from COVID-19 tests and our contract with the U.S. government for the kitting, storage and distribution of ancillary supplies provided a total benefit of $31 million or $0.16 per share in the fourth quarter compared to $85 million or $0.42 per share in the fourth quarter of fiscal 2022. For the full year, COVID-19 related items provided a benefit of $216 million or $1.12 per share compared to $371 million or $1.78 per share in fiscal 2022. When excluding the impact of COVID-19 related items, the segment delivered operating profit growth of 2% in the fourth quarter and 13% for the full year compared to fiscal 2022 results, which was at the upper end of the original guidance range that we provided.
Next, let me address our international results. Revenues in the fourth quarter were $3.4 billion, a decrease of 61% year-over-year and operating profit was $80 million, a decrease of 46%. On an FX adjusted basis, fourth quarter revenues were $3.6 billion, a decrease of 58% and operating profit was $88 million, a decrease of 40%. For the full year, operating profit on an FX adjusted basis decreased by 22%. Fourth quarter and full year results reflect the year-over-year effects and the completed divestitures within our European businesses.
In wrapping up our segment review, corporate expenses were $149 million in the quarter, a decrease of 19% year-over-year. For the full year, corporate expenses were $457 million, a decrease of 21%, which included a pre tax benefit of $126 million related to the early termination of the Tax Receivable Agreement or TRA with Change Healthcare in the third quarter. Corporate expenses in the fourth quarter and full year were positively impacted by lower opioid-related expenses compared to the prior year.
During the quarter, we had net losses of $12 million or $0.06 per share related to equity investments within the McKesson Ventures portfolio compared to net losses of approximately $6 million or $0.03 per share in the fourth quarter of fiscal 2022. For the full year, McKesson had net losses related to equity investments within our McKesson Ventures portfolio of approximately $36 million or $0.19 per share. This compares to net gains of approximately $98 million or $0.47 per share for the full year fiscal 2022.
As a reminder, McKesson Ventures portfolio hold equity investments in several growth stage digital health and services companies and we're pleased with the insights and the results we've obtained through this portfolio. The impacts on 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. Excluding the benefit from the early termination of the TRA and net gains and losses within the McKesson Ventures portfolio, corporate expenses decreased 23% and 19% in the fourth quarter and full year, respectively.
Turning now to our cash position and capital deployment, which can be found on Slide 13. For the fiscal year, we generated record cash flow reflecting the broad-based strength of our businesses, the focus on working capital efficiency and disciplined capital investments. For the full year, we generated $4.6 billion in free cash flow, including $558 million of capital expenditures, which included investments to support our strategic pillars of oncology and biopharma services as well as investments in our distribution centers.
We used our strong balance sheet to return $3.6 billion to shareholders through share repurchases, including a $138 million in the fourth quarter. During the quarter, we entered a new share repurchase program, which allows up to $1 billion of new repurchases. I'll speak about our share repurchase guidance for fiscal 2024 in few minutes. Additionally, we paid dividends of $292 million for the full year and we remain committed to growing the dividend in line with earnings growth.
When combining share repurchases with dividends paid, we returned approximately 85% of free cash flow to shareholders in fiscal 2023. We continue to utilize capital deployment as a method to drive value for our shareholders. Since the beginning of fiscal 2019, we returned $12.9 billion of cash to shareholders through share repurchases and dividends. Of this amount, approximately $11.5 billion has been returned through share repurchases. We do see our total shares outstanding by approximately 33%. Our strong operating performance combined with our return of capital to shareholders reinforces our commitment to driving shareholder value.
Now let me spend a few minutes discussing our outlook for fiscal 2024. As a reminder, we do not provide forward-looking guidance on a GAAP basis. So the following metrics are provided on an adjusted non-GAAP basis. Rather than outlining each assumption. I'll instead walk you through the key items, beginning with additional details of fiscal '24 consolidated guidance. A full list of our assumptions can be found on slides 14 through 19 in our supplemental slide presentation.
Fiscal '23 was a strong year where we exceeded our full year operating profit, earnings per share and cash flow guidance that we laid out at the beginning of May last year. These results have increased our confidence in our outlook. Strategies that we've discussed today are delivering and we expect that they will continue to deliver strong levels of operating profit, earnings per share growth and robust cash flow generation. We anticipate earnings per diluted share of $26.10 to $26.90 for fiscal '24, which contemplates operating profit growth across each of our core operating businesses when excluding COVID-19 related items supplemented by disciplined capital deployment.
We anticipate earnings per diluted share to increase 11% to 14% in fiscal '24 when excluding $1.90 related to COVID-19 related items, $0.19 of net losses associated with McKesson Ventures equity investments and $0.65 benefit related to the early termination of the TRA with Change Healthcare in fiscal 2023. Let me start by discussing our approach to COVID-19 related items in our fiscal '24 outlook. Since the onset of the pandemic, McKesson has played a central role in providing support for the U.S. government's distribution of COVID-19 vaccines in the kitting, storage and distribution of ancillary supplies as well as providing the distribution of COVID-19 tests to our customers.
Looking ahead to fiscal 2024 and the scheduled completion of our COVID-19 contracts with U.S. government in July of 2023, we anticipate that the impact from COVID-19 related items including COVID-19 tests will be immaterial to fiscal '24 results. As such, we will no longer provide earnings per diluted Share guidance metrics specific to these items going forward.
Let me discuss the outlook for our segments. We continue to be pleased with the growth we're seeing in the U.S. Pharmaceutical segment. The value proposition of our core distribution platform resonates across retail, health systems and provider settings and we anticipate growth across several customer channels. We also anticipate further growth in oncology platform. U.S. Oncology Network, the largest oncology practice management organization in the U.S., is continuing to expand its footprint into local communities to increase the availability of advanced care and better patient outcomes. We continue to grow the provider footprint with over 2,300 providers in the network.
We formed a joint venture with the Sarah Cannon Research Institute in fiscal 2023. This partnership enhances our proposition to biopharma company and further advances our differentiated offerings across the entire pharmaceutical lifecycle. Additionally, in fiscal '24, we anticipate branded pharmaceutical price increases to be in line with increases experienced in fiscal 2022. We do not anticipate the higher price increases that we saw in fiscal '23 to repeat in fiscal '24. Within our generics business, the fundamentals remain competitive, yet stable with our strong sourcing program continuing to provide value for our customers.
Wrapping up the U.S. Pharmaceutical segment, for fiscal '24, we anticipate revenue to increase 9% to 11% and operating profit to be approximately flat to 3% growth year-over-year. When excluding the impact of COVID-19 vaccine distribution from fiscal 2023, we anticipate operating profit increase 5% to 8%. In the Prescription Technology Solutions segment, we anticipate revenue growth of 7% to 13% and operating profit growth of 11% to 15% reflecting continued organic growth and higher transaction volumes across our access and affordability solutions and services.
Within the Prescription Technology Solutions segment, our 3PL services typically represent slightly more than half of full year revenues. Corporate services represented less than 10% of full year operating profit on average for the previous three fiscal years. I've stated previously the mix of revenue in this segment can vary quarter-to-quarter. However, over the balance of a full year, we anticipate full year product mix in fiscal '24 to be consistent with prior years. In fiscal '23, we also acquired Rx Savings Solutions, which helps employers and health plans reduce prescription drug costs by utilizing its advanced analytics capabilities.
We're pleased with this acquisition's progress and we'll continue its integration during fiscal '24 as we begin to realize the value from the synergies. This segment continues to perform well with higher revenue and margin opportunities that leverage our scale and technology capabilities. The strong growth profile over the last few years reflects our ongoing strategic investments to grow and expand our suite of products and solutions to provide next-generation patient access, affordability and adherence solutions that are automated and integrated in the provider workflows.
In the Medical-Surgical Solutions segment, we anticipate reported revenues to be approximately a 1% decline to 3% growth and operating profit to decrease 5% to 11%. Medical-Surgical business remains well-positioned to leverage the breadth and depth of its services throughout the alternate site market, including growth in the primary care business and lab solutions. Our contract with the U.S. government for the kitting, storage and distribution of ancillary supplies ends in July of 2023 and we expect the remaining impact of this contract to be immaterial to fiscal '24 results.
And while we anticipate a modest contribution from COVID-19 tests, we anticipate volumes to continue to decline and be at a lower level compared to fiscal '23 and immaterial to fiscal '24 results. Excluding the impact of these COVID-19 related items from fiscal '23 results, we anticipate operating profit to increase 11% to 15% year-over-year. Finally, in the international segment, we anticipate revenues to decline by 30% to 34% and operating profit to decline by 23% to 29%. 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 during fiscal '24. We continue to explore strategic alternatives to exit our remaining operations in Norway and as I mentioned on our third quarter earnings call, we intend to deploy capital through share repurchases to offset any dilution resulting from the European divestitures.
Now turning to cash-flow and capital deployment. Our North American businesses continue to generate strong free cash flow and our capital allocation priorities remain unchanged. We continue to be focused on profitable growth and efficient deployment of capital. Our 24% return on invested capital illustrates our focus on shareholder value creation. Our strong balance sheet provides us the flexibility to pursue multiple capital allocation priorities concurrently. We will continue to prioritize growth through organic opportunities, however, increasingly through acquisitions that are on strategy and appropriate multiples.
For fiscal '24, we anticipate free cash flow of approximately $3.7 billion to $4.1 billion net of property, acquisitions and capitalized software expenses. We also remain committed to returning capital to our shareholders. Our outlook incorporates plans to repurchase approximately $3.5 billion of shares in fiscal '24. As a result of the share repurchase activity, we estimate weighted average diluted shares outstanding for fiscal '24 to be in the range of approximately 133 million to134 million. Combining all these elements leads to adjusted earnings per share of $26.10 to $26.96. And excluding the impact of COVID-19 related items and the contribution from our remaining European operations in Norway, we anticipate earnings per diluted share growth of approximately 14% to 18% in fiscal '24, which is above the long-term target rate we previously provided. This strong outlook further demonstrates our shareholder value creation framework. We continue to be focused on profitable growth and efficient deployment of capital.
Turning now to our long-term adjusted segment operating growth targets, which can be found on Slide 19. As COVID-19 related contracts with U.S. government or scheduled to end in July of 2023 and the contribution from Europe continue to run off as guided, we remain committed to executing against our strategic initiatives and building out our differentiated assets and capabilities. As a result, we are pleased to be raising our long-term growth targets as a demonstration of the execution of our strategies, our leading market positions and strong financial position. For U.S. Pharmaceutical, we anticipate 5% to 7% long-term growth, which is up from 4%. For Prescription Technology Solutions, 11% to 12% long-term growth, up from 11% and the Medical-Surgical Solutions 10% to 12% long-term growth, up from 10%. With our strong underlying momentum and our line focus and the many growth opportunities moving forward, we remain confident we'll continue to deliver long-term sustainable growth to provide superior value for our customers, team members and shareholders alike.
In conclusion, we are well-positioned in the market with the unique strength and scale that only McKesson can provide. We will continue to invest in our strategies as we expand the reach of our oncology ecosystem and biopharma services platform. As fiscal 2023 demonstrated, our strategies are working producing value for all stakeholders. We have tremendous momentum across the business, a strong financial outlook and our financial framework and execution position us to deliver sustainable profit growth, cash flows and shareholder value creation. We have great confidence in our teams, in our products and services and in our strategy.
With that, let me now turn it back over to the operator for your questions.
