Britt Vitalone
Executive Vice President and Chief Financial Officer at McKesson
Thank you, Brian. We're pleased with our second quarter results which reflect another quarter of solid performance driven by operational execution and meaningful growth in our U.S. Pharmaceutical and Prescription Technology Solutions segments.
Before I turn to our consolidated results, I want to highlight one item that impacted our second quarter GAAP only results. We recorded a pretax GAAP provision for bad debts of $210 million or $155 million after tax within the U.S. Pharmaceutical segment for uncollected trade accounts receivable related to Rite Aid bankruptcy. We anticipate recording an additional provision for bad debts of $511 million in the third quarter of fiscal 2024 for trade accounts receivable that McKesson recognized from sales to Rite Aid in October 2023 prior to its bankruptcy petition.
We continued to provide distribution services to Rite Aid post their bankruptcy filing, providing the same efficiency and operational excellence as we have for over 20 years. We're operating pursuant to an interim agreement for distribution services which is pending final court approval and includes reduced credit terms of seven days and certain other items as Rite Aid continues to reorganize. We are closely monitoring developments and we anticipate this customer event will not have a material impact to our fiscal 2024, adjusted earnings per diluted share results, our liquidity position and ongoing business operations. The remainder of my comments refer to our fiscal 2024 adjusted results unless I state otherwise.
Let me start with a review of our second quarter results. McKesson delivered solid growth in the second quarter, led by strong performance in U.S. Pharmaceutical and Prescription Technology Solutions segments. Our focus and execution against our Company priorities position us to generate consistent, solid financial results while continuing to evolve and grow our diversified portfolio through focused strategic investments in oncology and biopharma services. As a result of our operating performance and outlook for the remainder of the fiscal year, we are increasing and narrowing our full year outlook for fiscal 2024 adjusted earnings per diluted share to a range of $26.80 to $27.40.
Moving to our consolidated results. Revenues increased 10% to $77.2 billion, led by growth in the U.S. Pharmaceutical segment resulting from increased prescription volumes, including higher volumes from retail national account customers, specialty products and GLP-1 medications, partially offset by lower revenues in the International segment resulting from fiscal 2023 divestitures of certain testing European businesses. Excluding the impact of our European business operations and completed divestitures, revenue increased 15%.
Gross profit was $3 billion for the quarter, a decrease of 1%. And when excluding the impact of our European business operations and completed divestitures, second quarter gross profit increased 8%, primarily a result of growth in the U.S. Pharmaceutical and Prescription Technology Solutions segments.
Operating expenses decreased 2% in the quarter. And when we exclude the impact of our European business operations including completed divestitures, operating expenses increased 9% year-over-year, which included approximately 2% from cost related to the second half fiscal 2023 acquisitions of Rx Savings Solutions and the joint venture with Sarah Cannon Research Institute.
Second quarter operating profit increased 1% to $1.2 billion, again primarily driven by growth in our U.S. Pharmaceutical and Prescription Technology Solutions segments. This was partially offset by slower growth in our Medical-Surgical Solutions segment, including lower illness season testing and the completed divestitures of our European business operations within the International segment. If we exclude the impact of COVID-19 related items of fiscal 2023 and losses associated with McKesson Ventures equity investments in fiscal 2023 and 2024, operating profit increased 12% in the quarter.
Moving below the line, the effective tax rate was 23.5%, which included the recognition of a net discrete tax expense of $12 million. Second quarter diluted weighted average shares outstanding was $134.8 million, a decrease of 6% year-over-year. Consolidated second quarter earnings per diluted share was $6.23, which represents an increase of 3% over the prior year. Excluding COVID-19 related items during the second quarter of fiscal 2023 and losses within our McKesson Ventures portfolio in fiscal 2023 and 2024, second quarter earnings per diluted share was up 14% over the prior year.
Turning to our second quarter segment results, which can be found in Slides 7 through 11 and starting in U.S. Pharmaceutical. The U.S. Pharmaceutical segment delivered continued momentum and strong operating profit growth. Our ability to drive sustainable growth in this segment reflects a few factors.
The efficiency of our scale distribution operations, the investments that we're making to unlock new capabilities that will further expand and strengthen our value proposition for our customers and partners, a balanced approach to managing a broad portfolio of pharmaceutical products inclusive of ClarusONE generic sourcing operations bolstering our competitive position and enabling a nimble approach to customer demands, new product launches and market movements and continued investment and expansion in our broad oncology platform.
We are pleased with the growth momentum across our oncology assets from provider solutions in the U.S. Oncology Network, data and insights through Ontada and expanded clinical trial capabilities through our Sarah Cannon Research Institute joint venture. These assets contributed to revenue and operating profit results in the quarter, which exceeded our expectations.
Second quarter revenues were $69.8 billion, an increase of 16% year-over-year. Revenue growth reflected increased prescription volumes, including higher volumes from retail national account customers, specialty products and GLP-1 medications. These increases were partially offset by branded to generic conversions. The growth of GLP-1 medications provided a revenue tailwind in the quarter.
As a reminder, we generally recognize lower margin rates for the distribution of GLP-1 medications in the U.S. Pharmaceutical segment. In our Prescription Technology Solutions segment, the growth of GLP-1 medications like other new brand launches has led to increased demand for our access solutions such as prior authorization services.
Second quarter U.S. Pharmaceutical operating profit increased 8% to $815 million, driven by growth in the distribution of specialty products and increased contributions from our generic programs. When excluding the impact of COVID-19 vaccine distribution in the second quarter of fiscal 2023, the U.S. Pharmaceutical segment delivered operating profit growth of 15% year-over-year.
Moving to Prescription Technology Solutions. The strong results in the second quarter demonstrate the success of our product portfolio and the partnership with biopharma manufacturers that we've developed over the years. The strength of our differentiated capabilities and partnerships positions McKesson to capture demand driven by strong prescription utilization trends, including the growth of GLP-1 medications.
For the second quarter, revenues increased 12% year-over-year to $1.1 billion and operating profit increased 48% to $209 million. Second quarter results reflect increased prescription transaction volumes, which drove higher demand for our access solutions primarily related to prior authorization services and growth in our third-party logistics business. The year-over-year growth also included higher operating expenses in the second quarter of fiscal 2023, which resulted from the timing of increased headcount to support customer annual verification activities. In Medical-Surgical Solutions revenues were $2.8 billion in the quarter, which was flat to the prior year, resulting from anticipated lower sales of COVID-19 tests and lower contribution from kitting, storage and distribution of ancillary supplies for the U.S. Government's COVID-19 vaccine program. The anticipated lower COVID-19 related revenues were partially offset by growth in the extended care business and increased distribution of pharmaceuticals in the primary care business.
Operating profit was $254 million, a decrease of 17%, driven by anticipated lower contributions from kitting, storage and distribution of ancillary supplies for the U.S. government's COVID-19 vaccine program and lower sales of COVID-19 tests. When excluding the impact of COVID-19 related items in the second quarter of fiscal 2023, segment delivered operating profit growth of 5% driven by increased volumes of nutritional supplements in the extended care business.
Based on IQVIA and other market indications, the second quarter exhibited moderating primary care market volumes. The Medical-Surgical Solutions second quarter growth rate reflects these market indications, which was partially related to a slower start to the illness season including illness season testing when compared to the prior year.
Next, let me address our International results. Revenues in the second quarter were $3.5 billion, a decrease of 44% year-over-year and operating profit was $89 million, a decrease of 35%. Second quarter results reflect the year-over-year effects of the completed divestitures within our European business.
Wrapping up our segment review, corporate expenses were $159 million in the quarter, an increase of 10% year-over-year. During the quarter, we had losses of $10 million or $0.06 per share related to equity investments within the McKesson Ventures portfolio compared to losses of approximately $3 million in the second quarter of fiscal 2023. As a reminder, the McKesson Ventures portfolio holds equity investments in several growth stage digital, health and services companies. We're pleased with the insights and the results that we are obtaining through this portfolio. The impacts on consolidated financials can be influenced by the performance of each individual investment hold with core [Phonetic]. And as a result, McKesson's investment may result in gains or losses, the timing and magnitude of which can vary for each investment.
Turning now to cash flows and capital deployment which can be found on Slide 12. We ended the quarter with $2.5 billion in cash and cash equivalents. We delivered free cash flow of $825 million in the second quarter and $4.3 billion for the trailing 12 months. Our cash balance and free cash flow in the second quarter included payments totaling $529 million associated with settlement agreements for opioid related claims.
As a reminder, our cash position, working capital metrics and 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. During the first six months of the fiscal year, we made $264 million of capital expenditures, which included investments in new and existing distribution centers as well as investments in technology, data and analytics to support our growth priorities. Year-to-date, we returned $1.7 billion of cash to shareholders, which included $1.5 billion of share repurchases and $149 million in dividend payments.
Now let me discuss our updated outlook. As a reminder, we do not provide forward-looking guidance on a GAAP basis. The following metrics are provided on an adjusted non-GAAP basis. The guidance I'm providing today relates to fiscal 2024. Our outlook [Phonetic] assumptions can be found in Slides 13 through 17 and our supplemental slide presentation.
Let me start with the outlook for our segments. For the full year, we now anticipate U.S. pharmaceutical revenues to increase 13% to 15% and operating profit to increase 6% to 8% year-over-year. Excluding the impact of COVID-19 vaccine distribution in fiscal 2023, we anticipate operating profit to increase 11% to 14%. This updated segment outlook incorporates the strong second quarter performance as well as further growth in our generic sourcing programs and specialty distribution, including our differentiated plasma and biologics business.
Our full year outlook assumes that volumes related to GLP-1 medications will remain elevated compared to the prior year and may vary quarter to quarter. We anticipate that consolidate GLP1 medication revenue and operating profit growth compared to prior year will slow in our fiscal fourth quarter reflecting the inflection of volumes for these medications in the fourth quarter of fiscal 2023. We anticipate GLP-1 medications will continue to be a revenue tailwind for U.S. Pharmaceutical.
However, distribution of these medications has a lower distribution margin rate profile and represents a headwind to prior-year results. In the Prescription Technology Solutions segment, we anticipate revenue growth of 7% to 13%. We have increased our operating profit growth outlook to 18% to 22%, reflecting strong momentum in our Access Solutions and strong first half performance. We may continue to see quarter-to-quarter variability in this segment driven by prescription and transaction volumes, the timing, pace and trajectory of new product drug launches, the timing and size of investments to support and expand our product portfolio and the annual verification programs that we provide for our customers that occur in our fiscal fourth quarter.
Our Medical-Surgical Solutions segment remains well positioned across all alternate site channels with unmatched scale, product assortment and capabilities. In the Medical-Surgical Solutions segment, we anticipate revenues to be approximately a 2% decline to 2% growth and operating profit to decrease 12% to 16%. For the full year, we anticipate volumes of COVID-19 tests to continue to decline compared to fiscal 2023 and the impact from COVID-19 related items will remain immaterial to fiscal 2024 results.
Excluding the impact of COVID-19 related items from fiscal 2023 results, we anticipate operating profit to increase 5% to 7% year-over-year. Our outlook incorporates the second quarter results which I discussed earlier. We anticipate the general market moderations in primary care foot traffic, in part driven by a modest illness season, may persist through the remainder of fiscal 2024.
Additionally, first half fiscal 2023 results benefited from an extended illness season, which did not repeat in fiscal 2024.
Our outlook includes continued investments in our scale distribution network, adding state-of-the-art automation regulatory capabilities to serve the breadth of our customer base. These distribution network investments support the breadth of our non-acute customers and broader cold chain [Phonetic] distribution, for example COVID vaccines for physician offices. We also anticipate further investments in data and analytics to expand the channel reach for our medical supplies, pharmaceuticals and private brand product portfolio.
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 a loss of operating profit contribution from European businesses and transactions that we closed during fiscal 2023. In the Corporate segment, we anticipate expenses to be in the range of $600 million to $660 million, which includes losses associated with McKesson Ventures equity investments recorded in the first half of the year and elevated technology spend to support the growth of our businesses.
Moving below the line, we anticipate the full year effective tax rate to be approximately 18% to 19%. The timing of discrete tax items is difficult to predict and therefore we typically do not provide quarterly effective tax rate guidance. However, our outlook includes recognition of a discrete tax benefit in our fiscal third quarter. As a result, we anticipate the third quarter tax rate to be lower as compared to the fourth quarter. And finally, we now anticipate income attributable to non-controlling interest to be in the range of $155 million to $175 million, reflecting ClarusONE generic sourcing success.
Turning to cash flow and capital deployment, we anticipate free cash flow of approximately $3.7 billion to $4.1 billion. Our outlook incorporates plans to repurchase approximately $3.5 billion of shares. As a result of the share repurchase activity, we estimate weighted average diluted shares outstanding to be in the range of approximately $134 million.
In summary, as a result of solid performance in the second quarter of fiscal 2024, combined with our outlook for the remainder of the fiscal year, we are increasing and narrowing our earnings per diluted share outlook for fiscal 2024 to a new range of $26.80 to $27.40. We anticipate operating profit will be flat to 4% decline compared to the prior year. When excluding certain items, we anticipate operating profit increase by 6% to 10% year-over-year.
As a reminder, certain items include the following, net gains and losses associated with McKesson Ventures equity investments in fiscal 2023 and 2024, a $0.65 benefit related to the early termination of the tax receivable agreement with Change Healthcare in fiscal 2023 and $1.90 related to COVID-19 related items in our U.S. pharmaceutical and medical surgical segments in fiscal 2023. We anticipate the impact of COVID-19 related items will be immaterial to fiscal 2024 when compared to fiscal 2023. The increase to our outlook for adjusted earnings per diluted share indicates earnings per diluted share growth of 14% to 17% when excluding these certain items.
When further excluding the contribution from the run-off of our European operations, earnings per diluted share growth is indicated at 18% to 20% for the full year. We also anticipate the fiscal third quarter to be stronger than the fiscal fourth quarter based on the development of prescription transactions, patient visits, internal investments and the recognition of discrete tax benefit in the third quarter.
In closing, we are pleased with our strong first half performance. The momentum across the business, including growth in our oncology and biopharma services platforms, positions us to deliver for our customers and our partners and to create sustainable shareholder value. With that, let's move to the Q&A.
