McKesson Corporation — FY2024 Form 10-K
Reporting period: Fiscal year ended March 31, 2024. Although the request metadata references “2023 Q4,” this filing reports the full fiscal year, with comparisons to fiscal 2023; it does not provide standalone fourth-quarter results.
Business context
McKesson is a healthcare services and distribution company operating in U.S. Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International. U.S. pharmaceutical distribution is the largest business. The company completed major European divestitures in fiscal 2023; its remaining European operations are primarily in Norway.
Financial performance
| Metric | FY2024 | FY2023 | Change |
|---|---|---|---|
| Revenue | $308.951 billion | $276.711 billion | +12% |
| Gross profit | $12.828 billion | $12.358 billion | +4% |
| Gross margin | 4.15% | 4.47% | Down 32 basis points |
| Operating income | $3.909 billion | $4.381 billion | Down 11% |
| Net income attributable to McKesson | $3.002 billion | $3.560 billion | Down 16% |
| Diluted EPS from continuing operations | $22.39 | $25.05 | Down 11% |
| Cash from operations | $4.314 billion | $5.159 billion | Down $845 million |
Revenue growth was primarily driven by U.S. Pharmaceutical, including specialty drug growth, higher retail national-account volumes, and branded drug price increases. Gross profit benefited from specialty pharmaceuticals, a $157 million LIFO credit, $244 million of antitrust settlement proceeds, and higher RxTS technology services. These gains did not prevent margin compression.
Segments
- U.S. Pharmaceutical: Revenue $278.739 billion, up 16%; operating profit $2.786 billion, down 13%. Results included a $725 million Rite Aid bad-debt provision and a $74 million opioid-related charge.
- RxTS: Revenue $4.769 billion, up 9%; operating profit $835 million, up 48%, helped by higher customer volumes and a $78 million contingent-consideration valuation gain.
- Medical-Surgical Solutions: Revenue $11.313 billion, up 2%; operating profit $952 million, down 15%, partly reflecting lower COVID-19 vaccine-related activity and costs supporting growth.
- International: Revenue $14.130 billion, down 31%, mainly due to European divestitures; operating profit was $319 million versus $136 million, partly because the prior year included disposal-related charges.
Financial position and capital resources
- Cash and cash equivalents were $4.583 billion at March 31, 2024. Total debt was $5.629 billion, including $50 million current and $5.579 billion long-term debt.
- Working capital was negative $4.387 billion, compared with negative $3.665 billion a year earlier. The filing attributes the change mainly to higher accounts payable and other accrued liabilities, partly offset by higher receivables and inventory.
- McKesson reported a 124.0% debt-to-capital ratio, up from 120.5%. The measure reflects total debt relative to debt plus McKesson stockholders’ deficit.
- Operating cash flow was $4.314 billion; investing activities used $1.072 billion and financing activities used $3.342 billion. Capital spending was $431 million for property and equipment and $256 million for capitalized software.
- The company returned $3.3 billion to shareholders: $3.0 billion in share repurchases and $314 million in dividends. It raised its quarterly dividend to $0.62 per share and had $6.6 billion of repurchase authorization remaining at year-end.
- Management said cash, operating cash flow, short-term investments, credit facilities, commercial paper, and other borrowing sources should be sufficient for expected needs. The $4.0 billion revolving credit facility was undrawn, and the company reported compliance with debt covenants.
Material changes, outlook, and risks
- Rite Aid bankruptcy: McKesson recorded a $725 million bad-debt provision following Rite Aid’s October 2023 bankruptcy. Management said reserves reflected information then available and may be reassessed.
- Opioid matters: The estimated liability was $6.8 billion at March 31, 2024, including $665 million expected to be paid within twelve months. The company paid $544 million during FY2024. Significant unresolved claims remain, and management said the ultimate range of possible losses cannot be reasonably estimated for all matters.
- Other unusual items: FY2024 included a $248 million net discrete tax benefit, including a $157 million valuation-allowance release and tax benefits associated with intellectual-property transfers. Antitrust settlement proceeds were $244 million, compared with $129 million in FY2023. FY2023 also included significant gains from investment and tax-receivable-agreement exits and interest-rate-swap termination, making year-over-year comparisons less straightforward.
- Customer and supplier concentration: CVS represented approximately 28% of FY2024 revenue and 24% of trade receivables. The ten largest customers represented about 69% of revenue. The ten largest suppliers represented about 67% of purchases.
- Other exposures: Risks include healthcare pricing and reimbursement changes, including Inflation Reduction Act implementation; regulation and controlled-substance compliance; cyber incidents and technology interruptions; supply disruptions; customer credit; competition and consolidation; foreign exchange; and ongoing litigation. A proposed hospital opioid settlement reflected in the liability remained subject to final terms, board and court approval, and sufficient participation. A separate proposed settlement of up to $114 million with certain third-party payors had not been accrued as probable.
- Guidance: The 10-K does not state FY2025 numerical guidance; it directs readers to the May 7, 2024 Form 8-K earnings release. Management anticipated continuing quarterly dividends, but future payments remain subject to board discretion.
Key facts for investors to verify
- Review the May 7, 2024 Form 8-K for FY2025 outlook, assumptions, and any non-GAAP reconciliations.
- Track U.S. Pharmaceutical operating profit and margin after the Rite Aid provision, and assess future customer credit exposure.
- Monitor opioid settlement payments, unresolved claims, and whether proposed hospital or third-party-payor resolutions become final.
- Assess cash conversion and working-capital movements, especially receivables, inventory, and accounts payable.
- Evaluate the quality and repeatability of reported earnings, including LIFO credits, antitrust proceeds, discrete tax benefits, and acquisition-related valuation gains.
- Consider concentration risk: CVS’s share of revenue and the reliance on a small group of customers and suppliers.
Controls and audit
Deloitte & Touche issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting. Management and the auditor concluded that internal control over financial reporting was effective as of March 31, 2024. The auditor identified the uncertain tax position related to opioid claims as a critical audit matter.