By Warren.AI in May 2025 — May 9, 2025

MCKESSON CORP (MCK)

McKesson Corporation’s fiscal 2025 10-K shows 16% revenue growth to $359 billion, driven by specialty drug volume, retail national accounts, and international distribution. Gross profit rose 4% to $13.3 billion, with a 3.71% margin (–44 bp) impacted by LIFO inventory charges. Operating income was...

McKesson Corporation’s Fiscal 2025 10-K Review: A Deep Dive into the Numbers, Strategy, and Risks

McKesson Corporation (NYSE: MCK) has long been a giant in healthcare distribution and technology services. In its annual Form 10-K filing for the year ended March 31, 2025, McKesson posted strong top-line growth and solid profitability, even as it contends with ongoing legal and regulatory challenges. This post walks you through the most important aspects of the filing from segments and financial performance to legal contingencies and strategic initiatives, and offers an investment “score” to help inform your portfolio decisions.

U.S. Pharmaceutical
Prescription Technology Solutions (RxTS)
Medical-Surgical Solutions
International

Profitability & Margins
Cash Flow & Balance Sheet Health
Restructuring & Strategic Initiatives
Contingent Liabilities & Legal Risks
Outlook & Investment Score

1. Business Overview & Segments

McKesson traces its roots to 1833 and operates through four reportable segments:

U.S. Pharmaceutical: Distribution of branded, generic, specialty, biosimilar, and OTC drugs to pharmacies, hospitals, and clinics. This segment also provides clinical support and technology services to specialty practices.
Prescription Technology Solutions (RxTS): Medication access, affordability, and adherence solutions, including e-prior authorization, drug price transparency, logistics services, and more.
Medical-Surgical Solutions: Distribution of medical-surgical supplies and equipment to physician offices, ambulatory centers, long-term care, and home health agencies.
International: Wholesale and retail pharmacy distribution businesses in Canada (IDA, Guardian, etc.) and Norway.

A corporate unit houses centralized functions, investments, and costs not allocated to segments.

2. 2025 Financial Highlights

Revenues: $359.1 billion (+16% YoY)

Gross Profit: $13.3 billion (+4% YoY) | Margin: 3.71% (down 44 bp)

Operating Income: $4.42 billion (+13% YoY)

Net Income (Adj.): $3.30 billion (attributable to McKesson) | EPS: $25.72 (+15%)

Free Cash Flow: Operating cash flow of $6.1 billion

Share Repurchases: $3.1 billion

Dividend: $2.75 per share ($0.71/qtr.)

Capital Expenditures: $859 million

Net Debt: $5.7 billion in cash vs. $5.7 billion in total debt

EPS Growth: Primarily driven by revenue expansion, disciplined cost control, and share repurchases. Diluted share count declined 4% YoY due to buybacks.

3. Segment Performance

U.S. Pharmaceutical

Revenues: $327.7 billion (+18%)
Operating Profit: $4.00 billion (+44%) | Op. Margin: 1.22% (+22 bp)

Drivers:

Volume expansion from retail national accounts
Specialty drug growth (oncology, biologics)
~$444 million in antitrust settlement receipts

Challenges:

Branded‐to‐generic conversions
Last-in, first-out (LIFO) inventory charge ($82 million vs. $157 million credit a year ago)
$108 million opioid reserve expense

Prescription Technology Solutions (RxTS)

Revenues: $5.22 billion (+9%)
Operating Profit: $875 million (+5%) | Op. Margin: 16.78% (down 73 bp)

Drivers:

Higher technology services volume
Growth in third-party logistics for specialty pharma

Year-Ago Benefit: $78 million fair-value adjustment gain on contingent consideration (Rx Savings acquisition)

Medical-Surgical Solutions

Revenues: $11.39 billion (+1%)
Operating Profit: $773 million (–19%) | Op. Margin: 6.79% (down 163 bp)

Drivers & Challenges:

May 2025 announced spin-off plan to focus on core healthcare businesses
Margin pressure from restructuring charges ($204 million) to streamline operations

International

Revenues: $14.72 billion (+4%)
Operating Loss: $(213) million vs. $319 million profit a year ago

Key Items:

Sold Rexall & Well.ca in Canada • $667 million fair-value remeasurement expense (net)
Norway operations steady; divestiture of European businesses largely complete

4. Profitability & Margins

Gross Margin: 3.71% vs. 4.15% last year
Impact of LIFO inventory charges: $82 million charge in 2025 vs. $157 million credit in 2024
Specialty drug mix lifts absolute gross profit, but margin contraction remains a theme in distribution
SG&A Ratio: 2.37% of revenues vs. 2.75% last year
Op. Margin: 1.23% vs. 1.27% last year
Tax Rate: 20.1% vs. 16.6% last year
FY25 included a $258 million discrete tax benefit for foreign IP transfers
FY24 benefited from $157 million valuation allowances released

Bottom Line: 15% EPS growth on 16% revenue growth = margin stability, disciplined expense management, and buybacks.

5. Cash Flow & Balance Sheet Health

Operating Cash Flow: $6.09 billion (+41% YoY)
CapEx: $537 million on PP&E and $322 million on software

Free Cash Flow: ~ $5.2 billion

Dividend Payout: $345 million Share Buybacks: $3.15 billion (+4 million shares)

Debt Profile:

Short-term commercial paper fluctuations
$500 million of 5.25% Notes (2026) redeemed in November 2024 using cash and new 4.25% Notes (2029)
Total debt of $5.65 billion vs. cash of $5.69 billion
Debt/total capital ~125%

Liquidity: $4 billion revolver undrawn

6. Restructuring & Strategic Initiatives

Cost Optimization Program: $650–700 million total charges expected through ⁠2028:

FY25 charges – $344 million
Employee severance • facility exits • asset impairments

Key M&A & Divestitures:

Closed PRISM Vision acquisition in April 2025 (ophthalmology)
Core Ventures (oncology support) closing Q1 2026
$667 million charge to sell Canadian retail (Rexall/Well.ca)
European exit largely complete

Long-Term Growth Focus:

Specialty care, biopharma services, oncology platform
Technology & AI investments

7. Contingent Liabilities & Legal Risks

Opioid Litigation

Global opioid lawsuits across U.S. states, municipalities, Native American tribes, and payors
Reserve as of March 31, 2025: $6.4 billion
Payable over 12–16 years
FY25: $108 million expense in segment; FY24: $149 million

Other Litigation

Ongoing antitrust, False Claims Act, environmental, and other claims
Legal costs expensed as incurred

Risk Insight: Uncertain outcomes—an adverse ruling or settlement adjustment could impact earnings.

8. Outlook & Investment Score

Opportunities

Scale & Moat in drug distribution (U.S. $3.3 trillion healthcare market)
Growing Specialty and technology (AI, real-world data, patient support)
Cash Flow funds buybacks, dividends, and M&A

Risks

Legal Exposure ($6.4 billion opioids + environmental + antitrust)
Margin Squeeze from PBM & insurer pressure, LIFO charges
Execution of M&A, global macro, regulatory uncertainty (e.g., IRA drug pricing rules)

Fiscal 2026 Guidance: Balanced growth in segments, focus on free cash flow, leverage near-term restructuring benefits.

Investment Score—7.2/10:
Stable cash flows and growth in high-value segments earn McKesson a solid grade, but significant legal contingencies and margin headwinds keep it from a perfect score.

McKesson remains a core holding for income-seeking investors and those targeting healthcare distribution and tech exposure, provided you’re comfortable with the pipeline of litigation risk.

Disclosure: This blog post is for informational purposes only and does not constitute financial advice.