Rachel Rodriguez:

Thank you, Operator. Good afternoon and welcome everyone to McKesson's fourth quarter fiscal 2024 earnings call. Today I'm joined by Brian Tyler, our Chief Executive Officer, and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question-and-answer session. Today's discussion will include forward looking statements such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's earnings release and presentation slides available on our website at investor.mckesson.com and to the Risk Factors section of our most recent annual and periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward looking statements. Information about non-GAAP financial measures that we will discuss during this webcast, including a reconciliation of those measures to GAAP results, can be found in today's earnings release and presentation slides. Presentation slides also include a summary of our results for the quarter and guidance assumptions. With that, let me turn it over to Brian.

Britt Vitalone:

Great. Thank you Brian and good afternoon everyone. Fiscal 2024 marks another year of strong execution and financial performance. We enter fiscal 2025 with a momentum to deliver growth and create value for our customers, partners and shareholders. Today, I'll discuss our fourth quarter and full year fiscal 2024 results. Then I'll provide an overview of our fiscal 2025 outlook. My comments today will refer to our adjusted results unless I state otherwise. We're exiting fiscal 2024 with solid performance, delivering earnings per diluted share of $6.18 in the fourth quarter and $27.44 for the full year. Our fourth quarter results were in line with our expectations and with the earnings per diluted share guidance range that we provided on our third quarter earnings call, demonstrating our ability to consistently execute against company priorities and create long-term sustainable value for our shareholders. For the full year, when excluding fiscal 2023, contributions from COVID-related programs and McKesson Ventures, adjusted operating profit grew 9% and adjusted EPS increased 17%. These results were above our long range targets and reflect the strength of our products, services and operating execution. Let me start with a review of the fiscal fourth quarter. Revenues increased 11% to $76.4 billion, led by growth in the U.S. Pharmaceutical segment resulting from increased prescription volumes, including higher volumes from specialty products, retail national account customers and GLP one medications. Gross profit was $3.3 billion, an increase of 7%, primarily a result of specialty distribution growth within the U.S. Pharmaceutical segment, including our leading plasma and biologics business. Operating expenses increased 11% to $2.1 billion, driven by higher costs to support growth across the businesses. During the quarter, we recorded a reserve for environmental matters of $0.09 per share for increased remediation cost related to McKesson's former chemical business, which we disposed of several years ago. The environmental reserve was recorded in our corporate segment. Operating profit was $1.3 billion, which was flat to the prior year, driven by growth in the U.S. Pharmaceutical segment offset by increased corporate expenses which included the previously outlined environmental reserve. Year-over-year results were also impacted by anticipated lower contributions from U.S. Government COVID-19 programs in both the U.S. Pharmaceutical and medical-surgical solutions segments when compared to the prior year. When adjusting for the COVID-19 programs and a modest McKesson Ventures loss in fiscal 2023, adjusted operating profit increased 4% in the quarter. Moving below the line, interest expense was $75 million, an increase of 7% driven by higher short-term borrowings of commercial paper compared to the prior year. The higher short-term borrowings resulted from lower average cash balances, in part due to the impact from the Change Healthcare outage. The effective tax rate for the quarter was 28.1%, which is in line with our previous guidance and driven by a discrete tax item. Fourth quarter diluted weighted average shares outstanding was 131.6 million, a decrease of 5% year-over-year. Wrapping up our consolidated results, earnings per diluted share was $6.18, again in line with the implied earnings per diluted share that we provided on our third quarter earnings call. While this represents a decrease of 14% compared to the prior year, fourth quarter results were principally driven by a higher tax rate and lower COVID-19 program contributions in fiscal 2024, partially offset by a lower share count and growth in U.S. Pharmaceuticals segment. Turning now to our fourth quarter segment results, which can be found on Slides 7 through 11 and starting with U.S. Pharmaceutical. Revenues were $68.8 billion, an increase of 12%, driven by increased prescription volumes, including higher volumes from specialty products, retail national account customers and GLP-1 medications. As we've previously guided, GLP-1 medications continue to show growth year-over-year, but despite this increase, the rate of growth continues to moderate. In the quarter, GLP-1 revenues were $7.5 billion, an increase of approximately $1.5 billion, or 24% compared to fiscal 2023. However, GLP-1 revenues were flat on a sequential basis. For the quarter, operating profit increased 5% to $901 million, driven by growth in the distribution of specialty products to providers and health systems and increased contributions from our generics program.

Ontada:

In the Prescription Technology Solutions segment we anticipate revenues to increase 18% to 22% and operating profit to increase 12% to 16%. This outlook reflects organic growth across our solutions and services as we expand and extend partnerships with biopharma manufacturers and increase the number of brands utilizing our access, affordability and adherence programs. Throughout fiscal 2024, we continued to see increased demand for our access and affordability solutions, particularly those related to GLP-1 medications. As a reminder, McKesson's prior authorization products serve the majority of the brands for GLP-1 medications. Our products continue to generate value for our partners. Looking ahead to fiscal 2025, we anticipate that this demand will remain elevated yet lessened as the rate of increase will be slower than prior years for GLP-1 medications. The Medical-Surgical business remains well positioned to leverage the breadth and depth of its services and assets across all alternate sites of care, including growth in the primary care business and our comprehensive private label portfolio. We anticipate Medical-Surgical Solutions revenues to increase 4% to 8% and operating profit to increase 6% to 8%. Within the primary care market, we anticipate continued growth in lab solutions and specialty pharmaceuticals. Our scaled sourcing and distribution footprint has propelled expansion and growth of our private label portfolio, providing superior value for our customers while maintaining sound economics for McKesson. In fiscal 2025, we're making investments in the segment to support the recent acquisition of Compile, a healthcare data platform that captures and aggregates data to provide insights and analytics for biopharma. We believe there's an initial use case across the breadth of the Medical-Surgical Solutions segment. The Medical-Surgical Solutions segment has broad relationships with providers and extensive data sets, leading to opportunities to develop incremental value creation opportunities. Longer term, there are increased opportunities to integrate the capabilities and commercial applications across our oncology and biopharma services platforms. These investments will deliver meaningful returns to the segment and to the enterprise. In fiscal 2025 we anticipate that these investments will account for an approximate 2% operating profit headwind in the medical segment as compared to the prior years. Finally, the International segment, we anticipate revenues to increase 4% to 8% and operating profit increased 6% to 10% year-over-year. Our diversified set of assets within our Canadian business, including the scale distribution business, continues to support growth in the International segment. We continue to make investments in our Canadian technology footprint to create a more custom and integrated supply chain for specialty drugs. As a reminder, Norway remains the only operating country in Europe that we have not entered into an agreement to sell, and contributions related to operations in Norway are included in the fiscal 2025 outlook for the segment. We intend to exit Norway as part of the completion of our European exit. In the Corporate segment, we anticipate expenses to be in the range of $580 million to $640 million, which includes increased technology spend to support the growth of our businesses and infrastructure and compliance investments. We will also continue to invest in data and analytics, including the acceleration of several investments in artificial intelligence. We are leveraging AI to increase the efficiency across our operations and increase automation and productivity for our customers. Our investments in AI and other advanced technologies play an important role in improving customer service and provider productivity. We continue to build these tools across the value chain to increase speed and success rates. One example where we're implementing AI is in our oncology platform. The InnoMed [ph] EHR contains structured data that can often be sparsely entered for patient's longitudinal records. Instead, unstructured data such as uploaded documents and provider authored notes are used to capture details on patient's disease condition in response to treatment, as well as many core clinical factors. They have complete longitudinal patient records for real world research. Core variables are required to be extracted from the unstructured data into a well-organized database. Natural language process is the only scalable solution to achieve more than 100 million documents in InnoMed [ph] today and growing at the rate of 1 million documents per week. The application of AI reduces clinicians exhausted burden in finding related documents for care and reimbursement workflows, ultimately leading to practice efficiencies and better patient care. This is just one example of many where we're using AI to power insights and deliver clinical and financial value to our stakeholders. We've been pleased with our progress to date as we work to develop and implement various AI technologies, and we remain committed to increased investment to further extend our leadership positions and deliver value to our partners and stakeholders. Now, moving below the line, we anticipate interest expense to be approximately $220 million to $240 million, and income attributable to non-controlling interest to be in the range of $140 million to $160 million. We anticipate the full year effective tax rate will be in the range of approximately 18% to 20%. And 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 now 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 result in free cash flow will vary from quarter-to-quarter and are impacted by timing, including the day of the week that marks the close of a quarter. Our guidance reflects plans to repurchase approximately $2.8 billion of shares in fiscal 2025. As a result of this share repurchase activity, we estimate weighted average diluted shares outstanding to be in the range of approximately $128 million to $130 million. The strength of our balance sheet and operating cash flows provides the financial flexibility to incrementally invest both organically and inorganically for growth as well as return capital to our shareholders. Wrapping up fiscal 2025 guidance, we anticipate revenue growth of 15% to 17% and operating profit growth of 9% to 14% as compared to the prior year. For fiscal 2025, we anticipate earnings per diluted share of $31.25 to $32.05, which represents growth of 14% to 17% as compared to fiscal 2024. We expect earnings per share will be more heavily weighted towards the second half of the fiscal year. We also anticipate the first quarter to have the lowest contribution. As a reminder, we had a lower effective tax rate in the first quarter of fiscal 2024 due to a discrete tax item. In summary, we see strength and stability in the underlying fundamentals across our businesses. Our sustained financial performance over the past several years has been bolstered by the strength of our financial position and the consistent operating execution leading to compelling value creation for our customers, partners and shareholders. We're pleased with the strong fiscal 2024 performance and the fiscal 2025 outlook reflects our continued confidence in the operating profit growth momentum across all segments of the business, supplemented by the strength of our balance sheet and strong financial position. McKesson is well positioned to deliver strong results as we successfully execute against our strategic and financial framework to drive long-term sustainable growth for all stakeholders. With that, we can move to Q&A.

Operator:

Thank you. [Operator Instructions] Our first question will come from Kevin Caliendo with UBS. Please go ahead.

Britt Vitalone:

Thanks for the question, Kevin. I'll start and maybe I'll go in reverse order. Our win of the Optum contract, and we're certainly pleased to extend and expand our partnership, as Brian mentioned, is pharmaceutical related only. As we think about next year, Optum is included in our guide. As you know, we do not specifically talk about customer contract details, and so we have not provided specific contributions for Optum, and we don't intend to do that going forward. This is a recent contract win. We have not incurred any costs yet related to that transition. We do expect that there will be some costs in the transition, but not material and certainly included in our guidance.

Britt Vitalone:

Yes. Thanks for the question. I'll start and certainly Brian could add to this. I think when we, we've talked about this segment in the past, there are many different things that go through this segment, one of those being our 3PL business. Our 3PL businesses we talked about in the past is slightly more than half of the revenue. And as I mentioned in my comments, the 3PL performance was lower than the prior year for various customer and contract considerations. We're certainly pleased with what we're seeing in our prior authorization business. We continue to see growth in that business. We continue to see growth in our fiscal fourth quarter as well. We did make a number of investments, as I talked about, and we also made some investments for future years to continue our growth and continue the value that we're providing to our customers. So underlying all of that, we had a very strong year. The business grew on the bottom line 23% year-over-year. So there's great momentum there prior authorization business as part of our access solutions did have growth in the first quarter, but as I mentioned, we had slower 3PL performance and we continue to make some investments into the business for future growth.

Rachel Rodriguez:

Question please?

Lisa Gill:

Thanks very much. I just want to go back to the pharmaceutical operating profit for 2025. If I go back and I look at your long-term out like you talked about 5% to 7% growth, you're now talking about 8% to 10%. One, I know you don't want to talk about specific customers, but is this tied to the new customer win or is there something else that's propelling that? And then, as I think about Optum, your comments were that you started a relationship last year. You've increased the scope of services you're now doing, sourcing, distribution, oncology. Can you maybe just help us understand, one in winning that business and secondly, how we look at Optum versus maybe some of your other clients and any incremental opportunities you see with Optum going forward?

Britt Vitalone:

Lisa, maybe I'll answer your question. You know, maybe I would just start with just a little bit of a foundation building here. If you think about the U.S. pharma segment, over the last four years, the adjusted operating profit has grown at a compound annual growth rate of about 6%, so really right in the middle of the long-term targets that we provided. There are long-term targets for a reason. It's what we expect as a sustainable growth rate for the segment. We're certainly pleased with the growth that we saw in FY 2024. If you exclude the impact of COVID-related programs in FY 2023, segment grew 12%. So we certainly have a lot of momentum in that business as we enter into FY 2025. As Brian mentioned, we're certainly pleased with the opportunity to serve Optum as well. So this is a business that we've been making a lot of investments in. It's a business that we have some expertise that we're continuing to add to in terms of our sourcing capabilities, providing value back to our customers and we have a lot of momentum in this segment. And so I think the growth rate that we've outlined here for 2025 is a continuation of the momentum that we've seen now over the last several years.

Operator:

And next will be Michael Cherny with Leerink Partners. Please go ahead.

Ontada:

As you think about the totality of the assets now, the ability to build off of that platform, how does that dovetail with your ability also to utilize your ever growing free cash flow to continue to drive inorganic growth on top of organic, and within that portfolio of, again broad based oncology assets, what are the best areas you have to continue to expand beyond where you already are.

Rachel Rodriguez:

Question please?

Charles Rhyee:

Yes, thanks for taking the question. I wanted to circle back to RxTS, obviously looking at a really positive outlook, but thinking about the preliminary fiscal 2025 guide you kind of gave for this segment last quarter, the final guide actually is a little bit better here. Any sort of comments on what is driving sort of the increased optimism here? Is it solely just as we're thinking about maybe GLP-1s or maybe can you talk about sort of any kind of gains at RelayHealth as it relates to the Change Healthcare outage? Any comments there would be helpful. Thanks.

Rachel Rodriguez:

Next question please?

Eric Percher:

Thank you. A question relative to competitive intensity and specifically contract movement we've seen, I think with Optum there was a real concern that the contract could even be outsourced or elements of specialty could be outsourced and yet here it comes to you. And we've also seen CVS outsource and scale to you. So my question would be, do you believe that you've developed a scale advantage in mail and specialty that is unique relative to other distributors, and/or how important is the specialty footprint in driving the value that has led to these significant gains?

Britt Vitalone:

Eric, I would just add to that if you think about the strategy that we've executed on over the last several years, we've been very disciplined and focused and really growing our capabilities in oncology and pharma services, including the investments that Brian spoke of in terms of our distribution network. So the breadth of capabilities that we have today is more significant than it was a few years ago. And, the value that we're able to provide now through the investments that we've made through some of the other acquisitions that we've made in, like oncology as an example, we believe that that value is what is attractive and the breadth of capabilities that we have as well.

Operator:

And next will be Stephanie Davis with Barclays. Please go ahead.

Brian Tyler:

Yes, so I'll start and if Britt wants to add anything, he can. I mean, we have a pretty differentiated set of assets in this business. Multiple scaled networks is what we call them, which includes connectivity into provider workflow. And we very much fundamentally think part of our job is to continue to innovate off of those, to both enhance the value and the return our products provide to biopharma and to continue to solve new problems for them. So we have historically always invested in this business, and when we see an opportunity ahead of us, we are not afraid to increase that investment to run at that, because we think these differentiated assets allow us to solve problems in unique ways. Most of this investment has been in technology, and that's probably about all I would say.

Operator:

And next will be Elizabeth Anderson with Evercore ISI. Please go ahead.

Brian Tyler:

Sure. I mean, in many ways we thought of Compile as a foundational data investment for us, and we liked the business by itself. But we also thought given some of the other data sets, transaction sets that reside in the company, we could augment and add and accelerate that. We chose a first use case in the medical business where we have, extensive, hundreds of thousands of relationships with providers and data that complement their already strong provider data service offering. So we think we can both augment that and unlock unique value because of the footprint and reach in Med-Surg and so we're making an investment into that thesis.

Operator:

And next will be Daniel Grosslight with Citi. Please go ahead.

Brian Tyler:

Thanks for that question. I can answer that. The growth that we're seeing next year on the top line is more accelerated growth in our 3PL business. As we've talked about before, the 3PL business generally represents a little more than half of the revenue in the segment, but less than 10% of the adjusted operating profit. So as we expect to win some additional business next year and see some of our customers continue to grow, that revenue will be faster rate than we've seen in prior years. And given the mix that that represents in this segment is, driving faster top line again at a lower margin rate on the bottom line from that particular business, 3PL business. So the underlying technology businesses are continuing to grow in a consistent manner and we're really pleased with the growth that we're seeing there. What you're seeing is a mix impact in FY 2025 from the 3PL business.

Operator:

And next will be Erin Wright with Morgan Stanley. Please go ahead.

Brian Tyler:

Sure. Happy to answer that question. As we think about the pricing environment for branded products, it is going to be, our anticipation is to be very consistent with what we've seen in the past several years, so stable and competitive branded price environment. In the generic space, again, we look to drive value for our customers through our sourcing operations, looking to drive the lowest cost at the highest availability supply. And we believe that the, in our outlook for FY 2025, we expect to see a competitive and stable environment in the generic space as well. So we don't see a lot of changes in the environment for both branded and generics pricing in our outlook versus FY 2024. And we anticipate that we can continue to drive good value in the generic space for our customers.

Operator:

Certainly. That question will come from Stephen Baxter with Wells Fargo. Please go ahead.

Britt Vitalone:

Yes, nothing really specific to call out there, Stephen. And as it relates to COVID vaccines, as I mentioned, we are lapping the COVID programs that we had last year and from the commercial vaccines perspective, lower contribution than we saw in the third quarter, really a non-material amount of contribution to our fourth quarter results.

Operator:

Thank you for joining today’s conference call. You may now disconnect and have a great day.

Rachel Rodriguez:

Thank you, operator. Good afternoon, and welcome everyone to McKesson’s third quarter fiscal 2024 earnings call. Today, I’m joined by Brian Tyler, our Chief Executive Officer; and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question-and-answer session. Today’s discussion will include forward-looking statements such as forecast about McKesson’s operations and future results. Please refer to the cautionary statements in today’s earnings release and presentation slides available on our website at investor.mckesson.com and to the Risk Factors section of our most current recent annual and periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. Information about non-GAAP financial measures that we will discuss during this webcast, including a reconciliation of those measures to GAAP results, can be found in today’s earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and updated guidance. With that, let me turn it over to Brian.

Britt Vitalone:

Thank you, Brian, and good afternoon. We're pleased with our fiscal third quarter 2024 results, which reflect another quarter of solid momentum with growth across our North American businesses. Our results exceeded expectations, demonstrating our ability to consistently execute against company priorities and create long-term sustainable value for our shareholders. Before I turn to our consolidated results, I want to highlight one item that impacted our third quarter GAAP only results. We recorded an additional pre-tax GAAP provision for bad debts of $515 million or $381 million after tax within the U.S. pharmaceutical segment. This provision is for uncollected trade accounts receivable from sales to Rite Aid in October of 2023 prior to its bankruptcy petition filing. We continue to provide distribution services to Rite Aid through an interim distribution agreement, providing the same efficiency and operational excellence as we have for over 20 years. We're closely monitoring developments. Rite Aid's bankruptcy will not have a material impact on our fiscal 2024 adjusted earnings per diluted share results. The remainder of my comments will refer to our fiscal 2024 adjusted results. Let me start with a review of the fiscal third quarter. McKesson delivered solid growth in the third quarter, led by sustained strong performance in the U.S. pharmaceutical and prescription technology solution segments. This year-over-year growth underscores operating execution across our diversified and differentiated portfolio, including investments in oncology and biopharma services. As a result of the third quarter operating performance and our confidence in the business, we're increasing and narrowing our full year outlook for fiscal 2024, adjusted earnings per diluted share to a new range of $27.25 to $27.65. Let me move to our consolidated results. Revenues increased 15% to $80.9 billion, led by continued strong utilization trends, growth in the U.S. pharmaceutical segment, including higher volumes from specialty products, retail national account customers, and GLP-1 medications, partially offset by lower revenues in the international segment, resulting from fiscal 2023 divestitures within McKesson's European business. Excluding the impact of our European business operations, including completed divestitures, revenues increased 16%. Gross profit was $3.1 billion for the quarter and increased with 3%. When excluding the impact of our European business operations including completed divestitures and the impact from U.S. government COVID-19 programs in fiscal 2023, gross profit increased 10%. Operating expenses increased 4% in the quarter due to higher costs to support growth in the U.S. pharmaceutical and prescription technology solution segments. When excluding the impact of our European business operations including the completed divestitures, operating expenses increased 6% year-over-year. Third quarter operating profit decreased 9% to $1.3 billion. Fiscal 2023 results included a pre-tax benefit of $126 million related to the early termination of the Tax Receivable Agreement, or TRA, with Change Healthcare. Year-over-year results were also impacted by anticipated lower contributions from U.S. government COVID-19 programs, which were mitigated by contributions from commercial COVID-19 distribution and a non-recurring $30 million charge in our U.S. pharmaceutical segment. These items were partially offset by growth in the U.S. pharmaceutical and prescription technology solution segments. When adjusting for these items, including $126 million or $0.65 benefit from the early termination of the TRA in fiscal 2023 and gains and losses associated with McKesson Ventures' equity investments in fiscal 2023 and 2024, operating profit increased 7% in the quarter. Moving below the line, interest expense was $58 million, a decrease of 16% year-over-year driven by effective management of our loan portfolio. The effective tax rate for the quarter was 10.6%, resulting from the recognition of discrete tax benefit in the quarter. 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. Third quarter diluted weighted average shares outstanding was 133.3 million, a decrease of 5% year-over-year. Consolidated third quarter earnings per diluted share was $7.74, which represents an increase of 12% over the prior year. This increase includes the impacts of approximately $0.63 related to the U.S. government COVID-19 programs and the $0.65 benefit from the termination of the TRA in fiscal 2023, an increased commercial COVID-19 vaccine distribution and a non-recurring charge in our U.S. pharmaceutical segment in fiscal 2024. Turning to our third quarter segment results, which can be found on slides seven through 11, and starting with the U.S. pharmaceutical. During the quarter, we experienced volume increases across all product categories and customer channels. Specialty Pharmaceuticals and GLP-1 medications continue to grow at a faster pace compared to the prior year. Third quarter revenues were $73 billion, an increase of 18% year-over-year, driven by increased prescription volumes, including higher volumes from specialty products, retail national account customers, and GLP-1 medications. In the quarter, GLP-1 revenues were $7.5 billion, an increase of approximately $2.8 billion or 60% compared to fiscal 2023. During the quarter, we also noted increased contributions from commercial COVID-19 vaccine distribution. In our fiscal third quarter, commercial COVID-19 vaccine distribution peaked in October, then declined significantly in November and December. We do not anticipate material contributions from commercial COVID-19 vaccine distribution in our fiscal fourth quarter. For the third quarter, operating profit increased 6% to $828 million, driven by growth in the distribution of specialty products to providers and health systems. Adjusting for the impact of the U.S. government COVID-19 vaccine distribution in fiscal 2023, commercial COVID-19 distribution in fiscal 2024, and the $30 million non-recurring charge in the U.S. pharmaceutical segment delivered operating profit growth of 8% year-over-year. In our prescription technology solution segment, the growth of GLP-1 medications and new brand launches led to increased demand for our access solutions such as prior authorization services. For the third quarter, revenues increased 7% year-over-year to $1.2 billion. And operating profit increased 25% to $193 million. Third quarter results reflect increased prescription transaction volumes, which drove higher demand for our access solutions, principally prior authorization services and growth in our third party logistics business. In addition to the strength of prior authorization services, year-over-year growth was also supported by increased sales to new customers and programs across our access and affordability solutions. Turning to Medical-Surgical Solutions. Revenues were $3 billion in the quarter, an increase of 2%, primarily driven by growth in the primary care and extended care businesses, partially offset by anticipated lower contributions in the kitting, storage, and distribution of ancillary supplies for the U.S. government's COVID-19 vaccine program compared to the prior year. In the third quarter, primary care patient visits moderately increased on a sequential basis. Demand for commercialized COVID-19 vaccine distribution across the alternate sites of care that we serve was also modestly higher compared to prior expectations. The overall illnesses and dynamics, including vaccinations and testing, continued to be an operating profit headwind in the quarter when compared to the prior year. As a reminder, each illness season is unique, depending on the onset and severity of various respiratory illnesses during that particular year. Operating profit was $282 million, a decrease of 16%, driven by anticipated lower contributions from the kitting, storage, and distribution of ancillary supplies for the U.S. government's COVID-19 vaccine program and a softer illness season as compared to fiscal 2023. When excluding the impact of COVID-19 related items from the third quarter of fiscal 2023, the segment delivered operating profit growth of 7%, driven by growth in the primary care and extended care businesses. Next, let me address our international results. Revenues in the third quarter were $3.6 billion, a decrease of 18% year-over-year, driven by divestitures within McKesson's European business, partially offset by higher pharmaceutical distribution volumes in Canada. Operating profit was $105 million, a decrease of 27%, driven by divestitures within McKesson's European business. Wrapping up our segment review, corporate expenses were $147 million in the quarter, which included losses of $8 million, or $0.05 per share, related to equity investments within the McKesson Ventures portfolio. McKesson Ventures' impact on consolidated financials can be influenced by the performance of each individual investment quarter-to-quarter. As a result, McKesson's investments may result in gains or losses, the timing and magnitude of which can vary for each investment. We remain pleased with the insights and the results that we're obtaining through this portfolio. Excluding the benefit from the early termination of the tax receivable agreement in fiscal 2023, and gains and losses within our McKesson Ventures portfolio in fiscal 2023 and 2024, corporate expenses in the third quarter decreased 5% year-over-year. Turning now to cash flows and capital deployment, which can be found on slide 12. We ended the quarter with $2 billion in cash and cash equivalents. We delivered free cash flow of $100 billion in the third quarter, and $2.9 billion for the trailing 12-months. Third quarter free cash flow was impacted by the Right-Aid bankruptcy in October, and its associated $725 million provision for bad debts. 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 nine months of the fiscal year, we made capital expenditure investments of $418 million, which included new and existing distribution centers, as well as investments in technology, data, and analytics to support our growth priorities. Year-to-date, we returned $2.6 billion of cash to shareholders, which included $2.3 billion of share repurchases, and $232 million in dividend payments. Now let me turn to our updated fiscal 2024 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. A full list of our assumptions can be found on slides 13 through 17 in our supplemental slide presentation. Let me start with the fiscal 2024 outlook for our segments. For the full year, we now anticipate U.S. pharmaceutical revenues to increase 16% to 18% and operating profit to increase 6% to 8% year-over-year. Excluding the impact of COVID-19 vaccine distribution for the U.S. government in fiscal 2023, we anticipate operating profit to increase 11% to 14%. The impact of elevated commercial COVID-19 distribution in the third quarter, net of the $30 million non-recurring charge, also in the third quarter of fiscal 2024, accounts for approximately 2% of segment growth. The updated segment revenue outlook incorporates the strong third quarter performance and continued growth in specialty distribution, supported by stable utilization trends. Revenue growth assumes the GLP-1 medication volumes will continue to be robust, although the rate of growth will moderate in our fiscal fourth quarter. These medications are lower margin and represent a headwind to year-over-year operating profit growth. Our full year operating profit growth also reflects our leading generics program, which continues to deliver on the dual mandate of lower cost and product availability. We continue to be pleased with the strength of our scaled and broad oncology platform. This quarter, as Brian mentioned, we expanded into Tennessee with the addition of two practices. With these additions and organic growth, U.S. oncology is now over 2,500 providers. In the Prescription Technology Solution segment, we anticipate revenue growth of 9% to 13%, and we've increased our operating profit growth outlook to 24% to 28%, reflecting strong third quarter performance, continued organic growth, and higher transaction volumes across our access and affordability solutions. The quarter-to-quarter variability in this segment is 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 continues to be a leader across all the alternate sites of care. We anticipate revenues to be approximately flat to 4% growth, and operating profit to decrease 11% to 15%. When excluding the impact of COVID-19 related items from fiscal 2023 results, we anticipate operating profit to increase 6% to 8% year-over-year. Our updated outlook incorporates the third quarter results that I discussed earlier, which reflect a modest improvement in sequential primary care traffic. Finally, in the International segment, we anticipate revenues to decline by 29% to 33%, and operating profit to decline by 21% to 26%, reflecting divestitures within McKesson's European business that closed during fiscal 2023. In the corporate segment, we anticipate expenses to be in the range of $615 to $655 million, which includes losses associated with McKesson Ventures' equity investments recorded in the first nine months of the year, and elevated technology spend to support the growth of our business. Moving below the line, we anticipate interest expense to be approximately $220 million to $230 million, and income attributable to non-controlling interests to be in the range of $155 million to $165 million. We anticipate no change to the full year effective tax rate of approximately 18% to 19%. The timing of discrete tax item is difficult to predict, and therefore, we do not provide quarterly effective tax rate guidance. Turning to cash flow and capital deployment, we now anticipate free cash flow of approximately $3.2 billion to $3.6 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 a quarter. Our outlook also incorporates the impact of the October rate of bankruptcy. Our guidance reflects plans to repurchase approximately $3 billion to $3.5 billion of shares. As a result of this share repurchase activity, we estimate weighted average diluted shares outstanding to be in the range of approximately $134 million. Wrapping up fiscal 2024 guidance, as a result of solid performance in the third quarter of fiscal 2024. Combined with our momentum, and confidence moving forward, we are increasing and narrowing our earnings per diluted share outlook for fiscal 2024 to a new range of $27.25 to $27.65. We anticipate operating profit will be a 2% decline to 1% growth compared to the prior year. Excluding certain items, we anticipate operating profit to increase by approximately 8% to 11% year-over-year above the long-term target range. As a reminder, certain items include the following; $1.90 related to fiscal 2023 U.S. Government COVID-19 program and COVID-19 tests in our U.S. Pharmaceutical and Medical-Surgical segments. A $0.65 benefit related to the early termination of the tax receivable agreement with Change Healthcare in fiscal 2023. And gains and losses associated with McKesson Ventures equity investments in fiscal 2023 and 2024. The increase to our outlook for adjusted earnings per diluted share indicates growth of 16% to 18% when excluding these certain items. Before I close, I'd like to share some initial thoughts on fiscal 2025. The momentum we've seen across our business over the past several years is expected to continue in fiscal 2025. We anticipate the U.S. pharmaceutical and Medical-Surgical Solution segments will be more closely aligned to long-term growth targets that we've previously provided for these segments. Demonstrating our leading market positions and stable financial performance. We anticipate that the strength we're seeing across our solution set and prescription technology solutions will lead to growth at the top end or slightly above the long-term target. In U.S. pharmaceutical, we remain confident in our long-term target of 5% to 7% growth. Supported by sustainable momentum in the core distribution business and across our oncology platform. The U.S. Oncology Network, Ontada and the joint venture with Sarah Cannon Research Institute. As the leader in the alternate site market, we believe that the Medical-Surgical Solution segment is well positioned as care continues to move across the alternate site settings. Our experience and our relationships in every channel and setting of the alternate site markets enable us to capture the opportunity in the years ahead. We anticipate that the Prescription Technology Solution segment may perform modestly above the long-term growth target of 11% to 12% driven by organic growth as we expand our higher margin biopharma services platform. For the International segment, we anticipate continued growth in our Canadian operations. And throughout fiscal 2023, we completed divestitures of the business operations in 11 of the 12 countries that we operated in Europe. As a reminder, Norway remains the only country that we have not entered into an agreement to sell. And we intend to exit Norway as part of the completion of our European exit. Finally, we will continue to materially invest in the business on multiple fronts. We will sustain the pace and cadence of investment in product development and enhancements across our oncology and biopharma services platforms. These investments will further our differentiated capabilities and market leading positions. We will also continue to invest in adding capacity and capabilities to our North American distribution footprint. These investments include increased capacity, automation, and regulatory excellence capabilities. And we will continue to invest in data and analytics, including the acceleration of several investments in artificial intelligence. We see AI as unlocking the potential to deliver customer and foundational enhancements. Although in the early stages, we're using AI to improve patient intake and workflow, improve productivity throughout the system, including automatic clinical note generation, and several supply chain use cases, including supply chain disruption predictions, forecast accuracy algorithms, and fraud detection. Although we're in the early stages of our AI development and implementation, we're committed to increased investment to further extend our leadership positions and deliver value to our partners and stakeholders. To sum up, we see strength and stability in the underlying fundamentals of the business. We're pleased with our strong fiscal 2024 performance, and we remain optimistic about the outlook. McKesson is well positioned to continue to deliver strong results as we successfully execute against our strategic and financial framework to drive long-term, sustainable growth for all stakeholders. And with that, let's move to our Q&A session.

Charles Rhyee:

Yes, thanks for taking the questions. Obviously, strong performance in RxTS as implied in the guidance. Maybe you can kind of give us a feel for the mix between reauthorizations versus new prior-offs [ph] in that mix. And as we think about through the course of the year as kind of new category, like this is sort of a category that's kind of grown significantly over the last year or so, particularly and if we think about the launch of Zepbound as well from Lilly, can you give us a sense of what the lifecycle typically is for prior-offs [ph] overtime as products mature? What does that activity look like? And maybe give us a sense for what you kind of expect right now, particularly in this, the GLP-1 category.

Rachel Rodriguez:

Next question, please?

Eric Percher:

Thank you. I appreciate the 25 initial commentary. And I wanted to focus in on specialty. I thought, coming out of the pandemic, we saw elevated growth. And you're calling out higher growth this year. And I'd like to understand how much of that is organic growth versus gaining of share and beyond oncology, an increase of share in multi-specialty. And then finally, I'd ask, with those practices you're acquiring now, I've seen you've known them for quite some time. What is it that's driving them to join today?

Britt Vitalone:

And Eric, maybe I'll just add on, when we think about specialty product growth, we're certainly seeing specialty product growth across not only our largest customers, but across the mentioned [ph] health systems. And certainly as we continue to grow the U.S. Oncology Network and oncology in general, we're certainly seeing more growth in that area as well. So we're seeing growth in specialty products, we're seeing growth across the specialty providers that we service, and as I mentioned, we're also seeing significant growth from GLP-1 medication. So we're really winning across the entirety of our scaled business. And of course, as our customers continue to win, that's reflected in the volume increases also.

Operator:

And next will be Lisa Gill with JPMorgan. Please go ahead.

Brian Tyler:

Well, I will comment obviously on rumors. Let me say this about Canada. We have a very scaled, broad and impactful healthcare services business there. It's obviously anchored in our distribution assets, but it includes specialty distribution capabilities, it includes retail pharmacies, it includes one of the best online brands in Well.ca, it includes infusion clinics, and it includes a growing biopharma manufacturer services business. So we're very, very broad in our capabilities and really one of the leading players in the Canadian health care landscape in general. We've been very pleased with the performance of the business. Britt talked about some of the investments we continue to make into that business to keep our growth trajectory going. And I'd say we're very pleased with the performance and very committed to the current strategy.

Rachel Rodriguez:

Next question, please?

Allen Lutz:

Good afternoon. Thanks for taking the question. Britt, you mentioned core operating expense growth was about 6% excluding divestitures. As we think about the current growth across your different businesses, is that 6% growth rate the right way to think about operating expense growth from here? And then is there any reason why that would tick higher or lower versus that 6%? Thanks.

Rachel Rodriguez:

Next question, please?

Brian Tanquilut:

Hey, good afternoon, guys. Maybe, Britt, just curious what you're seeing on the generic pricing front and what opportunities we should be thinking about as we think about combination of drug shortages and just broader inflation trends in generic.

Rachel Rodriguez:

Next question, please?

Kevin Caliendo:

Thanks. Thanks for taking my question. Appreciate the color on the Rite-Aid impact. I'm guessing my question is, I know we don't know exactly what's going to happen with the rest of Rite-Aid. We should hopefully know soon, but what are the assumptions built in for fiscal 2025 around the potential impact from whatever happens with Rite-Aid from here? Like, is it built in, your comments, and how meaningful can it be?

Rachel Rodriguez:

Next question, please?

Eric Coldwell:

Thank you. Good afternoon. This one I think is fairly obvious and fairly simple, but I just want to make sure. The free cash flow reduction versus prior guide, is that specifically and only due to the Rite-Aid impact? And if so, I guess the question is why you didn't take that last quarter perhaps when -- I guess maybe that's not a fair question given the timing, but I just want to make sure that's the only topic there. And then on the repo activity as well, slightly lower outlook here, three to three and a half billion versus prior 3.5. Is that also the Rite-Aid impact or perhaps due to valuation in the market or some other topic? Those are my only two. Thank you very much.

Rachel Rodriguez:

Next question, please?

Stephanie Davis:

Hey guys, thanks for taking my question. I know you've given a lot of great color on this, but I was hoping we could dig a little bit more into the strong U.S. pharmaceutical growth and how to think about, in the lighter flow through the margin, is there anything beyond GLP-1s kind of doing that? And you made a comment on commercial COVID net of 30 million non-recurring, accounting for some of the growth that we saw. Could you clarify kind of any impact that would have on the margin floater?

Rachel Rodriguez:

Next question, please?

Erin Wright:

Great, thanks. So as I think about 2025, why is 5% to 7% still the right growth target for U.S. pharma, just given the specialty contributions and growth there and favorable generics environment? And just, do you think kind of the long-term growth has inflected higher at this point for longer? Or what are some of those offsets that we should be thinking about in 2025? Thanks.

Rachel Rodriguez:

Next question, please?

Daniel Grosslight:

Thanks for taking the question. One of your competitors mentioned that there may be an ability to renegotiate GLP-1 contracts as they come due to potentially extract a bit more margin for the drug supply chain. I was wondering if you could comment on your views of contract negotiations as those contracts renew and if there may be an ability to boost the margin profile of GLP-1s going forward.

Rachel Rodriguez:

Next question, please?

Elizabeth Anderson:

Hi guys, thanks so much for the question. You guys talked about continuing to invest in some of the longer term drivers of the pharma growth in terms of oncology, biopharma services, etcetera. I was hoping you could unpack that a little bit more and sort of talk a bit more about where you sort of see the most attractive opportunities versus the assets that you already have. Thanks.

Rachel Rodriguez:

Next question, please?

George Hill:

Hey, good afternoon, guys, and thanks for taking the question. Britt, first one is just kind of a point of clarification. When you say GLP-1s as an EBIT headwind, you mean to margins, not to dollars. And then for Brian, I have a follow-up question on oncology. I guess could you just kind of talk about the Greenfield opportunity that remains in the USO business and do you think more about the opportunity to add providers, kind of add regions or add services into the installed base as kind of the way to continue to grow that business? Thank you.

Britt Vitalone:

And the answer to your first question is we've talked about GLP-1s previously, and today we are talking about margin rate. They usually come at a lower margin rate than other products that we distribute. And as I mentioned, they have been an operating profit headwind year-over-year.

Operator:

Certainly. That question will come from Stephen Baxter with Wells Fargo. Please go ahead.

Brian Tyler:

Well, I think as, we think about GLP-1s, obviously, four quarters ago was a big growth quarter. We're going to start to lap that. I think my characterization is there will continue to be growth. That growth may or may not be linear depending on product launches, uptakes, how commercial, government, other payers adopt policies to manage these products. So I think it's going to be growth. It's going to be slowed compared to what it has been historically. And it's probably going to be a little bit lumpier than, we would typically expect just because of the size of the class.

Brian Tyler:

Well, thank you again, everyone, for joining our call. We appreciate, as always, the great questions. I want to thank you, Cynthia, for facilitating the call. And maybe just a concluding comment. McKesson continues to make really meaningful progress in advancing our strategy and our mission. I couldn't be more pleased with the consistent and solid performance we're delivering. And we remain confident in our ability to continue to deliver sustainable long-term growth. I want to make sure I acknowledge the contribution of the McKesson employees across really all our teams, all of our business. It is one team executing this enterprise strategy and I'm proud of what we've been able to achieve as a team. And I look forward to sharing more updates and more of our progress with you next quarter. Thanks again, everybody. I hope everyone has a terrific evening.

Brian Tyler:

And more of our progress with you next quarter. Thanks again, everyone.

Rachel Rodriguez:

Thank you, operator. Good afternoon, and welcome everyone to McKesson’s second quarter fiscal 2024 earnings call. Today, I’m joined by Brian Tyler, our Chief Executive Officer; and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question-and-answer session. Today’s discussion will include forward-looking statements such as forecast about McKesson’s operations and future results. Please refer to the cautionary statements in today’s earnings release and presentation slides available on our website at investor.mckesson.com and to the Risk Factors section of our most current recent annual and periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. Information about non-GAAP financial measures that we will discuss during this webcast, including a reconciliation of those measures to GAAP results, can be found in today’s earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and updated guidance. With that, let me turn it over to Brian.

Britt Vitalone:

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 positioned us to generate consistent, solid financial results. We'll continue 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 Solution 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 positioning testing 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 subscription transaction volumes, which drove higher demand for our access solutions primarily related to prior authorization services and growth. 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. 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 kitty 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. 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 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 increased 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 to 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 decreased 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 core 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.

Operator:

Thank you. [Operator Instructions] And our first question will come from Eric Percher with Nephron Research. Please go ahead.

Britt Vitalone:

Yes, Eric, thanks for that question. I'll start and then certainly I'll let Brian add on to that. You really touched on a lot of the factors that we look at when we think about this segment. As I mentioned we've seen continued stable and strong utilization trends that certainly drives transactions which are services benefit from. Secondly, we've seen continued growth in GLP-1 medications as an example and our services primarily prior authorization support those programs that we've seen a growth from that aspect. As I mentioned in my remarks, there are a number of things that can create some variability and certainly can drive the segment from a revenue and operating profit perspective and you touched on a few of those. As I mentioned, prescription utilization is one of those. Certainly the timing and the pace and the trajectory of drug launches, GLP-1 category being one of those drug launch categories and certainly the timing of other programs like the annual verification programs that we do for our customers in the fourth quarter. So we've seen good stable utilization trends. We've seen new drug launches like categories like GLP-1 medications that utilize the successful prior authorization programs that we have and we've certainly seen revenue and operating profit trend in a similar manner to that.

Operator:

Thank you. And next will be Lisa Gill with JPMorgan. Please go ahead.

Brian Tyler:

Yes. The only thing I would add to that Britt is that if you look at the growth in the trajectory the segment has had historically we continue to also reinvest in product extensions, new product enhancements, new products overall. We're excited about this segment. We're excited about the assets that we have and we want to make sure we continue to invest into this segment to protect future growth as well. And all those investments are reflected in our FY '24 outlook.

Operator:

And next will be Charles Rhyee with Cowen. Please go ahead.

Britt Vitalone:

Sure. I appreciate the question. Let me just go back to some of my earlier comments because I think that these are questions. First of all, we continue to provide distribution services to Rite Aid as we have for over 20 years and we're proud to be a distributor for Rite Aid and their customers. We did record a provision in the third quarter for those sales that we considered the uncollected trade accounts receivable as of September 30, that's the $210 million that I referenced. We anticipate an additional provision that will be recorded in our third quarter for those sales up until they're back to their bankruptcy filing and that's the $511 million. We have an interim agreement in place that is still pending final court approval and that interim agreement has different credit terms. They have shorter credit terms of seven days. There are other aspects to the interim agreement, but the key thing for this call for this group is that those credit terms are on 70 terms, which are different than what we had in the previous agreement.

Operator:

And next will be Brian Tanquilut with Jefferies. Please go ahead.

Britt Vitalone:

Thank you for the question, but I'm not sure what you're referring to, you used the word gains. As we think about our operating expenses, we have great operating expense discipline and the efficiency of our operations allows us to drive operating margin leverage. We've been able to do that for a long period of time. The success that we've seen in many of our segments really has allowed us to continue to reinvest back into the business. Brian just mentioned what we've been doing at Rx Savings Solutions or I should say RxTS where we've been reinvesting to drive additional programs and capabilities for our customers. But as I mentioned in my comments, we've also been investing in distribution network capabilities, additional automation and regulatory capabilities that we're going to benefit not only our operations but our customers. We're also investing in data and analytics. We think that's going to be important to drive the efficiency of our operations, the capabilities for our customers. So you should expect to see us continue to deliver operating margin leverage, but to continue to invest against our programs, our capabilities on behalf of those efficiencies and our customers.

Operator:

And next will be Eric Coldwell with Baird. Please go ahead.

Britt Vitalone:

Hi Eric.

Brian Tyler:

And we do think macro trends support the continued migration of care into these alternate sites or these more community based settings. So we are well positioned.

Operator:

And next will be Kevin Caliendo with UBS. Please go ahead.

Rachel Rodriguez:

Next question, please.

Daniel Grosslight:

Hi, thanks for taking the question. I want to go back to the Medical segment and the cadence for the remainder of the year. If I just look at guidance, it implies around a 4% increase in both revenue and AOI from the first half to the second half, so flat margins. You mentioned a less severe flu season and some investments you're making in distribution and data analytics. How should we be thinking about the cadence of AOI for the next two quarters, particularly as we think about some of those larger investments you're making?

Rachel Rodriguez:

Okay. Next question please.

Britt Vitalone:

Yes, I'll take the second one Brian. As it relates to your question on the restructuring, we did incur certain charges in the fourth quarter of our fiscal 2023. We also incurred additional restructuring charges in the first half of fiscal 2024. And so we're still in the process of finalizing the programs and the savings that we have are contemplated within our guidance. So the fact that we started this program in fiscal fourth quarter of 2023, continued the program really taking charges and organizing and integrating through the first half of 2024 and we certainly haven't seen all of the benefits from those programs to this point in time.

Erin Wright:

Great. Thanks for taking the questions. Two questions here. I guess, are you seeing the generic or easing generic deflation environment, has that been a material driver for you? Just to follow up on the generic side. And then on M&A, and you outlined the share repurchases, but how are you thinking about the acquisition pipeline from here? Where's the focus? What does the M&A pipeline look like? Thanks.

Britt Vitalone:

Sure, Brian. Thanks for the question Erin. As it relates to generics, our focus continues to be on a strong sourcing program combined with discipline on the sell side. We've been operating in a competitive but stable environment now for a number of years really and we're really not seeing any different in the second quarter from what we've seen in the previous several quarters before that. We're able to procure generics very competitively on behalf of our customers and we focused on stability of supply at the same time. So from a generics perspective, our programs are running very well. We feel very well positioned to continue to procure at a low cost and stable supply for our customers and the environment is conducive to us being able to do that.

Rachel Rodriguez:

Next question, please.

Elizabeth Anderson:

Hi guys. Thanks so much for the question. I had two questions. One on the RxTS business, are you seeing any sort of spillover benefit from GLP-1? I'm thinking like either you know an organization that doesn't use you, that does use you because they've heard about this with the GLP-1s or sort of a cross selling across your group of services within the segment? And then secondarily, on the medical side, one of your competitors on the outpatient side has seen some ordering impact because of sort of website and sort of a cyberattack. Has that provided any kind of material change in customer ordering within that segment in the last couple of weeks? Thank you very much.

Rachel Rodriguez:

And we have time for one more question, please.

George Hill:

Hey, guys, I appreciate you sneaking me and I'll say, Brian and Britt, the oncology business has really been a standout over the last several years. I was wondering if there's a chance that you guys might give us any kind of sense of the scope or scale of the business inside of the U.S. drug segment with any type of number around it? And then Britt as a quick follow up, I guess given the ongoing agreement with Rite Aid, can you tell…

Operator:

Mr. Hill, please proceed. I think we lost him.

Operator:

Yes, go ahead.

Brian Tyler:

When we talk about our oncology business, we talk about it as an ecosystem, everything from distribution to GPO services to iMed EMR, to community to [indiscernible] to the SCRI joint venture. So there's a lot, a lot of components that go into that. I think what we have provided in terms of sense of scale and scope is 2400 plus providers operating in 27 states seeing roughly 15 plus percent of all cancer patients in the in the community settings, so I hope that helps you get an order of magnitude.

Operator:

Thank you for joining today's conference call. You may now disconnect and have a great day.

Rachel Rodriguez:

Thank you, operator. Good afternoon, and welcome, everyone, to McKesson’s first quarter fiscal 2024 earnings call. Today, I’m joined by Brian Tyler, our Chief Executive Officer; and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we’ll move to a question-and-answer session. Today’s discussion will include forward-looking statements such as forecast about McKesson’s operations and future results. Please refer to the cautionary statements in today’s earnings release and presentation slides available on our website at investor.mckesson.com and to the Risk Factors section of our most current recent annual and periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. Information about non-GAAP financial measures that we will discuss during this webcast, including a reconciliation of those measures to GAAP results, can be found in today’s earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and updated guidance. With that, let me turn it over to Brian.

Britt Vitalone:

Thank you, Brian, and I’m pleased to be here this afternoon to discuss our fiscal first quarter results, which as you mentioned, are tracking above the full year guidance that we provided in May, and it reflects solid progress against our long-term growth targets. Given the strong start to the year and momentum across the business, we’re raising both our top and bottom line guidance today. I’ll first start with a review of our first quarter results and provide an overview of our fiscal 2024 outlook, including our updated adjusted earnings per diluted share range. My comments today will refer to our fiscal 2024 adjusted results, unless I state otherwise. Let me start with a review of our consolidated results. Consolidated revenues increased 11% to $74.5 billion, which was 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 weight loss or GLP-1 drugs. And they are partially offset by lower revenues in the International segment, resulting from completed divestitures within our European business during fiscal 2023. When excluding the impact of our European business operations, including completed divestitures, revenues increased 16%. Gross profit was $2.9 billion for the quarter, a decrease of 2%. And when excluding the impact of our European business operations and completed divestitures, gross profit increased 7% in the first quarter, primarily a result of growth in the U.S. Pharmaceutical and Prescription Technology Solutions segments. Operating expenses decreased 4% in the quarter. When excluding the impact of our European business operations, including completed divestitures, operating expenses increased 8% year-over-year. Operating expenses during the quarter included integration costs related to our acquisition of Rx Savings Solutions and a joint venture with Sarah Cannon Research Institute, both of which were completed in the second half of fiscal 2023. First quarter operating profit increased 3% to $1.2 billion, primarily driven by growth in our North American businesses, partially offset by the completed divestitures of our European business operations, which are within our International segment. When excluding the impact of COVID-19-related items in fiscal 2023 and losses associated with McKesson Venture equity investments in fiscal 2023 and 2024, operating profit increased 9% in the quarter. We’re pleased with these strong operating results, which are above the long-range growth targets. We’re delivering durable operating performance and sustained momentum, and we’re executing against our strategies. Moving below the line. Interest expense was $42 million, a year-over-year decrease, driven by transactions within our long-term debt portfolio, which I’ll discuss later in my remarks. The effective tax rate was 8.4%, driven by the recognition of a net discrete tax benefit of $147 million in the first quarter of fiscal 2024 related to the repatriation of certain intellectual property between wholly owned legal entities that were based in different tax jurisdictions. As a reminder, the timing of discrete tax items is difficult to predict, and therefore, we do not provide quarterly effective tax rate guidance. Our effective tax rate guidance for the full year remains unchanged. First quarter diluted weighted average shares outstanding was $136.6 million – 136.6 million, a decrease of 6% year-over-year. Adding it all up, first quarter earnings per diluted share of $7.27 represents an increase of 25% over the prior year. When excluding COVID-19-related items in the first quarter of fiscal 2023 and losses within our McKesson Ventures portfolio in fiscal 2023 and 2024, first quarter earnings per diluted share was up 33% over the prior year. Turning to our first quarter segment results, which can be found on Slides 7 through 11, and I’ll start with U.S. Pharmaceutical. Revenue and operating profit results in the quarter exceeded our expectations. First quarter revenues were $67.2 billion, an increase of 18% year-over-year. Revenue growth reflected increased prescription transaction volumes, including higher volumes from retail national account customers, specialty products and GLP-1 drugs. These increases were partially offset by branded to generic conversions. The growth of the weight loss or the GLP-1 drug category provided a revenue tailwind in the quarter. We generally recognize lower margin rates for the distribution of GLP-1 drugs. The growth of these products, similar to other new brand launches, led to increased demand for our access and affordability support programs such as our prior authorization services, which are offered within RxTS segment. The first quarter also marked further progress against our oncology growth strategy. We’re pleased with the growth across all of our oncology assets. We saw growth in the U.S. Oncology Network, supported by the strength of our GPO capabilities. And as Brian mentioned, recently, we added Cancer Center of Kansas to the U.S. Oncology Network, expanding the total number of providers in our network to over 2,400. During the quarter, we delivered solid performance and contribution from the U.S. Oncology Network. First quarter fiscal 2024 total patient visits were 19% above the prior year and on the same practice basis, U.S. oncology patient visits grew approximately 7% above the prior year. The joint venture with Sarah Cannon Research Institute is progressing well as we support the expansion and the advancement of clinical trials and clinical trial research, and we continue to invest in and progress our data and insights business Ontada. These oncology assets and capabilities are important pieces to long-term development of the segment, we’re excited about the growth and the continued progress that we’re seeing. First quarter U.S. Pharmaceutical operating profit increased 8% to $771 million driven by growth in the distribution of specialty products to providers and health systems and increased contributions from our generics program, which included new product launches within the quarter. When excluding the impact of COVID-19 vaccine distribution in the first quarter of fiscal 2023, the U.S. Pharmaceutical segment delivered operating profit growth of 14% year-over-year ahead of the segment’s long-term growth target. The U.S. Pharmaceutical operating profit growth reflects increased prescription volumes and the breadth of capabilities that we provide, including solid generic volumes and sourcing contributions, operating discipline, and the continued momentum from our oncology platform. Let me move now to Prescription Technology Solutions. First quarter revenues were $1.2 billion an increase of 17% year-over-year, driven by growth in our third-party logistics and technology services businesses due to increased prescription volumes. Operating profit increased 35% to $223 million, driven by increasing demand for access adherence and affordability solutions. As I mentioned earlier in my remarks, prescription transaction volumes showed solid improvement in the quarter. The increased transaction volume drove higher demand for our access programs, including our prior authorization products. During the quarter, we noted strong new brand prescription volumes, which included the GLP-1 drug category. The strength of our program supporting access and affordability solutions positions us to capture the demand driven by the strong prescription utilization trends. Our products continue to receive positive feedback and recognition for the value that they deliver to our partners. One example of this is CoverMyMeds electronic prior authorization solutions. Historically, the prior authorization process was a tedious and time consuming task for providers through the technology solutions that McKesson has, we automate this process providing a faster and easier way to review complete and track prior authorization requests. CoverMyMeds delivering value and returns for our partners by increasing connectivity between pharmacies, providers, payers, and biopharma manufacturers through next generation access affordability, and adherence solutions that are automated and integrated into provider workflows. First quarter results exemplify the success of our broad range of technology programs and support services. In Medical Surgical Solutions, our first quarter performance was in line with our expectations. Our core business demonstrated revenue and operating profit growth. Revenues were $2.6 billion in the quarter, an increase of 1% year-over-year and operating profit was $235 million, a decrease of 12%. First quarter results were impacted by anticipated lower contributions in the kiting, storage, and distribution of ancillary supplies for the U.S. Government’s COVID-19 vaccine program and lower illness season testing, including flu and COVID-19 tests when compared to the prior year. As a reminder, the first quarter of fiscal 2023 saw an extension of the 2022 illness season, driving higher levels of illness testing and related products. When excluding the impact of COVID-19 related items from the first quarter of fiscal 2023, the segment delivered operating profit growth of 7%, driven by growth in the extended in primary care businesses, partially offset by a non-recurring expense of $12 million. Within the primary care market, we saw growth in lab solutions, equipment, and specialty pharmaceuticals. In the extended care market, growth was led by sales to new customers, which included increased volumes of nutritional supplements. We are pleased with the continued solid results, which are in line with our expectations. Our leadership position combined with operating execution positions us for continued growth across the alternate sites of care. Next, let me address our International results. Revenues in the first quarter were $3.5 billion, a decrease of 47% year-over-year, and operating profit was $90 million, a decrease of 35%. On an FX adjusted basis, first quarter revenues were $3.7 billion, a decrease of 44%, an operating profit was $95 million, a decrease of 31%. First quarter results reflect the year-over-year FX from the combined divestitures within our European businesses. Let me wrap up our segment review. Corporate expenses were $149 million in the quarter, an increase of 3% year-over-year. As a reminder, in the first quarter of fiscal 2023, corporate expenses included the receipt of a payment relating to a prior tax receivable agreement in our previous joint venture with Change Healthcare. During the quarter, we had losses of $7 million or $0.04 per share related to equity investments within the McKesson Ventures portfolio compared to losses of approximately $22 million or $0.11 per share in the first 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 results that we’ve obtained through this portfolio. The impacts on our consolidated financials can be influenced by the performance of each individual investment quarter-to-quarter, and as a result, the customs investments may result in gains or losses, the timing and magnitude of which can vary for each investment. Turning now to our cash position, balance sheet and capital deployment on Slide 12. We ended the quarter with $2.6 billion in cash and cash equivalents. We made $124 million of capital expenditures, which includes investments in new and existing distribution centers, as well as investments in technology, data and analytics to support our growth priorities. For the first quarter, we had negative free cash flow of $1.2 billion. And as a reminder, our cash position or 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 it can vary from quarter-to-quarter. We return $770 million of cash to shareholders, which included $696 million of share repurchases and $74 million in dividend payments. During the quarter, we successfully completed a public offering for $1 billion of notes with five and 10-year tenures. Concurrently, we retired approximately $900 million of notes that were due March of 2024. These transactions reduced our interest expense and they further support our strong credit profile as evidenced by our recent credit rating upgrades. Our Board of Directors approved two actions in July. First, the 15% increase to our quarterly dividend to $0.62 per share, and second, the Board approved an additional $6 billion of share repurchase authorization, bringing the total remaining share repurchase authorization to approximately $9 billion. These actions demonstrate the confidence that the Board of Directors and management have in the execution of our strategic priorities. Now let me discuss our updated outlook. The guidance I’m providing today relates to fiscal 2024. 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. I’ll discuss the key items beginning with additional details of our consolidated guidance, and a full list of our assumptions can be found on Slides 13 through 17 in our supplemental slide presentation. As we’ve talked about already today, we are encouraged by the strong performance in the first quarter of fiscal 2024. And as a result, we’re increasing our earnings per diluted share outlook to a new range of $26.55 to $27.35. As a result of this, we now anticipate earnings per diluted share to increase 13% to 16% when excluding certain items. As a reminder of what the certain items include, 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, and we anticipate the impact of COVID-19-related items to be immaterial to fiscal 2024. We anticipate operating profit will be flat to 4% declined compared to the prior year. When excluding certain items, we anticipate operating profit to increase by 6% to 10% year-over-year. Let me discuss the outlook for our segments. Our core distribution business within the U.S. Pharmaceutical segment continues to demonstrate its strong value proposition to our customers, and we anticipate further growth in specialty distribution, including our differentiated plasma and biologics business where our customers can access an expansive portfolio of plasma-derived products, biologics, oncology treatments, and other specialty drugs at competitive prices from a single source. During the first quarter, we experienced a revenue tailwind from higher volumes related to weight loss or GLP-1 drugs. Our full year outlook assumes that volumes related to GLP-1 drugs will remain elevated compared to the prior year and may vary to quarter-to-quarter. We anticipate this class of drugs will continue to be a revenue tailwind for U.S. Pharmaceutical as we support our customers through our distribution services. As I discussed earlier, these drugs have a lower distribution margin rate profile. For the full year, we now anticipate U.S. Pharmaceutical revenues to increase 13% to 15% and operating profit to increase 3% to 5% year-over-year. Excluding the impact of COVID-19 vaccine distribution in fiscal 2023, we anticipate operating profit to increased 8% to 11%. The full year performance includes continued investment in our oncology platform and increased technology spend to support the growth of the segment. In the Prescription Technology Solutions segment, we anticipate revenue growth of 7% to 13% and operating profit growth of 15% to 19%, which reflects increased utilization and new brand prescription transaction volumes, including the GLP-1 drugs and strong demand for the access adherence and affordability, products and programs that we offer. We anticipate that we may continue to see quarter-to-quarter variability in this segment driven by transaction volumes, the pace and trajectory of new product drug launches and the annual verification programs that we provide for our customers that occur in our fiscal fourth quarter. In the Medical Surgical Solutions segment, we anticipate revenues to be approximately a 1% decline to 3% growth and operating profit to decrease 5% to 11%. For the full year we anticipate volumes of COVID-19 tests to continue to decline compared to fiscal 2023, and the impact from the 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 11% to 15% year-over-year. And 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. As I’ve previously discussed, we intended to deploy capital through share repurchases to offset the dilution resulting from the European divestitures. In the Corporate segment, we anticipate expenses to be in the range of $580 million to $640 million, which includes losses associated with McKesson Ventures equity investments reported in the first quarter, as well as elevated technology spend to support the growth of our businesses. Now, moving below the line. As a result of the debt transactions that I discussed earlier in my remarks, we anticipate lower interest expense in the range of $205 million to $225 million. Let me now turn to cash flow and capital deployment. We anticipate free cash flow of approximately $3.7 billion to $4.1 billion, net of property acquisitions and capitalized software expense. Our outlook incorporates plan to repurchase approximately $3.5 billion of shares. As a result of the share repurchases activity, we estimate weighted average diluted shares outstanding to be in the range of approximately 133 million to 134 million. Our portfolio continues to generate strong free cash flow. We remain committed to operating profit growth and efficient capital deployment, and our 24% return on invested capital illustrates our focus on shareholder value creation. In summary, our strong start to fiscal 2024 and our outlook for the remainder of the year results in an increase to adjusted earnings per diluted share to a new range of $26.55 to $27.35. Excluding the impact of certain items and the contribution from our European operations, we anticipate earnings per diluted share growth of 16% to 20% in fiscal 2024. Our outlook further demonstrates the shareholder value creation framework that we’ve discussed previously. We continue to be focused on sustainable growth and efficient deployment of capital. We’re pleased with a strong start to the fiscal year. Our 50,000 team McKesson associates continue to deliver exceptional performance. Our first quarter financial performance reflects their dedication as well as the strength of our portfolio. Through our expansive oncology and biopharma platforms, we’re supporting customers and patients by advancing health outcomes for all. We’re delivering faster time to therapy for patients, and we’re accelerating the discovery, development and manufacturing of new therapies. Our services and solutions are at the forefront of improving patient outcomes and ensuring more patients have access to quality care. With our strong underlying momentum from the first quarter of fiscal 2024 and our aligned focus on our growth strategies, we remain confident that we’ll continue to deliver long-term sustainable growth and value creation for our shareholders. With that let me turn it back over to the operator for your questions.

Lisa Gill:

Thanks very much and good afternoon. Thank you for all the details. I just want to go back and just better understand a few things around GLP-1. So Britt, you gave us a lot of data, but when I think about the increase in the revenue from 9% to 11% to 13% to 15%, can you talk about specifically how much is coming from GLP-1s? And then I understand that between cold chain and some other things that the gross profit is less on GLP-1. But how do I think about some of the other areas that potentially can offset this? We’re hearing stabilization in generic pricing right now. You talked about growth in specialty, which I also think is generally lower margin, but some of the other areas, you’ve talked about procurement opportunities. So, I just wanted to understand two things

Rachel Rodriguez:

Next question please.

Michael Cherny:

Good afternoon and thanks so much for taking the question. Maybe if I can spend a little time on RxTS. Last year, it was almost like a discovery year in terms of the moving pieces that we saw over the course of the year. This year, really coming out of the gate strong in terms of profit growth. And I know you mentioned some of the prior authorizations. Given the noise and moving pieces we’ve had in prior authorizations broadly against the backdrop of GLP-1 and other areas, is that the biggest driver of growth that you see in the RxTS business? And how should we think about the, I guess, lumpiness or lack thereof that we could see over the course of this year relative to the fact that last year was a little bit more volatile than I think we would have all expected?

Britt Vitalone:

Mike, maybe just one other thing that I would add is, we continue to develop this segment. One of the things that we’re doing is continue to add capabilities and programs within it. So as time goes on, we’re offering more services, which is certainly taking advantage of utilization trends. We added Rx Savings Solutions last year, so another capability with a whole another set of economics available to us and our customers. So I think what you’re seeing is the investments that we’re making within the segment and the additional programs and capabilities that we’re adding, and certainly the acquisition of Rx Savings Solutions is just adding to the growth that we’re seeing on a year-over-year basis.

Rachel Rodriguez:

Next question, please.

Eric Coldwell:

Hey, thanks very much. Congrats on a nice report. So during the quarter, the health of one of your known customers, I’ll leave the name out was very much in debate and I’m just larger, bigger picture here. Curious if you could talk about, in general, when you see possible challenges at an account, what kind of protections do you put in place, whether it be just in time inventories, collection practices things of that sort. And also if a formal restructuring were to occur such as a chapter 11, what protections do you have then in terms of things like critical vendor status or other items? Just a lot of debate from the investor base in terms of what actually happens if a larger account has more pronounced challenges. Thank you very much,

Rachel Rodriguez:

Next question, please.

Kevin Caliendo:

Hi, thanks for taking my question. I guess on the GLP-1s, I have to ask, just because it’s obviously such a big driver, but do you think that your share of the market corresponds to your typical share within a category or a drug? Meaning is have you been able to secure more supply or do you have any means is your distribution channel such that you’re have a greater percent share of that market than you might normally for whatever reason, whether it’s contractually or just the way your mix is set up?

Britt Vitalone:

Yes, I would say that it’s a fair question. And as we talked about, GLP-1s did provide a revenue tailwind for our distribution business. But I would just remind you that the growth in the segment was very broad based. It was across specialty products. It was across our generics business, and it was really across each of the segments outside of GLP-1s. And that reflects the utilization trends. It also reflects the services and capabilities that we have that we provide to our broad customer base. So certainly GLP-1s are topical and have provided a tailwind, but the business is performing quite well across really all categories and our customer base.

Rachel Rodriguez:

Next question, please.

Eric Percher:

Thank you. I want to ask a RxTS question that is somewhat GLP-1 related, which is as you see products go from tightly managed to more open access, how does RxTS’ offering change? And have you seen success moving from early restricted access assistance to adherence or other offerings?

Rachel Rodriguez:

Next question please. Operator, next question please.

A.J. Rice:

Yes. Sorry. Hello everybody. I just wanted to delve a little bit into the oncology ecosystem. I think Sarah Cannon and Ontada are still in an investment mode. Is that meaningfully different from quarter-to-quarter as you lay out this year’s numbers? And is it meaningfully different than the investment level from last year? And obviously, as you’re putting this in place, you’re expecting it to have a benefit on its own. But I wondered if you could comment on the sort of flywheel benefit to the rest of the businesses from making this push in oncology that you expect to realize?

Rachel Rodriguez:

Next question please.

Daniel Grosslight:

Hi. Thanks for taking the question. I want to go back to the generics environment. You’ve mentioned this a few times as a tailwind. If you look at third-party data, it seems to point to a much more benign generic pricing environment. So I’m just curious what in your view is driving this better pricing environment? How are you managing potential shortages that have got some press recently? And then for the remainder of the year, how should we think about the generics environment and that impact on your revised guidance?

Rachel Rodriguez:

Next question please.

George Hill:

Yes. I want to come back to oncology as well and talk about U.S. oncology. You said visits were up 19% in total, same-store was up 7%. I’ll assume drug pricing was positive. So we’re talking like 20% growth in U.S. oncology in the quarter. I guess can you give us a little bit more detail on McKesson’s kind of exposure to oncology, kind of like the practices versus the drugs versus the GPO? And is that type of growth profile kind of in line with what we’re seeing in all segments of the – of McKesson’s oncology exposure? Thank you.

Brian Tyler:

On the other side, I would just say, we have often referred to this as an ecosystem because we think about the very broad and diverse set of solutions that we offer here, and it’s not just the practice management, it’s the iKnowMed EMR, it’s the GPO services. It’s the revenue cycle management services. It’s the contributions of those systems to managing the clinical practice of oncology effectively. We’ve complemented that in recent years with Ontada, the data analytics insight business and our joint venture with Sarah Cannon. And I think – then there’s the distribution business. So I think when you put those all together, that’s why we call it an ecosystem because we think in many ways, they self-reinforce. And you’ve seen, in the last several years, pretty good growth in the network. I think that’s in part to that expansive value proposition and the attractiveness we represent to these practices as a partner to help them both provide the best patient care possible and to manage their business as well as they can.

Operator:

Certainly that question will come from Elizabeth Anderson with Evercore ISI.

Brian Tyler:

So I think you asked a 340B relative to our Prescription Technology business. And I would say I would characterize 340B as not a particular driver of that business, just flat out. I’d say the impact of 340B would much more be in our resident pharmaceutical distribution business. And obviously, we’ve talked a lot over the past quarters about evolutions in 340B, whether those be regulatory or commercial actions and reactions. And our best view of all that is reflected in the guidance that Britt and I have provided this afternoon. Okay. Well, thank you, everybody. Thank you for joining the call. I appreciate the thoughtful questions and your interest in McKesson. Thank you, Cynthia, for facilitating the call. I’ll just wrap up by saying McKesson delivered strong first quarter results. Our financial strength is really a testament to the significant progress we’ve made in advancing McKesson as a diversified health care services company. We’re confident in our differentiated market position and our ability to execute and continue to create long-term shareholder value. Thanks again for joining us. I hope you all have a terrific evening.

Nicole Kramer:

Thank you, operator. Good afternoon and welcome everyone to McKesson's fourth quarter fiscal 2023 earnings call. Today, I'm joined by Brian Tyler, our Chief Executive Officer; and Britt Vitalone, our Chief Financial Officer. Brian will lead off followed by Britt, and then we will move to a question-and-answer session. Today's discussion will include forward-looking statements such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's earnings release and presentation slides available on our website at investor.mckesson.com, and to the Risk Factors section of our periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. Information about non-GAAP financial measures that we will discuss during this webcast, including a reconciliation of those measures to GAAP results can be found in today's earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and guidance assumptions. With that, let me turn it over to Brian.

Britt Vitalone:

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, $25.94, driven by a lower share count in growth in the US 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 US 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 US 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 increased cost optimization. These initiatives include headcount reductions and the exit or downsizing of certain facilities. During the fourth quarter, we recorded charges of $60 million related to these initiatives, which includes severance and other employee-related costs within our Prescription Technology Solutions segment, asset impairment and accelerated depreciation, including certain asset impairments, primarily within our US Pharmaceutical segment, and real estate charges within corporate. We anticipate total charges of approximately $125 million within our Prescription Technology Solutions and US 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, for the full year increased 5% to $276.7 billion. Fourth quarter and full year results were driven by growth in the US 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 US 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 US 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 seven through 12 and starting with US Pharmaceutical. Our US Pharmaceutical business is 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 US 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 a $186 million or $0.89 per share in fiscal 2022. When excluding the impact of COVID-19 vaccine distribution, US 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. Fourth 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 helps patients access to their medicine over 24 million times in the fourth quarter, the highest number of patients assisted in the segment's history. This 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 US 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 US 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 in 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 holds 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, or 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 investment. For the full year, we generated $4.6 billion in free cash flow, including $558 million of capital expenditures, which include 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 $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 a 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 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 and 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 a $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 US government's distribution of COVID-19 vaccines and 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 US 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 US 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. US Oncology Network, the largest oncology practice management organization in the US has continued 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 at biopharma companies 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 programs continue to provide value for our customers. Wrapping up the US 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 to 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, while the services represented less than 10% of full year operating profit on average over 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 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 into 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%. The 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 US government for the kitting, storage and distribution of ancillary supplies ends in July of 2023. 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 continued 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 to $134 million. Combining all these elements leads to adjusted earnings per share of $26.10 to $26.90. 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. The 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 profit growth targets, which can be found on slide 19. As COVID-19 related contracts with the US government are scheduled to end in July of 2023, and the contribution from Europe continues to run off as guided, we remain committed to executing against our strategic initiatives in building on our differentiated assets and capabilities. As a result, we are pleased to be raising our long-term growth targets, a demonstration of the execution of our strategies, our leading market positions and strong financial position. For US Pharmaceutical, we anticipate 5% to 7% long-term growth, which is up from 4%, 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 aligned focus on the many growth opportunities moving forward, I 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 a 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 and our products and services and in our strategy. With that let me now turn it back over to the operator for your questions.

Eric Percher:

Thanks for all the detail. Thank you. I'd like to dig into the increase in long-term profit growth targets and specifically pharma as a massive absolute number at the high end of the new range, and for '24, that range comes with needing to lap brand benefits. So I'd love to hear what gets you to the high-end of the range factors within the year, and what drives the long-term guidance, macro trend versus strategy versus investment.

Nicole Kramer:

Next question please.

Michael Cherny:

Good afternoon and thanks for taking the question. Congratulations on a really strong guide. Maybe to take Eric's question, but titbit a bit onto the MedSurg side. It seems like the multitude of factors you've been backing out COVID has continued to help you strong market positioning, site of care, volumes, you name it. As you think about the build, because you did take up that guidance as well, what do you think the steady state looks like in terms of where we have been pre-COVID versus going forward among all those different metrics, among share gain among site of care, among private label that allows you to build to that higher and consistent double-digit growth rate within what already is a pretty sizable segment from an EBIT perspective?

Nicole Kramer:

Next question, please.

Lisa Gill:

Thanks very much. Good afternoon. Just, Britt, I first wanted to follow up on the $0.40 range as we think of the guidance and just to understand some of the puts and takes and the upper end and the lower end. And more importantly, as we think about, for example, the changes in insulin pricing and how drug distributors make money. So one, can you maybe just walk us through how we should think about insulin? And then secondly, in the answer to an earlier question, you talked about lapping the brand benefit. But I'm also curious as to how you and Brian are thinking about new products that are coming to the market. I think of things like GLP-1s and other really expensive drugs that will have a big top line.

Brian Tyler:

No. I think that's well done. I mean, obviously, it's hard to go anywhere these days without talking about GLP-1s. And I would just characterize it generally, I think their growth will be positive for us and have a big impact on, hopefully, patients and the health of the country.

Operator:

And next will be Brian Tanquilut with Jefferies.

Britt Vitalone :

Yes, Brian, thanks for that question. I think what we've done here is we've updated the segments. There really is no change to the range that we provided for adjusted EPS. So one of the comments that I made, as we think about capital deployment, we're going to continue to focus on growing the business, whether that be organically and the investments that we make in it or more as we go forward more on M&A. You saw us do a couple of really key M&A transactions last year that were right on strategy. And as you know, it generally takes a few years to get the full synergies from that M&A. We expect that we'll continue to do M&A on strategy at the right multiples and that even with the increase in the operating segment guidance that overall that the overall EPS guidance would still be within the range. There's opportunities obviously for us, if we're able to generate some more capital deployment and we're able to get some acquisitions here that we can realize the synergies in an earlier manner for us to be at the upper end of the range that we provided you, but really no change to the overall range in this update.

Operator:

And next will be Charles Rhyee with TD Cowen.

Brian Tyler:

Yes, let me jump in on this one, Britt. So we call it an oncology ecosystem because we really think there is this value of all of the pieces together, and I'm really pleased with the progress that we're making overall. You've seen the growth that both Britt and I talked about in the U.S. Oncology Network now scaled to over 2,300 providers. We've made tremendous progress, had a record year of adding providers to the network last year, and that's a piece. And that, as that grows, that obviously feeds more data, gives us more provider insight. That allows Ontada to continue to work with our partners to create products and services that help them develop, commercialize and get their products to market and understand how to most effectively go to market to have the utilization and patient impact that they want. We think that Ontada is in year three or four of its development, building off some assets that we had long had, but we continue to invest in new product development. And we continue to see that business improve year-over-year. We think the partnership with the joint venture we did for the Sarah Cannon Research Institute, who brings additional insights, moves us up stage into clinical trials in a very prominent way in the community setting. So again we think that trial early insight business, that helps feed Ontada. That helps our providers navigate the clinical care that they have to provide every day. The insights we get from that clinical care can feed back through some of our data assets to provide information back to the biopharma. So each of the pieces is sort of additive to the overall solution. And I'd just say that while we're probably, I would characterize that it's still an investment phase in Ontada because we still believe there's opportunity and a big long-term market out there and lots of space for us to be innovating in with the unique assets we have. Overall, I think it was a -- very pleased with where our oncology business has developed.

Operator:

And next will be Daniel Grosslight with Citi.

Brian Tyler:

Well, we don't really break out Norway and Canada and talk about them separately. But what I will say about our Canadian business is we have, again, a very diversified set of assets in Canada. We have a leading distribution position. We have a leading retail banner position. We've got a leading chain pharmacy position there. We've got biopharma and specialty assets. Now those work very differently than the ones that work in the US, but really in many ways, getting at kind of the same overall need just in a very different health care system. And so on the basis of our scale and our breadth, we are a really important player in the health of Canada. And I think we've been able to leverage that scale. We're able to find efficiencies across the business to continue to support growth that we're very pleased with.

Nicole Kramer:

Next question, please.

George Hill:

Hey, good afternoon, guys, and thanks for taking the question. Brian, I want to come back to one more on oncology. You guys announced a couple of smaller transactions in the prepared commentary and your friends in Philadelphia recently announced a deal. I guess I would ask, as you guys look out from kind of the practice management and partnership perspective, how much greenfield opportunity do you guys see left? And I know that you have the Ontada business that's budding, but would just kind of look how you think about the runway to continue to either work more tightly with practices or help them grow their business, which serves as an opportunity to grow McKesson's business as well. Just trying to figure out what inning we're in there. Thank you.

Nicole Kramer:

Next question, please.

Kevin Caliendo:

Hi, thanks for taking my question. It's about the long-range plan. If I'm looking at the Pharma segment, it looks like margins should be flat or maybe up. You have operating income kind of growing in line but yet for fiscal '24, if we back out the COVID benefit, it's below. And -- meaning this margin shrinkage is expected. So I'm just wondering if that's insulin or something else. And then with the long-range plan, is the raising of the long-range plan like from fiscal '24 forward or is it inclusive of what just happened in '23 as well?

Nicole Kramer:

Next question, please.

Steven Valiquette:

Thanks. Good afternoon, everybody. Just on the 340B topic, I think some questions on that as far as exposure for McKesson kind of heading into these results. I guess I'm just curious for fiscal '24 guidance was baked into the outlook for any sort of 340B impact and how that compares to fiscal '23, if that's even material one way or the other? I just wanted to get some color on that. Thanks.

Nicole Kramer:

Next question, please.

Erin Wright:

Great. Thanks for taking the question. Can you comment a little bit on the dynamics of what's driving the strength across the generics program? And is there anything to call out there or changes in fundamentals across the generics business? And have you seen some of the disruption amongst some of the certain larger generic manufacturers flow through to your business? Thanks.

Nicole Kramer:

Next question, please.

Elizabeth Anderson:

Hi, guys. Thanks for much for the question. Two questions for me. One is on the -- obviously, you had some changes and cost cutting on the OpEx line, so in the fourth quarter. How do you see sort of any potential pacing of that impacting the fourth quarter? And secondly, can you talk a little bit maybe more specifically about sort of what you have embedded in the 2024 guidance for biosimilars versus the longer-term plan? Thank you very much.

Brian Tyler:

Yes. What we know is in, obviously, 40 approvals, 27 launched. A big event this year will be Humira, which is going to be a Part D product, not Part B. We have many more services to offer and assets to leverage and use in the Part B arena. So we will track kind of payer response and pricing strategies and patient adoption over the course of this year. But what we know is baked into the guidance, we've provided.

Operator:

Certainly. That question will come from A.J. Rice with Credit Suisse.

Brian Tyler:

Well, I mean, if you think about this business, I mean, first off, we've had really strong growth the last several years. We actually combine and form this business a couple of years ago, just a couple of years ago by bringing various businesses and assets across the company together. And as those things continue to come together, we continue to look at our resources, our product offerings. We have conversations with manufacturers about their life cycle and service needs across that life cycle. And we just felt like, as we evaluated investments we had been making and where we thought investment opportunities were for the future, it just made sense for efficiency and focus purposes to make sure we align those to where our best possibilities are. When you make those realignments, the skill set is not always the same, what you're moving from to what you're moving to. And so unfortunately, that did impact some of our teammates. This is our job. This is one of our strategy, to simplify the portfolio and be focused on efficiency and positioning the business for long-term growth. So we feel very good about the performance this past fiscal year and feel good about the targets we have set for fiscal '24.

Brian Tyler:

Okay. Well, thank you, everyone, for joining us this afternoon or evening, depending on where you are. I appreciate all the thoughtful questions, your support and interest in McKesson. Thank you, Rachel for facilitating this call. I want to conclude by just stating McKesson had a strong fourth quarter and full year results. I am really pleased with the continued momentum in the business. Britt and I remain confident in our ability to deliver sustainable long-term growth. I want to end though, with a note of acknowledgment to the McKesson employees. It's really thanks to their dedication and their commitment to our customers, our partners and to each other that enable us to truly improve care in every setting, one product, one partner, and one patient at a time. Thank you, Team McKesson. Everyone else thanks again for joining. Have a terrific evening.

Rachel Rodriguez:

Thank you, operator. Good afternoon, and welcome, everyone, to McKesson's Third Quarter Fiscal 2023 Earnings Call. Today, I'm joined by Brian Tyler, our Chief Executive Officer; and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question-and-answer session. Today's discussion will include forward-looking statements such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's earnings release and presentation slides available on our website at investor.mckesson.com and to the Risk Factors section of our periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. Information about non-GAAP financial measures that we will discuss during this webcast, including a reconciliation of those measures to GAAP results can be found in today's earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and updated guidance assumptions. With that, let me turn it over to Brian.

Britt Vitalone:

Well, thank you, Brian, and good afternoon, everyone. Our solid fiscal third quarter financial results reflect continued strong execution and momentum, advancing our company priorities. In the fiscal third quarter, we delivered solid growth across our North American segment, led by strong performance in the U.S. Pharmaceutical and Medical-Surgical Solutions segments. And we continue to evolve and grow our diversified portfolio through focused and strategic investments in oncology and biopharma services. As a result of our solid financial performance and confidence in the underlying business, we are increasing and narrowing our full year outlook for fiscal 2023 adjusted earnings per diluted share to a range of $25.75 to $26.15. Before I provide more details on our third quarter fiscal 2023 non-GAAP adjusted results, I want to point out two items that impacted our GAAP-only results in the quarter. First, we received proceeds of $129 million related to our share of an antitrust class action settlement. We recognized the gain within cost of sales in the third quarter. And second, we recognized a pretax gain of $97 million from the termination of fixed interest rate swaps. This gain is included under other income in the third quarter. Let's move now to a review of our third quarter non-GAAP adjusted results on a year-over-year basis. Consolidated revenues of $70.5 billion increased 3%, driven by growth in the U.S. Pharmaceutical segment resulted from increased specialty product volumes, including retail national account customers, partially offset by lower revenues in the International segment, resulting from the completed divestitures of McKesson's European businesses. Excluding the impact of our European business operations, including completed divestitures, revenues increased 11%. Gross profit was $3 billion for the quarter, a decrease of 10%. Excluding the impact of our European business operations and completed divestitures, gross profit increased 7%, primarily a result of growth in the U.S. Pharmaceutical segment. Operating expenses in the quarter decreased 14%, largely driven by completed European divestitures in the International segment. Excluding the impact of our European business operations, including the completed divestitures, operating expenses increased 9%. Operating profit was $1.4 billion, an increase of 9%, driven by a pretax benefit of $126 million related to the early termination of a tax receivable agreement, or TRA, with Change Healthcare and due to growth across North American businesses led by the strong performance in the U.S. Pharmaceutical segment. As a reminder, McKesson was a party to a TRA entered as part of the formation of the joint venture with Change Healthcare. Under the terms of the TRA, Change was generally required to pay McKesson a portion of net tax savings resulting from amortization by the joint venture. In October of 2022, Change exercised its right to terminate the agreement and paid McKesson $126 million. Consistent with our prior practice recognizing similar items, this benefit is reflected in other income in both our GAAP and adjusted operating results in the quarter. Moving below the line, interest expense increased to $69 million in the quarter, primarily due to higher interest rates and unfavorable impacts in our derivative portfolio as we exit the European region. And the effective tax rate was 23.4% for the quarter. 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. For the full year, we continue to expect an adjusted effective tax rate in the range of 18% to 20%. Wrapping up our consolidated results. Third quarter diluted weighted average shares outstanding was approximately 141 million, a decrease of 8%, resulting from share repurchase activity. Overall, third quarter adjusted earnings per diluted share was $6.90, an increase of 12% compared to the prior year. When excluding the impacts from COVID-19-related items and the benefit from the early termination of the tax receivable agreement with Change, adjusted earnings per diluted share increased 6%. Moving now to our third quarter segment results, which can be found on Slides 7 through 12 and starting with U.S. Pharmaceutical, where revenues were $61.9 billion, an increase of 13% year-over-year, resulting from increased volume of specialty products, including higher volumes from retail national account customers, branded pharmaceutical price increases and strength in oncology, which included increased patient visits, partially offset by branded to generic conversions. Operating profit increased 6% to $778 million. Our contract with U.S. government for COVID-19 vaccine distribution provided a benefit of approximately $0.25 per share in the quarter compared to $0.26 per share in the third quarter of fiscal 2022. When excluding the impact of COVID-19 vaccine distribution, U.S. Pharmaceutical segment delivered operating profit growth of 7%, driven by growth in distribution of specialty products to providers and health systems, contributions from our generics programs, and improvements in pharmaceutical prescription volumes and oncology visits. In the Prescription Technology Solutions segment, revenues were $1.1 billion, an increase of 9% year-over-year, driven by increased prescription volumes, faster growth in our third-party logistics business and higher technology service revenues. Operating profit increased 7% to $155 million, driven by growth in access affordability and adherence solutions, partially offset by continued organic investments as we position our products and services for sustainable long-term growth. Next, moving on to Medical-Surgical Solutions. Revenues were $3 billion, a decrease of 3%. Lower volumes of COVID-19 tests and kitting storage and distribution of ancillary supplies for the U.S. government's COVID-19 vaccine program partially offset the growth in the Primary Care business. Operating profit increased 2% to $336 million. The 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 approximately $0.38 per share in the quarter as compared to $0.57 per share in the third quarter of fiscal 2022. Excluding the impact of COVID-related items, the Medical-Surgical Solutions segment delivered operating profit growth of 25%, driven by growth in the Primary Care business and favorable sourcing activities, which partially offset lower volumes of COVID-19 tests and lower contribution from kitting storage and distribution of ancillary supplies from the U.S. government's COVID-19 vaccine program. Next, let me address our International results. revenues were $4.4 billion, and operating profit was $143 million, a decrease of 36%. On an FX adjusted basis, revenues were $4.9 billion, a decrease of 48%, and operating profit was $158 million, a decrease of 29%. Third quarter results reflect the year-over-year effect from the divestiture of the European businesses. Moving next to corporate. Corporate expenses were $19 million, a decrease of 88% year-over-year, driven by the early termination of a tax receivable agreement with Change Healthcare and lower opioid-related litigation expenses. Excluding the benefit from the early termination of the tax receivable agreement, corporate expenses decreased 9%. Additionally, we incurred opioid-related litigation expenses of $9 million in the third quarter, and we anticipate that fiscal 2023 opioid-related litigation expenses will be approximately $50 million. Turning now to our cash position, which can be found on Slide 13. As a reminder, our cash position, working capital metrics and resulting cash flows can each be impacted by timing and vary from quarter-to-quarter. We ended the quarter with $2.8 billion in cash and cash equivalents. During the first nine months of the fiscal year, we made $376 million of capital expenditures, which includes investments in distribution center capacity, automation and regulatory enhancements and investments in technology, data and analytics to support our growth priorities, including our oncology and biopharma services ecosystems. For the first nine months of fiscal 2023 and 2022, we had free cash flow of $1.5 billion and $1.2 billion, respectively. During the quarter, we allocated $833 million towards M&A activities, including a joint venture with the Sarah Cannon Research Institute and the acquisition of Rx Savings Solutions. We also returned $2.1 billion to shareholders, including $2 billion of share repurchases. Year-to-date, we returned $3.7 billion of cash to shareholders, which included $3.5 billion of share repurchases and $216 million in dividend payments. At the end of our fiscal third quarter, we had $3.8 billion remaining on our share repurchase authorization. Let me turn to our fiscal 2023 outlook. A full list of our assumptions can be found on Slides 15 through 18 in our supplemental slide presentation. And I'll begin with our consolidated outlook. Our revised guidance assumes 3% to 7% revenue growth and 2% to 6% operating profit growth as compared to fiscal 2022. Our guidance includes $2.30 to $2.50 of contribution attributable to the following four items

Michael Cherny:

Thanks for everyone. Diving into the Prescription Technology Solutions business a bit, I know it continues to evolve in terms of the assets that you've put in place, continued organic investment you make. As you think about the ability to continue on sustain the pathway of your long-term growth targets, how much are you working on in terms of the dynamics of visibility within your own business, not just to the Street, but ensuring that on a quarter-by-quarter basis, some of the, I guess, I'd call it, lumpiness that we've seen in the last couple of quarters can smooth itself out. And how will this business evolve on that front in terms of that level of visibility and your ability to continue to convert successful sales, successful organic investment into the sustained long-term growth rate.

Britt Vitalone:

And Mike, maybe what I would add is while we have seen a little bit of variability quarter-to-quarter, one of the things that is just inherent in this business and we talked about this is the annual customer verification process that we do for a lot of our customers, and that usually happens in the fourth quarter. What I would say, though, is that what we are pleased with, if you go back to the guidance that we gave you at the beginning of the year in May, 14% to 20%. The guidance that we're giving you now to finish the year is really within the balance of that guidance. It's been, as I said, a little bit of variable quarter-to-quarter, but it's really in line with the guidance that we gave at the beginning of the year. And we're really pleased that while we've been investing in this business, both organically and through M&A, that we're seeing this business develop above the long-term target rates that we gave you at Investor Day. So while we've seen a little bit of -- a little more variability this year quarter-to-quarter than we may have seen historically, when you look at it on an annual basis and you look at it over the long term, which is how we manage the business, we're seeing this above the long-term target rates that we gave and really in line with the initial guidance we gave at the beginning of the year.

Lisa Gill:

Good afternoon everyone. I hope everyone is safe in Texas. Just wanted to go back to a couple of comments that you made around U.S. drug distribution. One would be the renewal with CBS through 2027. Just want to understand if there's anything new or nuance to that relationship? And then secondly, as we think about oncology within U.S. drug distribution, Britt, I don't know if it was you or Brian that made the comment that you're going to see higher growth and higher margin there. At what point does that become big enough that, that actually drives the margin? Or is that part of what we're seeing in the margin improvement today? Just any kind of guardrails you could give us around how to think about that on a go-forward basis as that business continues to grow.

Britt Vitalone:

And Lisa, maybe what I would add, what we've done over the last year or two through the development of Ontada, through the partnerships with Sarah Cannon Research Institute and Genospace, we're moving up the value chain. And so, we're leveraging the scale that we have in The US Oncology Network, the distribution scale, the GPO scale that Brian just talked about. We're adding more practices as Brian referenced earlier. And by moving up the value chain with more scale, we're very optimistic that, that's going to add to margin over the coming years.

Eric Percher:

Thank you. I appreciate the commentary on fiscal year '23 relative to long-term guidance targets. I believe last year at this time, you provided a little bit of forward commentary in advance, the formal guidance on the factors that might be worth keeping in mind as we all model fiscal year '24. What would you call out relative to those items that have been helping '23 and may or may not drive you above/below long-term guidance next year?

Brian Tyler:

Yes. I mean, the macro backdrop remains a bit dynamic, right? We've got China open, China closed, inflation, obviously, workforce dynamics we've dealt with. We've successfully, I think, contemplated that in our FY '23 guidance. Did not really assume any material impact and I think it's played out that way, and we'll be thoughtful about those as we go into '24 as well.

Charles Rhyee:

Hi, thanks for taking my question. I just wanted to touch a little bit on the Medical segment. Obviously, if we back out COVID, very strong growth here. And just wanted to dig a little deep to understand what's driving it? I know you mentioned the Primary Care business. But maybe you can go a little deeper into that. Is that a -- is there any changes in product mix? Or is this -- because I don't think its probably volume growth per se, but I think about your customers and their growth or new customer wins. Anything that you can kind of call out there would be helpful. And because the 25 obviously, is higher than the full year. And how should we think about that, maybe to Eric's question earlier, about thinking about '24 as well.

Britt Vitalone:

Yes. I would say that in the quarter, we identified that we had some strength in some of our sourcing programs, and that's really what drove above the trend that we've been seeing for the last really several years now. At our Investor Day, we talked about a long-term target rate of around 10%. We certainly are growing a little bit faster than that this year. Certainly, the volumes have been strong. And obviously, the sourcing programs were really a good contributor in the quarter. I think as you think about going forward, clearly, we've given the guidance for '23. But I would anchor you around the long-term growth rates that we've seen now really for the last three to four years. Those are good growth rates. They are good margins within this business. And we think that the Primary Care business is really going to be supportive of that 10% growth rate going forward.

George Hill:

Thanks for taking my question. Britt, I'm going to ask you to double check my math on this, which is if I look at your guidance for the Pharma segment for the full year, you're basically -- you have it growing 200 basis points faster for the balance of the year ex COVID, which I assume if I annualize, is going to look like something greater than 6% versus preliminary expectations or at least going into the quarter. I guess, could you talk about what's driving that at the core? And can we think about kind of the sustainability of the pockets of strength you're seeing in that business? Thank you.

Operator:

And next will be Steven Valiquette with Barclays.

Britt Vitalone:

As we've talked about previously, this has been a stronger flu season that we've seen historically. It really started in our first quarter. We talked about in our first quarter that there was an extension of the illness season from our fiscal 2022. It's not a material driver to the enterprise. It certainly does drive more visits. We're seeing that the illness season is driving not only vaccines and test flu test kits but also some combo kits, which is -- which started last year. So, it's not a material driver to the enterprise. It certainly does drive more foot traffic and that certainly is beneficial to other products and services that we have, not only in Medical but in Pharma.

Brian Tanquilut:

Thank you, guys. I guess just to follow up on Lisa's question and Britt's comments on the oncology side. It sounds like you guys are looking to get more aggressive with the roll-up of Oncology Networks, and it seems like there's consolidation there. So, as I think of catalysts and maybe like big moves in that space, I mean, do you see opportunity with -- or should we be thinking about the Sarah Cannon partnership as an opportunity that could bring a big chunk of new doctors into the network in the coming years? Or how should we be thinking about that? Thank you.

Rachel Rodriguez:

And we have time for one more question, please.

A.J. Rice:

Thanks for everyone. Maybe just to get you to expand, if possible, a little bit more on your comments around specialty and the development of biosimilars. I guess if you look out over the next few years, we have a significant number converting. I know it depends in your business on how that drug is administered today and how it's -- the patient receives it but as to how much benefit you'll derive. But is there a way to talk about how you see that progressing over time? And then maybe another aspect of that is we hear from a number of players that they're expecting to put more resources behind specialty and grow. Can you give us a little bit of a sense of how you assess the competitive landscape at this point and your positioning?

Operator:

Thank you for joining today's conference call. You may now disconnect, and have a great day.

Rachel Rodriguez:

Thank you, operator. Good afternoon, and welcome, everyone, to McKesson's second quarter fiscal 2023 earnings call. Today I'm joined by Brian Tyler, our Chief Executive Officer; and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question-and-answer session. Today's discussion will include forward-looking statements such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's earnings release and presentation slides available on our website at investor.mckesson.com, and to the Risk Factors section of our periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. Information about non-GAAP financial measures that we will discuss during this webcast, including a reconciliation of those measures to GAAP results, can be found in today's earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and updated guidance assumptions. With that, let me turn it over to Brian.

Britt Vitalone :

Thank you, Brian. And good afternoon, everyone. We're pleased to report solid financial results for our fiscal second quarter, which reflect operating execution and progress against our growth strategies. As a result of our fiscal second quarter operational and financial performance, combined with our strong financial position and outlook for continued execution in the second half, we are narrowing and increasing our full year fiscal 2023 adjusted earnings per diluted share outlook to a range of $24.45 to $24.95. Let me start with a few company updates before reviewing our second quarter results. During the quarter we made meaningful progress refining and strengthening our portfolio. We completed several key transactions executing against our disciplined capital allocation framework. Let me begin with Europe. As Brian mentioned on October 31, we completed the sale of certain European operations and other assets with the Phoenix Group. We're pleased that we were able to close this transaction sooner than our original fiscal 2023 guidance. To date we've successfully exited 11 of the 12 European countries that we operated in, and Norway remains the only country that we have not entered into an agreement to sell, and we continue to explore strategic alternatives to exit Norway. Our European exit activities have created a focused portfolio, streamlined capital allocation, and it positions the company for growth in oncology and biopharma services. Next, I'm pleased to report on substantial progress with respect to our oncology and biopharma services growth strategies. Let me start with oncology. In June, we announced an agreement to form a joint venture combining McKesson's U.S. Oncology Research and HCA Healthcare Sarah Cannon Research Institute, including the acquisition of Genospace, Sarah Cannon's personalized medicine platform. On October 31, we closed the transaction and successfully formed the joint venture. McKesson has a 51% ownership interest and will consolidate the results of operations within our U.S. Pharmaceutical segment, beginning with our fiscal third quarter. This transaction further advances our oncology ecosystem, which contains a broad range of scaled and differentiated assets and capabilities. For fiscal 2023, we anticipate that this transaction will have an immaterial impact on our results. We expect the joint venture and the Genospace acquisition to be $0.10 to $0.20 accretive by the end of fiscal 2026 on an adjusted earnings per share basis. Let me next move to biopharma services. In September, we announced an agreement to acquire Rx Savings Solutions, a prescription price transparency and benefit insight company that offers affordability and adherence solutions to health plans and employers. Today, we announced the completion of the acquisition of Rx Savings Solutions, which will be included in our Prescription Technology Solutions segment. The addition of Rx Savings Solutions complements our existing biopharma services assets and supports our vision to improve access affordability and adherence. We anticipate this transaction will represent a modest headwind to fiscal 2023. We anticipate that Rx Savings Solutions will be $0.50 to $0.60 accretive by the end of fiscal 2026 on an adjusted earnings per share basis. As you've heard me say before and as is the case with all our recent acquisitions, we prioritize the deployment of capital towards growth directly on our stated strategies of oncology and biopharma services in a manner that delivers sound financial returns. These transactions represent capital deployment that make both great strategic and great financial sense. Moving to a review of our second quarter fiscal 2023 results. My comments today will refer to our adjusted results on a year-over-year basis, unless I state otherwise. Consolidated revenues of $70.2 billion increased 5%, reflecting growth in the U.S. Pharmaceutical segment, partially offset by lower revenues in the International segment, which were a result of our European divestiture activities. Gross profit was $3.1 billion for the quarter, a decrease of 7%. Excluding the impact of our European business operations and completed divestitures, gross profit increased 5%, primarily a result of increased volumes in our U.S. Pharmaceutical segment. Operating expenses in the quarter decreased 11%, largely driven by completed European divestitures in the International segment and lower opioid litigation costs. Operating profit was $1.2 billion, a decrease of 6% due to lapping of prior year equity investment gains within McKesson Ventures portfolio and completed divestitures in the International segment, partially offset by growth in the U.S. Pharmaceutical segment. When excluding the impact related to the distribution of COVID-19-related products and net gains and losses associated with McKesson Ventures equity investments, operating profit increased 6%. Moving below the line. Interest expense was $55 million in the quarter, an increase of 22% primarily due to the unfavorable impacts in our derivative portfolio as we exit the European region. These impacts were partially offset by a net reduction of debt year-over-year. And the effective tax rate was 19.9% for the quarter. Wrapping up our consolidated results. Second quarter diluted weighted average shares outstanding was 144.1 million, a decrease of 8%, resulting from share repurchases in fiscal 2022 and the first half of fiscal 2023. Overall, second quarter adjusted earnings per diluted share was $6.06, a decrease of 1% compared to the prior year. Moving now to our second quarter segment results, which can be found on Slides 7 through 12 and starting with U.S. Pharmaceutical. Revenues were $60.1 billion, an increase of 12% year-over-year, resulting from increased volume of specialty products, including higher volumes from retail national account customers and market growth, which was partially offset by branded-to-generic conversions. Operating profit increased 3% to $756 million, led by growth in the distribution of specialty products to providers and health systems, partially offset by lower demand of COVID-19 vaccine distribution. The contribution from our contract with U.S. government for COVID-19 vaccine distribution provided a benefit of approximately $0.24 per share in the quarter compared to $0.28 per share in the second quarter of fiscal 2022. Excluding the impact of COVID-19 vaccine distribution, the U.S. Pharmaceutical segment delivered operating profit growth of 5%. In the Prescription Technology Solutions segment, revenues were $1 billion, an increase of 9% year-over-year, driven by growth in prescription volumes in our third-party logistics business and technology service revenues. Compared to Q1, revenues were lower due in part to the timing of customer-driven promotional activity recognized in the first quarter in our third-party logistics business. Operating profit decreased 2% to $141 million driven by higher operating expenses resulting from the timing of increased head count to support customer annual verification activities, which include hub and patient support programs. Moving now to Medical Surgical Solutions. Revenues were $2.8 billion, a decrease of 9%, as growth in the primary care business was offset by lower sales for COVID-19 tests year-over-year. Operating profit decreased 4% to $307 million driven by lower sales of COVID-19 tests, partially mitigated by performance within primary care distribution. Within our Primary Care business, we continue to see the effect of a stronger flu season when compared to the prior year. The 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 approximately $0.33 per share in the quarter compared to $0.44 per share in the second quarter of fiscal 2022. Excluding the impact of COVID-related items, the Medical Surgical Solutions segment delivered operating profit growth of 7%. Next, let me address our international results. Revenues were $6.2 billion and operating profit was $137 million, a decrease of 16%. On an FX-adjusted basis, revenues were $6.9 billion, a decrease of 25% and operating profit was $151 million, a decrease of 7%. Second quarter results reflect the year-over-year effect from the divestitures of McKesson's UK and Austrian businesses. Moving on to Corporate. Corporate expenses were $144 million, an increase of 73% year-over-year. During the quarter, we had net losses of $3 million related to equity investments within the McKesson Ventures portfolio compared to net gains of approximately $97 million in the second quarter of fiscal 2022. As a reminder, the impacts on consolidated results can be influenced by the performance of each individual investment quarter-to-quarter. As a result, McKesson's investments may result in gains or losses, the timing and magnitude of which can vary for each investment. The year-over-year impact from our McKesson Ventures portfolio was partially offset by lower opioid-related litigation expenses in the quarter. We incurred opioid-related litigation expenses of $9 million in the second quarter, and we anticipate that fiscal 2023 opioid-related litigation expenses will be approximately $50 million. Turning now to our cash position, which can be found on Slide 13. As a reminder, our cash position, working capital metrics and resulting cash flows can each be impacted by timing and vary from quarter-to-quarter. We ended the quarter with $2.9 billion in cash and cash equivalents. During the first six months of the fiscal year, we made $222 million of capital expenditures, which include investment in distribution center capacity and automation and investments in technology, data and analytics to support growth priorities, including our oncology and biopharma services ecosystems. For the first six months of fiscal 2023 and 2022, we had negative free cash flow of $56 million and $109 million, respectively. Year-to-date, we returned $1.6 billion of cash to our shareholders, which included $1.5 billion of share repurchases and $139 million in dividend payments. And we have $5.8 billion remaining on our share repurchase authorization. Let me turn now to our fiscal 2023 outlook. A full list of our assumptions can be found on Slides 15 through 18 in our supplemental slide presentation. And I'll begin with our consolidated outlook. Our fiscal 2023 guidance assumes 3% to 7% revenue growth and 4% decline to 2% growth for operating profit compared to fiscal 2022. Let me provide updated guidance for contribution from COVID-19 programs. Our revised guidance includes $1.45 to $1.65 of contribution attributable to the following items

Eric Percher :

Thank you. Question with respect to the strength in pharma on the op profit line, and I think you differentiated that strength coming from provider and health system versus the national account. Can you give us some sense for what you think is going on with the macro trend? If that's continuing to run stronger, how much of this is driven by specialty distribution specifically? And then do you think that there's an element of investments you made in specialty fiscal year '19 to '21 and or ongoing investments that are also helping generate above-market trend?

Britt Vitalone :

Eric, this is Britt. Maybe I'll just make a comment on the investments. We have been investing in this space, and we talked about investments that we were making specifically in Ontada, which has become a really important part of really the breadth of assets and capabilities we have in oncology. And Brian referenced today a strategic alliance that we're forming within Ontada with BeiGene, which is a good example of making investments for future growth. And we're just going to continue to do that and lean into oncology. We think that we have differentiated assets and really the breadth of services and capabilities we have from distribution, data and analytics, our Ontada business and now with the Sarah Cannon Research joint venture, we feel well positioned to continue to lean in and make investments there.

Operator:

And next is Michael Cherny with Bank of America.

Brian Tyler :

Yeah. Sure, Michael. I'll take the first part of that question, and then Britt can take the second part. So relative to the hiring, there is a annual component to some of these programs where we have to reverify patients' eligibility and such. And it is, I guess, you could call it seasonal or a spike, if you will. We don't expect it to be temporary. It's recurring every year. Candidly, as we came into this period with the labor market looking like it was looking we were probably aggressive in trying to make sure we could secure those resources ahead of time. And frankly, we didn't treat as much as we'd want. So I think is a good reflection of McKesson as an employer of choice in the marketplace. But those two things pinched us, but we think we'll work through that over the coming quarters.

Rachel Rodriguez:

Next question, please.

Lisa Gill :

Thanks very much. And good afternoon. I just want to go back to a couple of the comments that you made on the call. One, you talked about stable utilization and demand being resilient. I'm just curious, how are you thinking about the impact of flu? It's been a couple of years since we've had a severe flu season. That's expected, at least based on what we've seen in the Southern Hemisphere. And then secondly, when we think about the impact of the CVS renewal, Brian or Britt, one of the things that have took out to me over the years is that McKesson never calls out a renewal as being a headwind. But I'm just curious, one, is there any impact that you're absorbing from that renewal? And two, are there any incremental services or anything else that you would call out with the relationship with CVS?

Rachel Rodriguez:

Next question please.

Steven Valiquette :

Great, thanks. Good afternoon, everybody. Thanks for taking the question. So you guys normally don't call out very many monthly trends, which I think everybody kind of understands. But back at that investor conference in September, you guys did call out that roughly 7% prescription volume growth across your business in fiscal 1Q ending in June, and you mentioned that July was kind of softer versus that trend. So I guess, just to put that to bed, was July just kind of an anomaly? Maybe you could just speak to prescription trends kind of exiting the quarter versus what you saw in that July. If July was just an anomaly, it'd be good just to kind of address that and just put that to bed. Thanks.

Rachel Rodriguez:

Next question, please.

Charles Rhyee:

Yeah. Thanks for taking the question. Just a point of clarity on the MedSurg Solutions guidance. Just to -- maybe I missed it earlier. Just -- can you just remind us? You talked about upping the guidance related to the kitting part, the one we look at the -- obviously, top line is better. What were the factors for the decline? Is that just FX-related? Or can you just remind -- maybe I just missed it, I apologize.

Rachel Rodriguez:

Next question, please.

Kevin Caliendo :

Thanks. Thanks for taking my question. In the MedSurg side, you noted growth in the Primary Care business. Can you call out like what's happening there? Is that a change in doc visits? Is it you're able to generate more revenue from primary care? Is it a mix issue? Just any more color on what's happening there, it would be interesting.

Rachel Rodriguez:

Next question please.

George Hill :

Hey, good evening, guys. And I appreciate you taking the question. I guess I'm going to ask one more on the medical segment. I guess I would expect that we're starting to see a decline in utilization as it relates to PPE, which probably is reflected in the updated guide. I guess could you talk, Brian, a little bit about product categories where you're seeing strength and product categories where you might be seeing weakness? Just probably focusing a little less on site of care it. Just would like to know which product categories are reflecting positively versus negatively.

Rachel Rodriguez:

Next question please.

Brian Tanquilut :

Good afternoon, guys. Britt, just a question on the guidance rate on the vaccine and kitting side. Obviously, there's a lot of discussion about how the uptake in the vaccine is pretty slow. So just curious what your assumptions are that prompted you to raise that guidance for vaccinations. Thanks

Rachel Rodriguez:

Next question please.

AJ Rice:

Thanks. Hi, everyone. Just on your initiative around it's access, adherence and affordability in the biopharma segment, I wonder if you could just walk us through the economic model associated with that. Is it fee-based compensation shared results somehow that you're getting? And then you say the step-up -- you offered the step-up in Rx Savings accretion over the next year is pretty dramatic. What are the milestones to get to that accretion target?

Rachel Rodriguez:

Next question please.

Liz Anderson :

Hi, guys. Thanks so much for the question. I appreciate the update you gave us on sort of the pieces -- moving pieces in the Prescription Technology Solutions. Ex what you were talking about in terms of the guidance step-down for the the logistics business, can you talk about how sort of some of those other core businesses in that segment are doing in terms of CoverMyMeds or some of the others that we've heard have contributed over time?

Britt Vitalone :

Lumpiness.

Rachel Rodriguez:

And we have time for one more question, please.

Erin Wright :

Great. Thanks for taking my question, Britt and Brian. So on the HCA JV, I guess, can you speak to how this positions you in the oncology arena? And can you speak to the financials of the deal? I think from a longer-term perspective, you mentioned some 2026 contributions, but maybe some of the near-term contributions there. And will this help to explain the types of deals that you'll be focused on kind of going forward in terms of partnerships and JVs that are relatively open in terms of that versus outright acquisitions? Thanks.

Britt Vitalone :

The one other thing maybe that I would add, just as a reminder for this JV, we will have 51% of the earnings of the JV. And so we'll be recording that. The $0.10 to $0.20 accretion that I referenced is related to that 51% ownership that we have, and it's specific to the combination of this JV and the JV's activities. There are probably a number of synergies that are unrelated to this. There's a flywheel effect of having it and combining it as part of the overall oncology ecosystem that we're not including at this time. So we'll continue to watch this over time as the JV comes together and forms and some of these synergies really come into play, but we're excited about what it's going to bring to the overall oncology business at McKesson.

Operator:

And thank you for joining today's conference call. You may now disconnect. And have a great day.

Rachel Rodriguez:

Thank you, operator. Good afternoon, and welcome, everyone, to McKesson's first quarter fiscal 2023 earnings call. Today I'm joined by Brian Tyler, our Chief Executive Officer; and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question-and-answer session. Today's discussion will include forward-looking statements such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's earnings release and presentation slides available on our website at investor.mckesson.com, and to the Risk Factors section of our periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. Information about non-GAAP financial measures that we will discuss during this webcast, including a reconciliation of those measures to GAAP results, can be found in today's earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and updated guidance assumptions. With that, let me turn it over to Brian.

Britt Vitalone:

Well, thank you, Brian. And good afternoon. We are pleased to report June quarter financial results that continue to demonstrate our ability to grow our businesses and execute effectively as a diversified healthcare services company. Our fiscal first quarter results are ahead of our expectations, reflecting progress against our strategic priorities, demonstrating the continued strength of our operations. Let me begin today with a few company updates before reviewing our first quarter results. I want to start with Europe and our ongoing focus to streamline our portfolio. Over the past few years, we've taken deliberate actions to streamline the business and deploy capital more effectively, ensuring the organization is operationally efficient in delivering solutions that are focused in solving our customers’ biggest challenges. This is exemplified by our actions to exit European region announced in July of 2021. Since that time we've divested or entered into agreements to sell business operations in 11 of the 12 countries in which we operate. To date, we've successfully closed the following transactions. In the fourth quarter of fiscal 2022, we completed the sales of our Austrian business in the remaining share of our German joint venture. In April of 2022, we completed the sale of our UK retail and wholesale operations. And in July of 2022, we completed the sale of our Denmark business. The transaction with the Phoenix Group to sell operations in other certain assets in several European countries is also proceeding well. We anticipate it will close in the second half of fiscal 2023 subject to regulatory reviews. We continue to explore strategic alternatives to exit remaining operations in Norway, the only country that we've not yet entered into an agreement to sell. For fiscal 2023, we anticipate our remaining European operations will contribute adjusted operating profit of approximately $0.85 to a $1.15 per diluted share, which includes accretion resulting from the held-for-sale accounting through the transaction with the Phoenix Group. As discussed at our December Investor Day, we intend to deploy capital through share repurchases to offset the dilution resulting from the European divestitures. Exiting operations in Europe allows us to focus on another important strategic priority, expanding our Oncology and Biopharma services ecosystems. We took an important step this quarter in our Oncology ecosystem. In June, we announced an agreement to form a joint venture combining McKesson’s US Oncology Research and HCA Healthcare’s Sarah Cannon Research Institute, including the acquisition of Genospace, Sarah Cannon's personalized medicine platform. The combination of these assets complements our existing operations. It aligns to our strategic growth priorities. It supports our vision to improve care in every setting. The transaction is anticipated to close by the end of calendar year 2022, again, subject to regulatory review and approval. We do not anticipate this transaction will have a material impact on our fiscal 2023 adjusted earnings per share outlook. Next, as Brian mentioned earlier, our contract with the U.S. government to serve as a centralized distributor for COVID-19 vaccines was recently extended through July of 2023. And the contract for the kitting and storage of ancillary supplies was extended through January of 2023. I will discuss the impact of fiscal 2023 guidance later in my remarks. Finally, I want to point out one additional item that will impact our fiscal second quarter GAAP only results. In July of 2022, McKesson exited one of its investments in equity securities for proceeds of $179 million. We will recognize a GAAP only gain within other income in the second quarter. Moving now to a review of our first quarter fiscal 2023 results. My comments today will refer to our adjusted results, on a year-over-year basis, unless I state otherwise. Consolidated revenues of $67.2 billion increased 7%, reflecting growth in the U.S. Pharmaceutical segment, partially offset by lower revenues in the International segment, as a result of the European divestiture process. Gross profit was $3 billion for the quarter, a decrease of 4%. Excluding the impact of our European business operations and completed divestitures gross profit increased 9% a result of organic growth in our Medical-Surgical Solutions segment, increased volume specialty products in our U.S. Pharmaceutical segment and growth in the Prescription Technology Solution segment. Operating expenses decreased by 10% in a quarter due to completed divestitures in the International segment. As a result operating profit was $1.1 billion for the quarter; an increase of 4% led by growth in U.S. Pharmaceutical and improved prescription transaction volumes in the Prescription Technology Solution segment. When excluding the impact related to the distribution of COVID-19 related products and services and gains and losses associated with McKesson Ventures' equity investments, operating profit increased 13% year-over-year. Interest expense was $45 million in the quarter, a decrease of 8% due to a net reduction of debt year-over-year. And the effective tax rate was 18.4% for the quarter. Wrapping up our consolidated results, first quarter diluted weighted average shares outstanding were 145.9 million, a decrease of 8% year-over-year resulting from share repurchases throughout fiscal 2022 and the first quarter of fiscal 2023. Overall, first quarter adjusted earnings per diluted share was $5.83, an increase of 5% compared to the prior year. Now onto our first quarter segment results, which can be found on slides seven through twelve and starting with U.S. Pharmaceutical. Revenues were $56.9 billion, an increase of 14% year-over-year, resulting from increased specialty product volumes, led by retail national account customers and market growth, which was partially offset by branded to generic conversions. Operating profit increased 4% to $711 million led by growth in distribution of specialty products to providers and health systems, generic launches and improved performance of Ontada, which is partially offset by lower volumes of COVID-19 vaccine distribution. The contribution from our contract with the U.S. government for COVID-19 vaccine distribution provided a benefit of approximately $0.18 per share in the quarter, which is compared to $0.30 per share in the first quarter of fiscal 2022. Excluding the impact of COVID-19 vaccine distribution, the U.S. Pharmaceutical segment delivered operating profit growth of 9%. Results in the quarter benefited from the timing of generic launches and the improved performance of Ontada. Operating margins were modestly lower in the quarter impacted by mix. As the growth from health systems in multi-specialty providers were partially offset by robust retail national account customer growth, which contributed 7% to the overall 14% year-over-year top-line growth. Next is Brian noted earlier, our Prescription Technology Solutions segment delivered another strong quarter. Response to our access, affordability and adherence solutions continue to be strong across biopharma providers and payers. The scale and expanded suite of offerings continued delivered for all stakeholders, including patients. Revenues were $1.1 billion an increase of 21% year-over-year driven by volume growth from biopharma services, which includes third-party logistics services and increased technology service revenues. Operating profit increased 19% to $165 million reflecting the continued favorable market acceptance to a growing set of access, affordability and adherence solutions. Moving down to Medical-Surgical Solutions. Revenues were $2.6 billion an increase of 3% year-over-year as growth in the primary care business, partially offset anticipated lower demand in sales for COVID-19 tests and lower contribution from kitting, storage and distribution of ancillary supplies for the U.S. government’s COVID-19 vaccine program. Operating profit increased 4% to $268 million driven by strength across the primary care business; improve volumes in greater incidents of respiratory illness and the flu contributed to higher testing in patient visits in the primary care business. The contribution from COVID-19 tests and our contract with U.S. government for the kitting, storage and distribution of ancillary supplies provided a total benefit of approximately $0.25 per share in the quarter compared to $0.35 per share in the first quarter of fiscal 2022. Excluding the impact of these COVID-related items, the Medical-Surgical Solutions segment delivered operating profit growth of 20%. Next, let me address our International results. Revenues were $6.5 billion. An operating profit was $138 million, which was a decrease of 19%. On an FX adjusted basis, revenues were $7.1 billion, a decrease of 23%. An operating profit was $152 million, a decrease of 11%. Our first quarter results reflect the impact from the divestitures in McKesson UK and Austrian businesses. Moving on to Corporate. Our Corporate expenses were $145 million, a decrease of 6% year-over-year. In the quarter, we recognized a tax receivable gain related to our previous change healthcare investment and lower opioid-related litigation expenses. We incurred opioid-related litigation expenses of $19 million in the first quarter; we anticipate that the fiscal 2023 opioid-related litigation expenses would be approximately $45 million. During the quarter, we had net losses of $22 million related to equity investments within the McKesson Ventures portfolio, which compares to net gains of approximately $7 million in the first quarter of fiscal 2022. As a reminder, the impacts on our consolidated results 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. It’s difficult to predict when gains and losses on McKesson Ventures portfolio companies may occur. And, therefore, our practice has been and will continue to not include McKesson Ventures portfolio estimates in our guidance. Let me turn to our cash position, which can be found on Slide 13. As a reminder, our cash position, working capital metrics and resulting free cash flow can be impacted by timing and vary from quarter-to-quarter. We ended the quarter with $2.2 billion in cash and cash equivalents. During the quarter, we made a $100 million of capital expenditures, which includes investments in technology, data and analytics to support our growth priorities, including our oncology and biopharma services ecosystems. For the quarter, we had negative free flow of $1 billion. We also returned $1.1 billion of cash to shareholders during the June quarter, which included $1 billion of share repurchases and $71 million in dividend payments. In July, our Board of Directors approved a 15% increase to our quarterly dividend to $0.54 per share. And the board also approved a new $4 billion share repurchase authorization, which brings the total remaining share repurchase authorization to $6.3 billion. Our fiscal 2023 guidance per share repurchases remains unchanged. These actions demonstrate the confidence that the Board of Directors and management have in the execution against our strategic priorities. Our capital deployment principles remain firmly in place. We prioritize growth by investing internally and through M&A our focus continues to center on the areas of oncology and biopharma services, including the expansion of access affordability and adherence solutions. Next, we’ll continued to return capital to shareholders through a combination of our growing dividend and share repurchases. And the third piece of the framework focuses on a strong balance sheet and financial position, which is underpinned by the maintenance of our investment grade credit rating. Let me turn to our fiscal 2023 outlook, starting with a consolidated view. I’ll walk you through the key items beginning with additional details of fiscal 2023 consolidated guidance. A full list of these assumptions can be found on Slides 15 through 19 and our supplemental slide presentation. On a reported basis our fiscal 2023 guidance assumes 3% to 7% revenue growth and flat to 6% operating profit decline compared to fiscal 2022. When excluding the impacts related to the U.S. government’s centralized COVID-19 vaccine and kitting distribution programs, COVID-19 tests and net gains or losses associated with McKesson Ventures equity investments. We anticipate adjusted operating profit to increase 4% to 10%. We also anticipate corporate expenses in the range of $550 million to $620 million, which includes the impact of net losses associated with McKesson Ventures equity investments in the first quarter. Given the current interest rate environment, we now anticipate interest expense to modestly increase and be in the range of $205 million to $225 million. Our anticipated full year effective tax rate of approximately 18% to 20% remains unchanged. Based on our first quarter results are continued solid operating performance in each segment and the contract extensions with the U.S. government for COVID-19 vaccine distribution and the kitting, storage and distribution of ancillary supplies. We are increasing our guidance range for fiscal 2023 to $23.95 to $24.65 from the previous range of $22.90 to $23.60. Our fiscal 2023 outlook aligns with the previously communicated long-term growth targets, and it demonstrates the commitment to deliver sustainable growth. Our revised guidance also includes $0.99 to a $1.29 of contribution attributable to the following items. $0.35 to $0.45 related to the U.S. government’s vaccine distribution in our U.S. Pharmaceutical segment. $0.75 to $0.95 related to COVID-19 tests in the kitting, storage and distribution of ancillary supplies in our Medical-Surgical Solutions segment, and $0.11 of net losses associated with McKesson Ventures equity investments. Excluding the impacts of these COVID-19 related items and net gains and losses from McKesson Ventures equity investments from both fiscal 2023 guidance and fiscal 2022 results. Our fiscal 2023 adjusted earnings guidance indicates approximately 10% to 15% growth over the prior year. Moving now to the segment outlook. In the U.S. Pharmaceutical segment, our outlook reflects the solid operating performance in the first quarter, the efficiency and durability of our core distribution platform and continued development of our oncology ecosystem. We anticipate reported revenue to increase 11% to 14% in operating profit to decline approximately 1% to 3% growth year-over-year. Our outlook includes approximately $0.35 to $0.45 related COVID-19 vaccine distribution, a result of the previously outlined contract extension. When excluding impact of COVID-19 vaccine distribution for the U.S. government, we anticipate 4% to 6% operating profit growth, which is modestly above the long-term growth target. In the Prescription Technology Solutions segment, we now anticipate revenue growth of 15% to 21% and operating profit growth of 16% to 22%, which reflects increased affordability solution volumes. In the Medical-Surgical Solutions segment, we anticipate reported revenues to 3% to 7% and operating profit to decrease 5% to 10%. Our outlook includes approximately $0.75 to $0.95 related to COVID-19 tests and the kitting, storage and distribution of ancillary supplies for the U.S. government, which incorporates the contract extension with the U.S. government to January of 2023. Excluding the impact of these COVID-19 related items, we anticipate Medical-Surgical operating profit to increase 11% to 17%. And finally, in the International segment, we continue to anticipate revenues to decline by 34% to 38% and operating profit to decline by 22% to 28%. And this year-over-year decrease includes a loss of operating profit contribution from businesses and transactions we’ve closed to date. And those we expect to close during fiscal 2023. Let me conclude our fiscal 2023 outlook with a few comments on cash flow and capital deployment. In fiscal 2023, we continue to anticipate free cash flow of approximately $3.2 billion to $3.6 billion, which is net of property acquisitions and capitalized software expenses. As a reminder, our working capital metrics and resulting cash flows vary from quarter-to-quarter. Each working capital metric can be impacted by timing and in fiscal 2023 are cash flows including the progression of these cash flows may be impacted by European divestiture activity. Our fiscal 2023 outlook incorporates plans repurchase approximately $3.5 billion of shares. Significant portion of the share buyback assumption is associated with mitigating the year-over-year impact of European divestitures. As a result of the share repurchase activity we estimate weighted average diluted shares outstanding for fiscal 2023 to be in the range of approximately $142 million to $144 million. To wrap up we are pleased with our solid start to the fiscal year. We continue to deliver on our growth strategy as diversified healthcare services company. Our talented associates continue to deliver exceptional performance. Our first quarter financial performance reflects their dedication and their execution in a dynamic operating environment. And it also represents the resiliency of our portfolio. Looking ahead, the combination of our solid first quarter financial performance, our growth strategy and continued execution positions McKesson to deliver sustainable long-term performance and shareholder value creation. With that let me turn it back to the operator for your questions.

Lisa Gill:

Thanks very much. Thanks very much and good afternoon. Thanks Brett, for all of the color. I just wanted to go back and make sure I just understand just a couple of things. One, the comment around macro economic trends being immaterial, I know last year you had some wage inflation or gave people bonuses. I'm curious as to what you're seeing right now around wages? And then secondly, want to make sure that I understand how POA works. Is that just a pass through? So as we've seen rising oil prices and higher gas prices, is that something that you can just pass along to your customer and that's why it's a material to you?

Rachel Rodriguez:

Next question, please.

Michael Cherny:

Good afternoon and congratulations on a really nice quarter. As I think about the OpEx management in the quarter, it was something that clearly stood out relative to the outperformance. Aside from some of those dynamics on wage investments, what are some of the push and polls you're seeing in the OpEx line relative to last year? And how should we think about the trajectory of OpEx, at least in terms of the percent of revenue as what, in terms of what you can both manage as well as what will clearly benefit as you get more leverage from faster growth, some of these incremental revenue upside pull troughs?

Rachel Rodriguez:

Next question, please.

Steven Valiquette:

Yes, thanks. Good afternoon, everyone. So yes, if we go back to the analyst day back in December, you guys talked about 12% to 14% EPS growth, excluding COVID and some of the European dilution. I'm trying to quantify what – how that's tracking in Fiscal 2023 ex-those items. So I think on Slide 19, I actually slide 15 apologize. You show the 10% to 15% growth, excluding those items. I'm wondering is that the closest proxy for how this fiscal year is tracking relative to that 12% to 14% metric that you talked about previously? Thanks.

Rachel Rodriguez:

Next question, please.

Eric Percher:

Thank you. Question relative to the contract extension with the government and first, are there any changes in the scope of operations for [indiscernible], would you potentially support Novavax or Pfizer? And that'd be interested in your perspective on normalization of distribution of both vaccine and COVID therapies over time?

Eric Percher:

Just your thought on the normalization of distribution into all distributors, both for [indiscernible] and COVID therapies. Are you seeing some of that for your channels?

Rachel Rodriguez:

Next question, please.

Ricky Goldwasser:

Yes. Hi, good afternoon, and congrats on a great quarter. So I have a soft question on the COVID vaccines. If we think about the step-up in guidance for vaccines and kitting, how much of that and has it, or was already captured in the $0.54 beat in the quarter versus your expectation going forward? So that's question number one. And then secondly, to follow up somewhat on Eric's question, I think Moderna said today that they expect the commercial market in 2023 for vaccines. So just – can you maybe help us frame it? How should we think about it? Is this – would this be on top of sort of the contract that you have with the U.S. government, or would that be in lieu off?

Britt Vitalone:

Yes. Thank for the question, Ricky. So again, I think if you look at our slide presentation, we've tried to call out here, what the big changes are in our guide. Certainly a portion of our first quarter was a result of the increase in both vaccine distribution and the kitting storage and COVID test kits. COVID test kits, as we told you in our guidance would be lower than FY 2022. That has certainly been the case, although it was slightly ahead of our own internal expectations. We continue to expect that test kits will be significantly lower than last year. They are a little bit ahead of our expectations. So in our first quarter, some of the COVID related items and programs did drive some of the upside, but certainly our operating performance was strong. You can see that from the slide that talks about our guidance increase, that there is a significant portion of the increase that's related to those COVID programs, but there's also a very strong component that's related to our operating performance.

Rachel Rodriguez:

Next question, please.

Kevin Caliendo:

Thank you. Thanks for taking my question. So if I'm looking at the, the growth, just looking at revenue growth and the pharmaceutical segment and the med-surg segment, trying to back out the, the benefit of COVID just the guidance range, you apparently are growing faster than market you're raising numbers. Is this a macro thing, because we're not seeing utilization necessarily at the levels that you're growing at? Are you just in the right markets? Are you taking share, can you maybe talk about whether it's a competitive dynamics? Is it just that you're in ASCs and all the utilizations moving there on the med-surg side, what's driving your faster than market growth in those two segments?

Rachel Rodriguez:

Next question, please.

Eric Coldwell:

Thanks. Can you hear me? Hello?

Eric Coldwell:

Yes, sorry. Thank you. Following on to an earlier question about the OpEx, SG&A control the incredible upside in that number. I guess my follow on or twist would be versus street gross margin was, I think also materially lower those two are offsets. We see this substantial variance in the, the P&L each and every quarter. I think where the streets just way too high on one number and way too low in the other, they offset and all as well. But I was hoping to get maybe a little more color on what in your mind, if you could think about where the street was, why would gross margin be perhaps lower than consensus expectations to a lesser extent than OpEx was upside, but what would be the major gross margin factors or things we should be considering moving forward?

Rachel Rodriguez:

Okay. Next question, please.

Charles Rhyee:

Yes, thanks for – yes, thanks for taking the question. I wanted to ask about the prescription technology solutions. I recall the comments about, demand is strong and you can then make investments and I guess, what I looking at the guidance though, looks like the revenue growth though, is a little bit down. I might have missed it, but can you remind just mention, what's happening there? Obviously it looks like the – income guidance is up though. Just if you could just maybe clarify that a little bit?

Brian Tyler:

Yes, I think the key is the, the margin profile of the products and the services themselves is very stable, not improving, but the mix is a pure mix effects. And 3PL tends to be a high revenue, relatively low margin component of this business.

Operator:

Certainly and that question will come from Brian Tanquilut with Jefferies.

Brian Tyler:

Yes, sure. We're really excited about this. There were two parts to the acquisition. The first is the JV partnership with HCA, which brings Sarah Cannon and the USOR organizations together in the first instance, I'd say, they're both really very community provider facing organizations, both involved in clinical research. We think that community pharmacy and bringing, I mean, community oncology and bringing the community practices more prominently into clinical trials and the development of new medications is going to be important for all, overall health outcomes. So we look to see tremendous complementary across the brands, across the teams and really across the areas, we've each historically invested in. So we're really excited. We're excited to be partnered with HCA in this initiative. And the second component of that was the acquisition of an asset called Genospace. Really think about that as a complimentary data and analytics complement our other capabilities like Ontada, but this is going to help us do trial matching and recruiting, support clinical decision, support and really just become another component of this oncology ecosystem that we talk about. So we're really excited about this. We're obviously still, in the phase of waiting for regulatory approvals and pending closed, but we're really excited about this and as another important step in building out our community based oncology ecosystem.

Operator:

Thank you for joining today's conference call. You may now disconnect and have a great day.

Rachel Rodriguez:

Thank you, operator. Good afternoon, and welcome, everyone, to McKesson's fourth quarter fiscal 2022 earnings call. Today I’m joined by Brian Tyler, our Chief Executive Officer; and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question-and-answer session. Today’s discussion will include forward-looking statements such as forecasts about McKesson’s operations and future results. Please refer to the cautionary statements in today’s earnings release and presentation slides available on our website at investor.mckesson.com and to the Risk Factors section of our periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. Information about non-GAAP financial measures that we will discuss during this webcast, including a reconciliation of these measures to GAAP results, can be found in today’s earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and updated guidance assumptions. With that, let me turn it over to Brian.

Britt Vitalone:

Thank you, Brian, and good afternoon. Today, I'll discuss our fourth quarter and full year fiscal 2022 results, then I'll outline our fiscal 2023 guidance. At our Investor Day in December, we discussed the transformation underway at McKesson. Distribution remains a core part of our company. However, we continue to advance and grow as a diversified health care services company, built on differentiated assets and strategies we're executing, delivering sustainable earnings growth across our businesses. As we articulated then, our confidence is based on three interconnected factors

Michael Cherny:

Good afternoon and thanks for obviously a ton of details. So I want to think about just the cadence of the year, if I can, a little bridge, just to make sure. Should we assume, based on the timing of the CDC contract, that pharma growth should be heavier in the first quarter of the year? And how should we think about any other components of cadence and how it should filter through the year relative to some of the more identifiable items like the COVID benefits and other components?

Rachel Rodriguez:

Next question, please.

Eric Percher:

Thank you. Brian and Britt, kind of, standard question on initial guidance. As you've looked at your budget for the year, I'd be interested to hear what the risks and opportunities look like, recognizing you have a $0.70 range on $23 and potentially $0.40 of that attributable to COVID. So you're feeling that there's relatively little variance and what are the factors that would drive you high or low?

Rachel Rodriguez:

Next question, please.

Charles Rhyee:

Thanks for taking the question. Britt, you talked about how your COVID related businesses really tracks with the incidence of COVID in the country. We are seeing cases rise, at least to date, that's what the data seems to be showing. But at the same time, right, it seems like there's overall less testing sort of a less emphasis. Maybe you can talk about maybe trends that you're seeing currently? And what does an endemic phase of COVID look like, or how are you guys thinking about that as we think -- if we move into an endemic phase for COVID? Thanks.

Britt Vitalone:

And, Charles, maybe just getting back to the question that Eric asked as we think over the year, things that could get us to the higher or the low end of the range. Clearly, COVID test has a lot of variability in that. We've given you our best estimate based on the trends that we've seen, which is really that, as Brian talked about, that declining level of cases in testing. But, certainly, if a variant does come back and cases begin to rise again, that would be something that we would watch for. And we would anticipate that COVID testing would follow the trajectory of cases.

Operator:

Thank you. Our next question comes from Lisa Gill with JPMorgan. Ms. Gill, please check your mute button on your…

Lisa Gill:

Sorry, I’m here. Thank you very much for all the detail. I just want to understand a couple of things, as we think about the guidance. One, I know you made a comment earlier on when we think about supply chain and inflation that you have some things built into your guidance. You talked about the inflation on the side of wage inflation. One, could you carry that through into 2023 on a permanent basis? And then secondly, if I think about your medical supply business, you have historically had a private label product that was coming, if I remember correctly, from Asia. So has there been any impact due to supply constraints on that side of the business?

Britt Vitalone:

And maybe just Lisa, I'd just add on, we have a very comprehensive sourcing strategy and we source our products really in a very diverse way across many different countries. And one of the things that we're really proud about and focused on is our approach to responsible and sustainable sourcing. And we've really taken a lot of actions along those lines to also diversify our partners across the products that we serve. So we feel like we have really good strong sourcing program in place, and we feel well-positioned.

Operator:

And our next question comes from Steven Valiquette with Barclays.

Britt Vitalone:

Yeah, I'd say that the cadence would be very similar to what I gave you on a consolidated basis. Now we do expect that the transaction that we talked about with PHOENIX is going to close in the second half of fiscal 2023. So I guess it would be more first three quarters loaded than just half-and-half. As it relates to 2024, I think it’s little early to start talking about that. We've talked to you about the fact that Norway and Denmark are still two countries that we're evaluating opportunities for to fully exit this. It's too early to really talk about any transactions along those lines. And we still operate those businesses, and we’ll just continue to evaluate opportunities to exit that. But those are -- those continue to be countries that we operate in.

Operator:

Thank you. We’ll take our next question from Ricky Goldwasser with Morgan Stanley.

Britt Vitalone:

Thanks for the questions, Ricky. Let me try to take those in order. Let me first talk about Europe. We've tried to lay out here for you as transparently as we could what the European contribution was in FY 2022. And then we talked about what we thought the operations would contribute in 2023. We fully intend to exit Europe. And what we've also said is that when we do that, the loss contribution from those earnings, we would replace with capital deployment, principally share, share buybacks. And we've tried to lay that out for you. And so, yes, the way we've laid it out for you is that you should think about Europe eventually going away and being replaced by capital deployment. As it relates to the comment on the US Pharmaceutical segment, let me break it up this way. When you think about excluding the COVID-related items, which, again, we've talked about those pretty transparently since the beginning, we had 2% growth year-over-year. We did talk about beginning on our second quarter earnings call that we were making additional investments into our US-based businesses to have continuity of service through labor expenses. That accounted for about 2% of the year-over-year impact in the US Pharmaceutical business in the fourth quarter. And so, I wanted just to make that comment. It's nothing different than we've talked about before. We talked about the contribution that we'll be making and the investment we'd be making about $0.20 for the year. That, for the US Pharmaceutical segment, was about 2% in the quarter. So that's why we called that out, just as a sort of a confirmation of what we've talked about previously.

Operator:

Thank you. We'll take our next question from Kevin Caliendo with UBS.

Britt Vitalone:

As we think about 2023, wouldn't think that there would be much change in terms of the mix within those two businesses. We're continuing to see good strength in our primary care business in the medical business. We expect that will continue into FY 2023. And in our RxTS business, I mean, we had strong growth on the revenue line, we had 26% growth in operating profit. So we had strong performance at the margin line as well. And we expect that our adherence and access programs will continue to have growth as we move into 2023. So I wouldn't guide you to any different mix in 2023 than we’ve seen in 2022.

Operator:

Thank you. Our next question comes from Eric Coldwell with R.W. Baird.

Brian Tyler:

I don't know that we can speak to the delta. We can speak to the guidance that we provided. As we look at the litigation, the litigation calendar, open issues that are ahead of us. This is our best view based on what we know today of what we would anticipate to spend and defending ourselves against these suits. And that number we provided was $40 million.

Brian Tyler:

That is the legal expense. I mean that is $40 million for legal defense, right?

Rachel Rodriguez:

Next question, please.

Elizabeth Anderson:

Hi, guys. Thanks so much for the question. I was wondering if you could talk about the relative contribution of pricing increases to the revenue growth in your three remaining segments and the outlook that you provided for 2023?

Rachel Rodriguez:

Next question, please.

George Hill:

Hey good evening guys, and I appreciate you taking my question. I guess, Britt, I would ask if you could talk a little bit about inside of the Pharmaceutical segment, kind of, the difference between what's happening in the core wholesaling business versus the more manufacturer facing services businesses? And I guess, are they both performing in line and positively, or is there a meaningful divergence on how the -- what I would call the pharmacy facing business is performing versus the manufacturer facing business is performing?

Brian Tyler:

Yeah. And I'd just say, we've created RxTS segment to give you visibility into how that business is performing, and we're quite pleased that both the core pharma and RxTS business. Our forward guide for FY 2023 is in line. And in the case of RxTS exceeding what we said in December, we thought was a long-run growth target. So we're very pleased with both those businesses and feel we're very well positioned.

Operator:

Thank you for joining today's conference call. You may now disconnect.

Rachel Rodriguez:

Thank you, Keith. Good afternoon and welcome everyone to McKesson's third quarter fiscal 2022 earnings call. Today I'm joined by Brian Tyler, our Chief Executive Officer, and Britt Vitalone, our Chief Financial Officer. Brian will lead off followed by Britt, and then we will move to a question-and-answer session. Today's discussion will include forward-looking statements, such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's earnings release and presentation slides available on our website at investor.mckesson.com and the risk factors section of our periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. Information about non-GAAP financial measures that we will discuss during this webcast, including reconciliation of these measures to GAAP results can be found in today's earnings release and presentation slides. The presentation slides also include a summary of our results for the quarter and updated guidance assumptions. With that, let me turn it over to Brian.

Britt Vitalone:

Thank you, Brian. And good afternoon, everyone. I'm pleased to be here today to discuss our fiscal third quarter results, which reflects another quarter of strong performance across the business driven by operational execution against our growth strategies. In the third quarter, we delivered overall growth compared to the prior year results across each of our segments including growth over the prior year on excluding COVID-19 related programs. Let me start with an update on Europe. We remain committed to fully exit the European region and the progress of our exit activities are on track. Today we announced the transactions to sell our Austrian business to Quadrifolia Management and the sale of McKesson remaining share of our German joint ventures to Walgreens Boots Alliance closed on January 31 of '22. The assets involved in the Austrian transaction contributed approximately $1.5 billion in revenues and $50 million in adjusted operating profit in fiscal 2021. The earnings related to our German joint venture were immaterial. Next pursued to the satisfaction of customary closing conditions, including receipt of regulatory approvals. We anticipate the pending divestiture to sell McKesson's U.K. retail and distribution businesses will close in the fourth quarter of fiscal 2022. And the transaction to sell certain European assets to the PHOENIX Group will close in the first half of fiscal 2023. The net assets included in these transactions are classified as held for sale. Our fiscal 2022 guidance includes approximately $0.49 of adjusted earnings per diluted share accretion related to these pending transactions, which is recorded within our international segment. This $0.49 of accretion resulting from the held for sale accounting will conclude once each transaction is closed. For fiscal 2023, we currently anticipate approximately $0.10 of adjusted earnings per diluted share of accretion related to the held for sale accounting based on the current estimated close date for the PHOENIX Group transaction. Norway and Denmark remain the only countries that we have not entered into an agreement to sell. As previously discussed, we anticipate we'll deploy capital to offset dilution resulting from all European divestitures principally through share repurchases. Before I provide more details on our third quarter adjusted results, I want to point out one additional item that impacted our GAAP only results in the quarter. We recorded a gap only after-tax charge of $829 million related to the sale of retail and distribution businesses in the U.K. to account for the remeasurement of the net assets to the lower carrying amount or fair value, less cost to sell. These charges were largely driven by declines in the British pound sterling. Moving now to our adjusted results for the third quarter. Beginning with our consolidated results which can be found on Slide 7. As discussed in our Investor Day event in December, we manage the business for the long-term and our financial and strategic framework is focused on shareholder value creation. Our financial framework combined three key elements to generate sustainable adjusted EPS growth, organic growth, operating leverage and capital allocation. This framework is once again demonstrated by our strong third quarter fiscal 2022 results. Additionally, our leadership supporting the U.S. governments COVID-19 domestic and international vaccine and kitting efforts continues to contribute to growth and the momentum we have built across the business. Third quarter adjusted earnings per diluted share was $6.15, an increase of 34% compared to the prior year. This result was driven by strong operational performance across the segments. COVID-19 related items, which include the contribution from COVID-19 vaccine distribution, kitting and storage programs of the U.S. government. COVID-19 tests in fiscal 2021 impairments of personal protective equipment and related products, and a lower share count. Consolidated revenues of $68.6 billion increased 10% above the prior year, primarily driven by growth in the U.S. Pharmaceutical segment largely due to higher volumes from our retail national account customers. And branded pharmaceutical price increases, which were in line with our initial guidance, partially offset by branded to generic conversions. Adjusted gross profit was $3.4 billion for the quarter and increase of 8% compared to the prior year, which benefited from the increased contribution from our strong operational performance and previously mentioned COVID-19 programs and related items. Adjusted operating expenses in the quarter increased 1% year-over-year, excluding the impact of held for sale accounting and announced divestitures in the international segment adjusted operating expenses increased 2% year-over-year. Adjusted operating profit was $1.3 billion for the quarter an increase of 19% compared to the prior year led by strong operational performance across the segments. Moving below the line, interest expense was $41 million in the quarter and improvement of 25% compared to the prior year. Our adjusted tax rate was 19.6% for the quarter. And wrapping up our consolidated results, third quarter diluted weighted average shares were $153.5 million, a decrease of 5% year-over-year. Moving now to our third quarter segment results, which can be found on Slides 8 through 13. Starting with U.S. Pharmaceutical. Revenues were $55 billion, an increase of 11% year-over-year, driven by higher volumes from our retail national account customers and branded pharmaceutical price increases partially offset by branded to generic conversions. Adjusted operating profit increased 12% to $735 million driven by the contribution from COVID-19 vaccine distribution and growth in the distribution of specialty products to hospitals and community conditions. The contribution from our contract with the U.S. government, with the distribution of COVID-19 vaccines provided a benefit of approximately $0.26 per share in the quarter, which was in line with our expectations. In the prescription technology solution segment, revenues were $1 billion an increase of 33% higher volume growth related to biopharma services, including third-party logistics services and increased technology service revenue, partially resulting from the growth of prescription volumes. Adjusted operating profit increased a 11% to a $145 million driven by growth from access inherent solutions. We continue to experience growth across our broad spectrum, higher margin capabilities and offerings in this segment. We're pleased with the increased transaction volumes related to our access inherent solutions, and the increasing number of brands that joined our platforms this year. We also experienced increased volumes in our logistics and hub services, due to the continued recovery of prescription volumes. Moving now to Medical-Surgical Solutions. Revenues were $3.1 billion, an increase of 1% driven by growth in the primary care business, and the contribution from kitting, storage and distribution of ancillary supplies for COVID-19 vaccines, partially offset by lower revenue from COVID-19 tests in our primary care and extended care businesses as compared to the prior year. Adjusted operating profit increased 18% to $330 million driven by the contribution from kitting, storage and distribution of ancillary supplies for the U.S. governments COVID-19 vaccine program, the prior year impact of an inventory of impairment charge related to PPE that incurred in the third quarter of fiscal 2021 and growth in the primary care business. The contribution from our contract with U.S. government related to the kitting, distribution and storage of ancillary supplies for COVID-19 vaccines provided a benefit of approximately $0.31 per share in the quarter, which was above our original expectations. Next, let me address our international results. Revenues in the quarter were $9.5 billion, an increase of 2% driven by new customer growth in our Canadian business, and volume increases in the pharmaceutical distribution and retail businesses across the segment, which were partially offset by the contribution of McKesson's German wholesale business through joint venture with Walgreens Boots Alliance. On an FX adjusted basis, adjusted operating profit increased 41% to $223 million, driven by the reduction as compared to the prior year of depreciation and amortization. Uncertain European assets classified as held for sale, the distribution of COVID-19 vaccines and tests in Europe and strong distribution results in our Canadian business. The held for sale accounting in the international segment contributed $0.18 to adjusted earnings in the quarter. Moving on to corporate, adjusted corporate expenses were $159 million, an increase of 1% year-over-year. We incurred opioid related litigation expenses of $33 million for the third quarter. We anticipate that fiscal 2022 opioid related litigation expenses will be approximately $135 million. Let me now turn to our cash position, which can be found on Slide 14. We ended the quarter with a cash balance of $2.8 billion. For the first nine months of the fiscal year we generated free cash flow of $1.2 billion. Here to-date it made $380 million of capital expenditures, which included investments to support our strategic pillars of oncology and biopharma services. For the first nine months of the fiscal year, we returned $2.2 billion of cash to our shareholders, which included $2 billion of share repurchases and the payment of $206 million in dividends. At our Investor Day event in December, we announced that our Board of Directors approved an increase of $4 billion to our existing share repurchase program. At the end of our third quarter $4.8 billion remains on our share repurchase authorization. With this increased authorization, the completed sales of the Austrian business and remaining share in the German joint venture and the anticipated fiscal fourth quarter closure the sale of the U.K. business, we anticipate executing share repurchases of up to $1.5 billion in the fourth quarter. As a result, we now anticipate returning approximately $3.5 billion to shareholders through share repurchases in fiscal 2022. Our strong operating performance combined with our return of capital to shareholders, reinforces our commitment to driving the shareholder value. Let me transition and speak to our outlook for the remainder of fiscal 2022. A full list of our fiscal 2022 assumptions can be found in Slide 16 through 18. We continue to anticipate a full recovery of prescription volumes. However, the persistence of COVID-19 and its variants such as Omicron, is leading to a non-linear trajectory. In the U.S. Pharmaceutical segment, we anticipate revenue to increase 8% to 11% and adjusted operating profit to deliver 8% to 10% growth over the prior year. We continue to see stable fundamentals in our U.S. Pharmaceutical business. Specifically, our outlook for branded pharmaceutical pricing of mid single digits increases in fiscal 2022 remains consistent with both our original guidance and prior-year. In our view of the generics environment remains competitive yet stable. Our guidance remains aligned to the volume distribution schedule provided by the CDC and U.S. government, and includes the contribution related to our role as a centralized distributor for the U.S. government's COVID-19 vaccine distribution program. We will continue to update you in the progress and contribution from this program. When excluding COVID-19 vaccine distribution in the segment, we anticipate approximately 3% to 6% adjusted operating profit growth. And as a reminder, our investments in our leading and differentiated position in oncology will continue to represent an approximate $0.20 headwind in fiscal 2022. In our Prescription Technology Solutions segment, we anticipate revenue growth of 32% to 36%, and adjusted operating profit growth of 24% to 28%. This growth reflects the strong momentum in the business, as we project increased volumes across new and existing biopharma solutions and customers. Transitioning to medical surgical, our outlook assumes 15% to 19% revenue growth, and adjusted operating profit growth of 51% to 55% over the prior-year. Our outlook includes $0.85 to $1.05 related to the contribution from the U.S. government's distribution of ancillary supply kits, and storage programs and $0.75 to $0.95 related to the net impact of COVID-19 tests, and PPE impairments and related products. When excluding the impacts of these items in the segment, we anticipate 22% to 26% growth over the prior-year. One additional reminder related to our U.S. distribution businesses. On our earnings call in November, we discussed the highly competitive labor market, which continues to persist. We also outlined an assumption for modest labor related expense impact to ensure support of our talent strategy and continued service continuity through the second half of our fiscal year. Based on labor market trends experienced in the third quarter and our expectations for the remainder of the fiscal year, we continue to anticipate approximately $0.10 to $0.20 of adjusted operating expense impact in our U.S. distribution businesses in the second half of the year, weighted slightly higher in our Medical segment. Finally, in the International segment, our revenue guidance 2% decline to 1% growth as compared to the prior-year. And as a reminder, this reflects the impact from the contribution of our German wholesale business to a joint venture with Walgreens Boots Alliance in the third quarter of fiscal 2021. For adjusted operating profit, our guidance reflects growth in the segment of 43% to 47%. This includes approximately $0.49 of adjusted earnings accretion in fiscal 2022 resulting from held for sale accounting related to our agreement to sell certain European assets. Turning now to the consolidated view. Our increased guidance assumes 8% to 11% revenue growth and 24% to 27% adjusted operating profit growth compared to fiscal 2021. Our full-year adjustment effective tax rate guidance of 18% to 19% remains unchanged and we anticipate corporate expenses in the range of $570 million to $620 million an improvement from the previous range of $610 million to $660 million related to our focus on operating leverage, which we highlighted at our recent Investor Day event. Let me now turn to cash flow and capital deployment. We expect our businesses to continue to drive strong free cash flows and returns on capital even as we continue reinvesting to support sustainable long-term growth. This strong free cash flow generation provides financial flexibility to execute a balanced capital allocation approach including investing in our strategic growth pillars of oncology and biopharma services, while remaining committed to returning capital to shareholders through our growing dividends and share repurchases. Our investment grade credit rating remains a priority and it underpins our financial flexibility. For fiscal 2022, we continue to anticipate free cash flow of approximately $3.5 billion to $3.9 billion, which is net of property acquisitions and capitalized software expenses. As a reminder, historically, we generate a larger portion of our cash flows in the fourth quarter of our fiscal year. Our working capital metrics and resulting cash flows vary from quarter-to-quarter, impacted by timing, which could include the timing of planned European divestiture activity. We also now anticipate diluted weighted shares outstanding to range from 154 million to 155 million for fiscal 2022. This includes the impact of the anticipated 1.5 billion of fourth quarter share repurchases mentioned earlier. As a result of our strong year-to-date performance and our outlook for the remainder of the fiscal year, we are raising and narrowing our previous adjusted earnings per share guidance range to $23.55 to $23.95, which is above our previous range of $22.35 to $22.95. Our updated outlook for adjusted earnings per diluted share reflects 37% to 39% growth compared to the prior-year. Fiscal 2022 adjusted earnings per diluted share guidance also includes $2.99 to $3.59 of contribution attributable to the following items, $0.90 to $1.10, related to the U.S. government's COVID-19 vaccine distribution, $0.85 to $1.05 related to the kitting storage and distribution of ancillary supplies, $0.75 to $0.95 related to COVID-19 tests in the fiscal 2021 impairments for PPE and related products, which is an increase from the previous range of $0.50 to $0.75, and approximately $0.49 from gains and losses associated with McKesson Ventures Equity Investments which are within our corporate segment. Excluding the impacts of these items from both fiscal 2022 guidance and fiscal 2021 results, this indicates 27% to 33% forecast growth over the prior-year. When you pull it all together, our strong performance in our outlook equates to an adjusted earnings per diluted share guidance increase of $1.10 compared to our previous fiscal 2022 outlook provided at Investor Day, the $1.10 adjusted earnings per diluted share increase includes the following. Approximately $0.45 driven by strong underlying business performance and operating leverage, approximately $0.22 related to COVID-19 tests, approximately $0.22 related to held for sale accounting and reduced opioid litigation expenses, and approximately $0.20 related to NCI interest expense and lower weighted average shares outstanding. Let me spend just a minute providing some initial thoughts on fiscal 2023. I want to point out that we are not providing fiscal 2023 guidance at this time. However, I thought it would be instructive to walk you through some of the items that could impact fiscal 2023 as we sit here today. First, the COVID 19 pandemic continues to present many unknowns, we continue to expect to full recovery. However, it is likely to continue to be non-linear into fiscal 2023 and it could impact a quarterly cadence. In the U.S. Pharmaceutical and Medical Surgical Solution segments, our contracts with the U.S. government to serve as the centralized distributor of COVID-19 vaccines and to assist with the kitting storage and distribution of ancillary supplies are scheduled to expire in July of 2022. Outside of the contract with U.S. government for COVID-19 vaccine distribution, we anticipate normal customer renewal activity in the U.S. Pharmaceutical segment. As it relates to COVID-19 tests, we continue to anticipate the demand will be closely associated with a rate of COVID case levels and the impact from this will moderate from prior-year levels. For the International segment, we anticipate $0.10 of adjusted earnings per diluted share accretion in the first half of fiscal 2023 related to the held for sale accounting based on the current estimated closed date for the Phoenix Group transaction. We will no longer record revenue adjusted operating profit or held for sale accounting benefits related to these transactions once the transactions close. We anticipate that opioid litigation expenses will remain relatively in line with our fiscal 2022 guidance, until we have a completed assessment of government entity participation in the proposed settlement and a final determination regarding that settlement. We will continue to update you on the outcome of that determination and remaining opioid litigation expenses. We anticipate further investment to support the growth of our two key strategies of oncology and biopharma services. Overall, we continue to see strength and stability in the underlying fundamentals of the business heading into fiscal 2023 and we remain optimistic about future growth opportunities. We'll share more details with you about our fiscal 2023 outlook at our fourth quarter earnings call in May. In closing, we are pleased with the results of our fiscal third quarter and we have a strong financial outlook. McKesson continues to deliver strong results as we successfully execute against our strategic and financial framework. We continue to focus on the things that matter most to our customers, patients and shareholders as a diversified healthcare services company. I want to thank you and thank all of our employees for all their hard work and dedication. Now I'll turn the call over to the operator for your questions.

Eric Percher:

Thank you and appreciate the commentary on fiscal year '23. At this point, one thing I want to zero in on relative to the EU. So you'll remove most of the factors $0.10 of benefit continuing to flow through. As you speak to offsetting with repurchase, is that part of what the repo that you suggested for Q4 is getting in front of and do you expect your - how will you judge that? Will you judge it over the full fiscal year given that the timing is still variable?

Rachel Rodriguez:

Next question, please.

Lisa Gill:

Thanks very much. Good afternoon, and thanks for all the detail. Britt, I just want to go back and talk about inflation. You talked a little bit about labor. And I know you and Brian talked last quarter about some special bonuses and increasing wages. But how do we think about wages going forward as we continue to have wage inflation would be my first part of the inflation question. And then secondly, as we think about product inflation, or transportation, I know generally speaking, it's a passthrough on the pharmaceutical side of things. But how do we think about any PPE on your medical side of your business?

Brian Tyler:

We will stay on top of the market, we'll be responsive to it, we got a lot of confidence in our team's ability to adjust. And we actually think we've got an asset in terms of the company culture, our purpose, our mission, the investments we make in our teams, we think this is a great place to work and we'll continue to find ways to attract the best talent.

Operator:

And next will be Charles Rhyee with Cowen. Please go ahead.

Brian Tyler:

Thank you for the question. I think you addressed it to Britt, but I'll jump in and start with my thoughts. I mean, so this we think we're extremely well positioned in this marketplace. And one of the things when we're anchoring our growth strategies, we try to anchor around is making sure we have differentiation that we have things that are difficult to replicate. And the reason we brought these businesses together as a segment is because we think individually, they all had their strengths and we're winning in their market, but collectively together accessing the reach of our networks, utilizing the advanced technologies, we have in CoverMyMeds and then the clinical expertise and the biopharma relationships, we had in RxCrossroads, they kind of reinforce and compound each other. And so we think about the access as distinct market, adherence is a distinct market, outcomes is a distinct market, but by putting these together, it allows us to really more effectively compete across all of those some of that is reinventing a better solution for a market that exists. That's sort of what we did with AMP, we brought in infusion of technology to really redesign and greatly enhance the value we deliver to manufacturers, giving us what we think is a significant competitive advantage. We'll continue to do those kinds of innovations as we grow into it. I mean, it is a pretty fragmented landscape. There are some competitors names you know, there's frankly lots of little ones. This is an area that we would like to use the strength of our balance sheet to be acquisitive, to be additive to that ecosystem through additional capability or additional scale. As long as we find that strategically aligned asset and it can meet our financial hurdles and stand up well to other means, we have to deploy capital, we'll certainly look to execute on that.

Operator:

And the next one will be from Jailendra Singh with Credit Suisse. Please go ahead.

Brian Tyler:

Let me take those in two pieces. We're pleased with another quarter of strong operating performance and obviously saw growth across each of our segments. So as we look at the outlook for the remainder of the year, we expected the momentum in our business is going to continue. And we haven't provided any guidance as it relates to FY '23 but in our Investor Day, we did provide long-term targets where we suggested and felt very confident that we'll continue to see growth in each of those segments for the long-term. So we feel very good about the performance that we're seeing in our business and consistent with our Investor Day, we expect that to continue. So I think that is really the point that you should see just continued strong performance for several years now across all of our segments with the fundamentals of our businesses are strong, we're investing in these businesses for future growth. And we're in markets that we think are going to continue to grow and we're in very good positions to take advantage of that with some differentiated capabilities.

Operator:

And next will be Michael Cherny with Bank of America.

Britt Vitalone:

Mike, thanks for the question. Maybe I'll start, and then I'll let Brian jump in here. Again, I - as we think about it, and some of the things that I mentioned here. We do expect a full recovery of prescription transaction volumes. And we're certainly pleased that transaction volumes have continued to increase throughout the year, it has not been in a straight line. But we do expect that full recovery to continue. We're very well positioned in the specialty clinic space, as well as on oncology, making investments in those areas that we think are going to continue to pay off over the long-term. And biosimilars is one of those areas that given our position, particularly in oncology. We believe that it's going to be a growth driver for us over the long-term. We're pleased with the development of biosimilars to this point, we think that they offer a better returns than branded and specialty products, not at the same level as generics from a margin perspective. But still, were we believe and were optimistic that they're going to continue to add value to the segment over time. So the position that we have, the strength that we have across segments, but particularly our differentiated capabilities in oncology. Your positions is very well for further growth.

Operator:

And next will be Brian Tanquilut with Jefferies.

Britt Vitalone:

Thanks for the question, Brian. Maybe I'll just start just to remind you, since fiscal '19, this business has grown at 10% from an adjusted operating profit perspective. On the core basis outside of COVID programs. So we've seen strong growth in this business now for a number of years. It's one of our higher margin segments. We have very strong positions across the primary care segment of the business. And across all alternate sites, your extended care business has grown nicely over time as well. We've added a lot of capabilities and investment over time, whether that be acquisitions to position us well in lab. We've seen private brand be an important component. And we've seen growth in Rx as well. So we've got a lot of capabilities across the entire alternate site. We've invested in these capabilities over time. It's positioned us well, not only from a core perspective, but certainly now as COVID has taken on. We've been in really good position to handle the kitting and the storage programs as well.

Operator:

And next will be Rick, excuse me, Ricky Goldwasser with Morgan Stanley.

Britt Vitalone:

Ricky, let me take the first one. And then I'll let Brian come on the second. Just because more mechanical question. As I mentioned in my comments, we do expect to offset any dilution from the European divestitures through capital deployment. And that could be share repurchase activity like we're doing in the fourth quarter. So just to reaffirm that we will be - we do plan on offsetting that dilution.

Rachel Rodriguez:

We have time for one more question.

Steven Valiquette:

Thanks. Good afternoon. I also have a question just around the - your comment around the normal customer renewal activity in fiscal '23. I guess I just wanted to make sure and confirm the messaging around that. So I guess first, can you remind us how customer renewal activity and any related pricing step downs trended for fiscal '22. In those, if that activity is going to be normal in '23. Is that net positive, net negative or net neutral. As you think about the how all that flows year-over-year? Hopefully that question makes sense. Thanks.

Brian Tyler:

Great. Well, thanks again, everyone for joining us on this call. And thank you for the insightful and very thoughtful questions. Keith, thank you for help facilitating the call. I wanted to just conclude by reiterating McKesson executed really well in the third quarter with double-digit adjusted operating profit growth in all segments. I continue to be excited about the focus on our company priorities and the contributions we can see that making the strong financial results. It's really the driver between - the driver of our shareholder value creation. So none of that happens without the team that makes up McKesson. And so, to everyone, in McKesson, no matter what your role, no matter what geography you work in, whether you're on the frontline or elsewhere in the business. I'm so appreciate of their hard work, their dedication to our purpose and our mission. Their commitment to our customers. They really are what makes this a special place. So thanks to them. Again thank you everyone, I hope you have a terrific evening. Be safe and stay healthy.

Rachel Rodriguez:

Thank you, Sarah (ph.). Good afternoon and welcome everyone to McKesson's Second Quarter Fiscal 2022 Earnings call. Today, I'm joined by Brian Taylor, our Chief Executive Officer, and Britt Vital one, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question-and-answer session. Today's discussion will include forward-looking statements such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's press release and our slide presentation, and to the risk factor section of our periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. During this call, we will discuss non-GAAP financial measures. Additional information about our non-GAAP financial measures, including reconciliation of those measures to GAAP results is included in today's press release and presentation slides, which are available on our website at investor.McKesson.com. With that, let me turn it over to Brian.

Britt Vitalone:

Thank you, Brian. And Good afternoon, everyone. I'm pleased to be here today to discuss our fiscal second quarter results, which reflects strong performance and momentum across the business driven by operational excellence and execution against our growth strategies. This momentum can be seen in each of our segments. A summary of our second quarter results and updated guidance assumptions can be found in our earnings slide presentation, which is posted on the Investors section of our website. Let me start with an update on Europe. This morning, we announced that we've entered into a definitive agreement to divest our retail and distribution businesses in the UK to Aurelius for approximately $438 million. The ultimate proceeds from this transaction are subject to certain adjustments under the agreement. Therefore, the proceeds may differ from the announced purchase price. McKesson will continue to operate these businesses, and record revenue and income until the transaction is closed, which is expected to occur in our fourth quarter Fiscal 2022 pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals. The assets involved in this transaction contributed approximately $7.8 billion in revenue, and $64 million in adjusted operating profit in Fiscal 2021. The net assets included in the transaction will be classified as held-for-sale and held-for-sale accounting will be effective beginning with our fiscal 2022, third quarter. We will re-measure the net assets to the lower of carrying amount or fair value, less cost for sell. And we estimate that this will result in a GAAP only charge of between $700 to $900 million in our third quarter of fiscal 2022. Due to held-for-sale accounting treatment, we will discontinue recording depreciation amortization on the assets involved in the transaction. This impact is not included in the Fiscal 2022 outlook provided today. This transaction provides us the focus to pursue the growth strategies of oncology and biopharmaceutical services in North America. And as Brian mentioned, we remain committed to a full exit of our European businesses, which includes announced transactions to the Phoenix Group and Relias, as well as our remaining operations in Norway, Austria, and Denmark. Let me now turn to our second quarter results. Before I provide more details on our second quarter adjusted results, I want to point out two additional items that impacted our GAAP -only results in the quarter. First, we recorded a GAAP -only after-tax charge of $472 million related to our agreement to sell certain European businesses to the Phoenix Group. to account for the re-measurement of the net assets to lower accruing amount of fair value, less cost to sell. This transaction is expected to close within the next 12 months. Also, during the quarter, we recorded an after-tax loss of $141 million on debt extinguishment related to the successful completion of a bond tender offer. Moving now to our adjusted results for the second quarter, beginning with our consolidated results, which can be found on Slide 7. Our second quarter results were highlighted by strong operating performance, which included record revenue and double-digit adjusted operating profit growth across all segments. We are encouraged by the ongoing market improvement in both prescription volumes and patient visits, which we observed in our second quarter. These improvements are supported by our strategic agenda, setting us on a path of disciplined growth. In our work to support U.S. government's COVID-19 domestic and international vaccine and kitting efforts continues to contribute to growth in addition to the momentum we have built across the business. Second quarter adjusted earnings per diluted share was $6.15, an increase of 28% compared to the prior year. This was -- this result was driven by the contribution for the COVID-19 vaccine and kitting distribution and growth in the medical-surgical solution segment, partially offset by a higher tax rate. Second quarter adjusted earnings per diluted share also includes net pretax gains of approximately $97 million or $0.46 per diluted share associated with McKesson Ventures equity investments, as compared to $49 million in the second quarter of Fiscal 2021. Consolidated revenues of $66.6 billion increased 9% above the prior year, principally driven by growth in U.S. pharmaceutical segment, largely due to increased pharmaceutical volumes, including growth in specialty products, and our largest retail national account customers. And partially offset by branded-to-generic conversions. Adjusted gross profit was $3.3 billion for the quarter, up 12% compared to the prior year. Comparable adjusted gross margin for the quarter was up 10 basis points versus the prior year. Adjusted operating expenses in the quarter increased 4% year-over-year. And adjusted operating profit of $1.3 billion for the quarter, was an increase of 34% compared to the prior year and reflected double-digit growth in each segment. Interest expense was $45 million in the quarter, a decline of 10% compared to the prior year, driven by the net reduction of debt in the quarter. Our adjusted tax rate was 18.8% for the quarter, which was in line with our expectations. In wrapping up our consolidated results, second quarter diluted weighted average shares were 155.8 million, a decrease of 5% year-over-year. Moving now to our second quarter segment results, which can be found in Slides 8 through 13, and I'll start with U.S. Pharmaceutical. Revenues were $53.4 billion, an increase of 11% year-over-year as increased pharmaceutical volumes, including growth in specialty products and our largest retail national account customers we're partially offset by branded to generic conversions. Adjusted operating profit increased 12% to $735 million, driven by growth in the distribution of specialty products to providers and health systems and the contribution from COVID-19 vaccine distribution. The contribution from our contract with the U.S. government related to the distribution of COVID-19, provided a benefit of approximately $0.28 per share in the quarter, which is above our original expectations. In the Prescription Technology Solution segment, revenues were $932 million, an increase of 40%, driven by higher biopharma service offerings including third-party logistics services, and increased technology service revenue, partially resulting from the growth of prescription volumes. Adjusted operating profit increased 38% to $144 million, driven by organic growth from access in his year-end Solutions. Moving now to Medical-Surgical Solutions, revenues were $3.1 billion, an increase of 23% driven by increased sales of COVID-19 tests and growth in the primary care business. Adjusted operating profit increased 52% to 319 million driven by growth in the primary care business, increased sales of COVID-19 tests. And the contribution from kitting, storage, and distribution of ancillary supplies for the U.S. government's COVID-19 vaccine program. The contribution from our contract with U.S. government related to the kitting, distribution and storage of ancillary supplies for COVID-19 vaccines provided a benefit of approximately $0.14 per share in the quarter, which was above our original expectations. Next, let me address our international results. Revenues in the quarter were $9.1 billion, a decrease of 5% primarily driven by the contribution of McKesson's German wholesale business to a joint venture with Walgreens Boots Alliance, partially offset by volume increases in the pharmaceutical distribution and retail businesses. Excluding the impact from the contribution of our German wholesale business, which was completed in the third quarter of fiscal 2021, segment revenue increased 13% year-over-year, and was up 9% on an FX adjusted basis. Adjusted operating profit increased 41% year-over-year to a $163 million On an FX -adjusted basis, adjusted operating profit increased 34% to a $155 million, driven by the discontinuation of depreciation and amortization on certain European assets classified as held-for-sale beginning in the second quarter of Fiscal 2022. The held-for-sale accounting in our international business contributed $0.13 to adjusted earnings in our second quarter of Fiscal 2022. Moving on to corporate. Adjusted corporate expenses were $83 million, a decrease of 39% year-over-year, driven by gains of approximately $97 million or $0.46 from equity investments within our McKesson Ventures portfolio. This quarter we had fair value adjustments related to multiple portfolio companies within McKesson Ventures. Compared to fiscal 2021, gains from McKesson Ventures contributed $0.24 year-over-year. As previously discussed, it's difficult to predict when gains or losses on our Ventures portfolio companies may occur, and therefore, our practice has been, and will continue to be, to not include Ventures portfolio impacts in our guidance. We also reported opioid-related litigation expenses of $36 million for the second quarter and anticipate that fiscal 2022 opioid-related litigation expenses will be approximately $155 million. Consistent with the proposed settlement announced in July, we also made the first annual payment into escrow of approximately $354 million during the quarter. Let me now turn to our cash position, which can be found on slide 14. We ended the quarter with a cash balance of $2.2 billion, and for the first 6 months of the fiscal year, we had negative free cash flow of a $109 million. In Q2, we completed several debt transactions. In July, we redeemed a EUR600 million denominated note prior to maturity. In August, we completed a cash-funded up-sized tender offer, which resulted in the redemption of $922 million principal outstanding debt. And finally, we completed a public offering of a note in the principal amount of $500 million at 1.3%. These actions align with our previously stated intent to modestly deliver, and to further strengthen our balance sheet and financial position. Year-to-date, we made $279 million of capital expenditures, which included investments to support our strategic pillars of Oncology and biopharma services. For the first 6 months of the fiscal year, we returned $1.4 billion in cash to our shareholders through $1.3 billion of share repurchases. and the payment of a $134 million in dividends. We have $1.5 billion remaining on our share repurchase authorization and continue to expect diluted weighted average shares outstanding to range from 154 to $156 billion for Fiscal 2022. Let me transition now and speak to our outlook for the remainder of Fiscal 2022. For our full list of Fiscal 2022 assumptions, please refer to slide 16 through 19 in our supplemental slide presentation. As a result of our strong first-half performance and our outlook for the remainder of the year, we are raising our previous adjusted earnings per share guidance range for Fiscal 2022 to $21.95 to $22.55, which is up from our previous range of $19.80 to $20. And $0.40. Our updated outlook for adjusted earnings per diluted share reflects 27.5% to 31% growth from the prior year and our guidance assumes growth across all of our segments. Additionally, fiscal 2022 adjusted earnings per diluted share guidance includes $2.30 to $3.05 of impacts attributable to the following items

Lisa Gill:

Thanks very much. Good afternoon and congratulations on a great quarter. Britt, I appreciate your comments around what you're seeing as far as wage inflation goes. But one of the other questions we've gotten there as inflation is around, freight costs, can you remind us of how that works between the manufacturer and the drug distributor, and if you will bear any of those costs from a distribution perspective, or is it just the manufacturer that bears that costs? Are you able to pass those on to the customer? Just any color around that would be helpful.

Operator:

Ladies and gentlemen, you will hear music for just a brief moment while reconnect the speaker's line.

Operator:

Please proceed.

Operator:

Thank you. We'll take our next question from Michael Cherny with Bank of America.

Britt Vitalone:

Hey, Mike. This is Britt. Thanks for hanging in there. Let me just get back to Lisa's question just to finish that up. We are responsible for the freight from our distribution centers to our customers. To this point this year, we have not had an impact in our financial statements as a result of increased freight and we don't expect any of that in our guidance as well, so just to be clear on that. We did call out for you, investments that we're making in labor in the back half of the year, so that we can ensure the holiday season in the back half of the year for our customers has continuity. As it relates to your question, Mike, what we've really tried to do here is provide you some clarity on those items that are related to our distribution of COVID vaccines and ancillary kits, as well as the increase that we've seen in COVID test kits which have varied quite a bit from quarter-to-quarter over the last year. We've tried to isolate those for you so that you can have a good view into the operations of our core business. I would remind you that the first quarter this year was lapping a very low quarter from the prior year, which was really the first quarter post the COVID pandemic. So, the growth that you're seeing this year while strong, includes the first quarter which lapped a very low quarter due to COVID in FY21. We'll provide more detail for you on the core components of each of the segments at our Investor Day. We're very pleased with the performance that we've seen thus far, our core business has performed well. But again, I just would remind you that in addition to that, we did have that low quarter for lap in Q1 of last year.

Brian Tyler:

What Michael was -- just about the vaccine and kitting operation. We continue to run that operation at the direction of the CDC in accordance with the schedules -- the production schedules that they give us. It's obviously been quite dynamic over the past months. We are prepared and we'll continue to run that operation as long as the CDC sees value in it and asks us to do it.

Operator:

We'll take our next question from Charles Rhyee with Cowen.

Brian Tyler:

Thank you for the question. Look we're -- we continued -- this business is responsive to absolute levels of activity relative to prescription. volumes in the market. We continue to see benefits from the prior investments we've made and these technology services offerings, we do see a good underlying growth across the portfolio. Clearly, we've benefited from the recovery in COVID-19 related pandemic volumes. And honestly, some of the policy decisions payers would have made around the way they manage prior authorization, we're really seeing that market return to pre - COVID level conditions and requirements coming out of the payers. So, we believe as patients continue to start new prescriptions, this business is well-positioned to support -- and support the access and adherence to those medications. and we will continue to invest from that. We are seeing returns on some of the investments we highlighted for you in previous calls and things like AMP. And then we are components of this business that we haven't talked much about, like 3PL and we saw strong 3PL growth in the quarter.

Operator:

Thank you. We will take our next question from Kevin Caliendo with UBS.

Brian Tyler:

Yes, thanks for that question Kevin. Let me just maybe point out a couple of things. First of all, we're pleased with the continued performance of our U.S. Pharmaceutical segment, the momentum there is really good. There’re a couple things that we called out for you or I called out for you in my opening comments. First of all, the investments that we're continuing to make in our oncology business and Ontada, called that out as a $0.20 headwind year-over-year. And then, as I also talked about and you referenced, the labor investments that we're -- that we made into our business, our U.S. distribution businesses, those two things really had an impact on the growth of U.S. Pharma. And in our Medical business, we're really pleased with not only the performance against the U.S. government program, and the increase in COVID test kitting, which is really reflective of the strength of our Lab Solutions business. But we're pleased with the performance of our Primary Care business and the core business underneath our Medical business, in addition to labor investment that I called out. So, both businesses continue to have good momentum. In the case of our U.S. Pharmaceutical business, continuing to invest in oncology, as well as the labor investment in our medical business. And really continuing to leverage the strength of the Lab business, and the investments we made there. And we're seeing good performance in our Primary Care business.

Eric Percher:

Thank you. A question on the brand marketplace or maybe brand pricing in particular. I think you've made it pretty clear that the book is no longer tied in a material way to brand price increases. Given the reimbursement and policy debate going on, can you remind us what your view is of what could happen if we saw a change in list prices, particularly a downward change, and how you may or may not be exposed to that?

Brian Tyler:

Yeah. Just to build on that comment before we move on, I think 1 of the tenants we've always held through multiple changes in dynamics in the industry over my career here is our services provide real value. And regardless of how, what sorts of mechanisms get changed in the marketplace, we will continue to be paid fair market value for those services. As it relates to the public policy debate and it's as dynamic now as ever, I suppose, I think the main issues that we're discussing are issues that frankly have been long discussed. We are active at the Company with elected officials on both sides of the aisle on key policy priorities. We track these discussions very carefully. We're always advocating for the role of care being provided in the community. We obviously have very strong presence in the community channels, but we believe that fundamentally that's where you get the best access, the best care, and equally good quality. We have been at the forefront in many of the experiments, I suppose you could call them. Think about USAN and our value-based care. We've had robust participation in the oncology care models that's delivered substantial benefit to CMS. So, I think the mix is -- it's really -- it's not exactly clear where this will go. I think we have a lot of assets. We're engaged in the discussion. We'll find a way to navigate through them as they unfold. I mean right now, I think these are issues have been long discussed and well-discussed.

Operator:

Thank you. We'll take a -- from Brian Tanquilut with Jefferies.

Britt Vitalone:

Yes. Thanks for the question, Brian.Yeah, we're just going to guide to date Fiscal 2022. We thought that this was an investment that was important for our frontline associates, for our delivery drivers in others, to get us through 2022 with continuity. We're not guiding anything beyond that. So, I think you'd just take this as an important investment to make sure that our customers have the continued service that they would expect them to constitute a holiday season in the back half of the year.

George Chao:

Good afternoon, guys and thanks for taking the call. I guess -- Brian, I would ask you or Britt. I know that you guys have said a bit on the record in the past, just talking about not wanting to enter any big new businesses, but as you continue to retrench your way from Europe with a focus towards the U.S, I guess, is there any rethinking of the capital deployment priorities or an appetite for maybe bigger transactions?

Britt Vitalone:

And I think what you're seeing your by our actions is a focus on return on invested capital, really making sure that the -- where we allocate capital, it finds the highest returns in the Company and our actions thus far that you've heard us talk about the last couple of quarters have been focused on investing and moving capital away from lower returning assets to higher returning assets, and Brian's point are right on strategy.

Brian Tyler:

Next question.

Steven Valiquette:

Thanks. Good afternoon everybody. So, within the med-surg segment, clearly a lot of variables driving the strong profit growth there. On Slide 10, you mentioned the increased primary care business as one of those drivers. Are you able to comment just on the current level of patient volumes in the quarter, either as a percent of the pre-COVID baseline, either for your customer base or just your assessment of the overall U.S. marketplace for physician patient visits? Thanks.

Rachel Rodriguez:

Next question please.

Rivka Goldwasser:

Yes, hi. Good evening

Rivka Goldwasser:

Hi there. So, a quick flop on your last comment, you said pre - COVID levels, second half of your Fiscal year for the med-surg business, how should we think about when do we get to pre - COVID levels for the drug distribution? It sounded like specialty is already there, but how should we think about the segment in its entirety in core? So that was the follow up question. And then you're hosting the Analyst Day in December, so maybe you can you give us a sense of granularity around what should we expect from the day -- next month?

Britt Vitalone:

Yes. I think similar to Medical, we are pleased with the performance of volumes, they are approaching pre-COVID levels in pharmaceutical prescription volumes as we expected. So, I think as we look to the rest of the year, we expect that these prescription volumes will get back to what we guided originally in May, which is in line with those pre-COVID levels. So, we're continuing to see improved performance and improved volumes across all -- both brands, specialty and as well as generics. We expect that that will continue in the second half year.

Rachel Rodriguez:

Next question, please.

Jailendra Singh:

Thank you. Thanks for taking my questions here. Just wanted to make sure I understand what is in and what is not in the guidance respect to vaccine benefit. It seems you're not including the benefit from vaccines designated for kids or boosters short. Is that true on both vaccine distribution benefit and the benefits related to the kitting, storage and ancillary supplies as well? Just trying to understand if you see a reasonable adoption of boosters and vaccine among kids, will that drive incremental revenue in both bottom-line and med-surg?

Operator:

Thank you. And there are no further questions.

Operator:

Thank you for joining today's conference call. You may now disconnect, and have a great day.

Holly Weiss:

Thank you, Jenny. Good afternoon and welcome everyone, to McKesson's First Quarter Fiscal 2022 Earnings Call. Today, I'm joined by Brian Tyler, our Chief Executive Officer; and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question-and-answer session. Today's discussion will include forward-looking statements, such as forecasts about McKesson's operations and future results. Please refer to the cautionary statements in today's press release and our slide presentation and to the Risk Factors section of our periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. During this call, we will discuss non-GAAP financial measures. Additional information about our non-GAAP financial measures, including a reconciliation of those measures to GAAP results, is included in today's press release and presentation slides, which are available on our website at investor.mckesson.com. With that, let me turn it over to Brian.

Britt Vitalone:

Thank you, Brian, and good afternoon, everyone. I'm pleased to speak to you today about our strong first quarter results which reflecting importance of the products and services McKesson delivers, the execution and momentum across our business, which includes supporting US government's COVID-19 domestic and international vaccine and kitting efforts, and the recovery of prescription volumes and patient visits impacted by the COVID pandemic in the prior year. I'll begin my remarks today by sharing an update on our European businesses, followed by our first quarter results, and I'll close with an update for fiscal 2022 outlook. The summary of our first quarter results and updated guidance assumptions can be found in our earnings slide presentation, which is posted on the investor section of our website. In early July, we announced an agreement to sell our European businesses in France, Italy, Ireland, Portugal, Belgium and Slovenia to the PHOENIX group. This transaction includes our German Ag headquarters in Stuttgart, and our European shared service center in Lithuania. The purchase price for the transaction was approximately US $1.5 billion. The ultimate proceeds for this transaction are subject to certain adjustments under the agreement. Therefore the proceeds may differ from the purchase price. The assets involved in this transaction contributed approximately $12 billion in revenue and $75 million in adjusted operating profit in fiscal 2021. We've determined that this transaction shall not qualify for discontinued operations. And that asset included in the transaction we've classified as held for sale, and held for sale accounting is affected at the start of our second quarter of this fiscal year. We will re-measure the net assets to the lower of carrying amount or fair value, less cost to sell. And we estimate that this will result in a GAAP only charge between $500 million to $700 million in our second quarter of fiscal 2022. Due to help for sale accounting treatment we will discontinue recording depreciation amortization on the assets involved in the transaction. As a result of the help for sale accounting, we would guide to approximately $0.26 adjusted earnings accretion in fiscal 2022. This will be included in our updated outlook. And I'll outline those later in my remarks. McKesson will operate these businesses and record revenue and income until the transaction is closed, which is expected to occur in fiscal 2023. We're committed to exploring strategic alternatives for our remaining European businesses. And we'll provide details on the plans for the remaining businesses as they become available. Exiting Europe at this time is the right course of action for McKesson and our shareholders. And it'll sharpen the focus on our growth strategies in oncology and biopharma services. As we develop and grow a connected ecosystem. Let me now turn to our first quarter results. Before I provide more details on our first quarter adjusted results. I want to point out two items that impacted our GAAP only results in the quarter. First, during the June quarter, we committed to donate certain Personal Protective Equipment and related products to charitable organizations to assist in COVID-19 recovery efforts. In the quarter, we recorded $155 million of pretax inventory charges within our medical-surgical solution segment for inventory which no longer intend to sell, and will instead direct the previously mentioned charitable organizations. And secondly, on our May 6 earnings call, we outlined an initiative to rationalize office space in North America to increase efficiencies and support increased employee flexibility. These actions will result in the realization of annual operating expense savings of approximately $60 million to $80 million when fully implemented. Our guidance does not assume a material benefit in fiscal 2022. In the June quarter, we reported approximately $95 million of charges associated with this initiative. Moving now to our adjusted results for the first quarter, beginning with our consolidated results, which can be found on slide 7? First quarter adjusted earnings per diluted share were $5.56, an increase of 101% compared to the prior year. This result was driven by the recovery in prescription volumes and primary care patient visits from the COVID-19 pandemic, as we lap the most significant pandemic impacts in lockdowns Q1 of fiscal 2021; it also included a lower tax rate, and the contribution from COVID-19 vaccine distribution and kitting programs, with the US government. Consolidated revenues of $62.7 billion increased 13% to the prior year, driven by growth in the US pharmaceutical segment, largely due to higher volumes from retail and national account customers, and price increases on branded and specialty pharmaceuticals, which is partially offset by branded to generic conversions. Adjusted gross profit was $3.1 billion for the quarter, up 19% compared to the prior year. Adjusted operating expenses in the quarter increased 6% year-over-year led higher operating expenses to support growth in our core businesses and strategic investments, partially offset by the contribution of our German wholesale business to the joint venture with Walgreens Boots Alliance. Adjusted operating profit was $1.1 billion for the quarter, an increase of 55% compared to the prior year, which reflects double digit growth in each segment. Interest expense was $49 million in the quarter, a decline of 18% compared to the prior year, driven by the retirement of approximately $1 billion of long-term debt in fiscal 2021. Our adjusted tax rate was 11.3% for the quarter due to discrete tax items that were reported during the quarter. Our full year adjusted effective tax rate guidance of 18% to 19% remains unchanged. And our first quarter diluted weighted average shares were 158 million, a decrease of 3% year-over-year, driven by $1 billion of shares repurchased in the first quarter. Moving now to our first quarter segment results, which can be found on slide 8 through 12? And I'll start with US Pharmaceutical. Revenues were $50 billion, an increase of 12% driven by higher volumes in retail and national account customers and price increases on branded and specialty pharmaceuticals, partially offset by branded to generic conversions. Adjusted operating profit in the quarter increased 16% to $682 million, driven by the contribution from COVID-19 vaccine distribution and growth in Specialty Products distribution to our providers and healthcare systems, which was partially offset by higher operating costs, and supported a company's oncology growth initiative. Turning to Prescription Technology Solutions, we're very pleased with the strong growth and scale that we're building in this higher margin segment. The drivers for our Prescription Technology Solutions businesses continue to move in the right direction. First, we're seeing expansion in many of our services businesses, as we continue to add more manufacturing partners and programs for our existence solutions, such as electronic prior authorization, or access and adherence services, and 3PL. Second, our technology based platforms like Relay Health, support $19 billion clinical and financial transactions annually. From claims routing and the growing discount card market to alerts and adec that make the practice of pharmacy clinically safer and administratively more efficient. And we continue to invest in innovate to build a connected ecosystem of biopharma services, our next generation access and adherence solution, AMP is showing accelerated adoption in growth with new brands. This year, AMP is bringing its network enabled approach to hub services into support for oncology and specialty drugs covered under the medical benefit. We also continue to expand our clinical decision support capabilities in provider office workflow across every major HER. Our technology network stands at every touch point in the patient journey from doctor's office to benefit verification to dispensing pharmacy, which allows us to address barriers in the patient journey by adding unique automation that accelerates timed therapy and lowers patient out of pocket costs. In the June quarter, revenues were $881 million, an increase of 34% and adjusted operating profit increased 62% to $139 million, driven by higher volumes of technology and service offerings to support biopharma customers, organic growth from access and generic solutions and recovery of prescription volumes from the COVID-19 pandemic. Moving now to Medical-Surgical Solutions, revenues were $2.5 billion in the quarter, up 40% driven by improvements in primary care patient visits and increased sales of COVID-19 tests. Contribution per contract with US government to prepare and distribute ancillary supplies related to the COVID-19 vaccine provided a benefit of approximately $0.25 in the quarter, and we're above our original expectations. For the quarter, adjusted operating profit increased 107% to $257 million driven by improvements in primary care patient visits, and the contribution from kitting and distribution of ancillary supplies for the US government's COVID-19 vaccine program. Next, let me speak about international, revenues in the quarter were $9.2 billion, an increase of 8% year-over-year, excluding the impact from the divestiture of our German wholesale business, segment revenue increased 28% year-over-year, and was up 14% on an FX adjusted basis. Revenue was primarily driven by the contribution of our German wholesale business joint venture with Walgreens Boots Alliance, which was completed during the third quarter of fiscal 2021 and the recovery of pharmaceutical distribution retail pharmacy volumes, and the COVID-19 pandemic. First quarter adjusted operating profit increased 133% year-over-year to $170 million. On an FX-adjusted basis, adjusted operating profit increased 107% to $151 million led by the recovery of pharmaceutical distribution and retail pharmacy volumes from the COVID-19 pandemic, and distribution of COVID-19 vaccines and test kits in Europe and Canada. Moving on to corporate; for the quarter adjusted corporate expenses were $154 million, a decrease of 7% year-over-year, driven by decreased opioid litigation expenses. We reported opioid related litigation expenses of $35 million for the first quarter; we continue to estimate fiscal 2022 opioid related litigation expenses to approximate $155 million. I would remind you that while we've negotiated a comprehensive proposed settlement agreement until we know the scope of participation in proposed settlement, you're not in a position to revise our opioid litigation expenses outlook. Let men now turn to our cash position which can be found on slide 14. We ended the quarter with a cash balance of $2.4 billion. During the quarter, we had negative free cash flow of $1.8 billion. As a reminder, we're working capital metrics and resulting free cash flow vary from quarter-to-quarter, and were impacted by timing including the day in a week that marks the close of a given quarter. We made $159 million of capital expenditures in the quarter, which includes investments in technology data and analytics to support our strategic initiatives of oncology and biopharma services. As our business performed at a very high level, we were also able to return $1.1 billion of cash to our shareholders in the June quarter. This included $1 billion of share repurchases pursuant to an accelerated share repurchase program, which resulted in an initial delivery of 4.3 million shares in the quarter. Additionally, we paid $69 million in dividends. We have $1.8 billion remaining on our share repurchase authorization. And we're updating our guidance for diluted weighted shares outstanding, to range from $154 million to $156 million for fiscal 2022, which incorporates plans; repurchase an additional $1 billion of stock over the remainder of the fiscal year. Let me transition and speak to our outlook for the balance of fiscal 2022. For a full list of fiscal 2022 assumptions, please refer to slide 16 through 19 in our supplemental slide presentation, I'll begin by reiterating a couple of key macro level assumptions that underpin our fiscal 2022 outlook. We expect prescription and patient engagement volumes will demonstrate steady improvement from the levels at the end of our fiscal 2021 through the first half of our fiscal 2022 and return to pre COVID levels in the second half of our fiscal 2022. For fiscal 2022, our updated guidance for adjusted earnings per diluted share is a range of $19.80 to $20.40, up from our previous range of $18.85 to $19.45, approximately equally split between our first and second half of the fiscal year. Our updated outlook for adjusted earnings per diluted share reflects 15% to 18.5% growth from the prior year. And our guidance assumes core growth across all of our segments. In the US Pharmaceutical segment, we now expect revenue to increase 5% to 8% and adjusted operating profits to deliver 4.5% to 7.5% growth over the prior year. Our US Pharmaceutical segment continues to exhibit stable fundamentals. Our outlook for branded pharmaceutical pricing remains consistent with the prior year for mid single digit increases in fiscal 2022. And the generics market remains competitive yet stable, as volumes have shown signs of recovery. COVID-19 vaccine contribution contributed approximately $0.30 in the first quarter of fiscal '22. We are updating our full year outlook to approximately $0.45 to $0.55. The $0.45 to $0.55 range reflects an anticipated contribution of earnings for the fair value of services performed at the US government centralized distributor of COVID-19 vaccines, including work preparing vaccines for international missions. Our current outlook remains aligned to the volume distribution schedule provided by the CDC and the US government, which excludes booster shots and vaccines for pediatrics, which have not been approved by the FDA. We will continue to invest in our leading and differentiated physicians in oncology. These investments will represent an approximate $0.20 headwind in fiscal 2022. Normalizing for the COVID-19 vaccine distribution and our ongoing growth investments, we continue to expect approximately 5% to 8% core adjusted operating profit growth. In our Prescription Technology Solutions segment, we see revenue growth of 20% to 25%, and adjusted operating profit growth of 17% to 22%. This growth reflects the opportunities we see to accelerate service and transaction contributions, benefiting from our technology platforms. Now transitioning to Medical-Surgical, we continue to partner with the US government under our contract for the kitting and distribution of ancillary supplies and are updating our outlook to $0.35 to $0.45 of contribution in the segment related to kitting and distribution. This program scope and duration is evolving and our updated assumptions reflect the current outlook provided by the US government. Our revenue outlook assumes the 3% decline to 3% growth and adjusted operating profit to deliver 6% to 12% growth over the prior year. We continue to expect year-over-year core adjusted operating profit growth of approximately 10% to 16%. Finally, in the international segment, our revenue guidance is 1% decline to 4% growth as compared to the prior year. And as a reminder, this reflects the contribution of our German wholesale business to a joint venture with Walgreens Boots Alliance. For adjusted operating profit, our guidance's growth in segment of 26% to 30% due to the previously mentioned benefit in the discontinuation of depreciation and amortization, which followed the announcement of our agreement to sell certain European assets. Our strong performance in the first quarter and the contribution from COVID-19 vaccine distribution in the segment. Turning now to the consolidated view, our guidance assumes 4% to 7% revenue growth and 7% to 10% adjusted operating profit growth compared to fiscal 2021. We continue to expect corporate expenses in the range of $670 million to $720 million. Let me now turn to cash flow and capital deployment. We were pleased to recently announce the completion of cash funded upside tender offer. This successful tender offer resulted in the early retirement of $922 million of our outstanding debt. Additionally, we announced the early retirement of a €600 million note for a total reduction in debt of approximately $1.6 billion. These actions occurred during the beginning of our second quarter. It further strengthened our balance sheet and financial position, and they are in line with our previously stated intent to modestly delever. And as a result of these actions we are updating our interest expense guidance for fiscal 2022 to $180 million to $200 million. We're also reiterating our free cash flow guidance of approximately $3.5 billion to $3.9 billion, which is net of property acquisitions and capitalized software expenses. Last quarter, I mentioned that we anticipated the use of cash to purchase shares of McKesson Europe through exercises of the foot rate option available to non controlling shareholders that expired in June of fiscal 2022. The remaining foot rate options resulted in payments of approximately $1 billion in the quarter, which was generally in line with our expectations. As a reminder, this is reflected in the financing activities section of our cash flow statement. As a result of this activity, McKesson holds approximately 95% of McKesson Europe's outstanding common shares. And we anticipate income attributable to non controlling interest in the range of $175 million to $195 million in fiscal 2022. Our commitment to return cash to shareholders through dividends and share repurchases was recently highlighted by our board's approval of a 12% increase to our quarterly dividend to $0.47 per share. And our fiscal 2022 guidance continues to include share repurchases of approximately $2 billion for the full year. In closing, we're pleased with the strong results of our first quarter; we remain focused on driving growth as we invest against the strategic high growth opportunities in oncology and biopharma services. This focus combined with our commitment to further evolve the portfolio will drive significant value to our customers, shareholders and patients. Our outlook for fiscal '22 reflects this focus and execution with healthy adjusted operating profit and adjusted earnings per share growth and return of capital to our shareholders. With that, Holly, let me turn it back to you for Q&A.

Operator:

[Operator Instructions] And we will go first to Brian Tanquilut of Jefferies.

BrittVitalone:

Yes, Brian, thanks for that question. No, I would remind you that this is our first quarter, and we had a very strong first quarter. We're still in an evolving environment; we're very encouraged by the utilization trends and the improvement that we're seeing, as we think about our US Pharmaceutical business. Our growth, as I mentioned in my remarks was driven in large part by the growth of our largest customers. So that does impact the mix. And it certainly impacted the mix in the first quarter. In our RxTS business, we have very healthy growth, as I mentioned across all of our different capabilities and some of the growth that we're seeing in that business there. Again, mix impacted by some of our 3PL growth, we're very encouraged by the growth of our access and adherence solutions, particularly our AMP product. But I think as you think about this, it is really a reflection of the first quarter. It's a reflection of the continued improvement in utilization. And it's a reflection of some mix within some of our segments.

StevenValiquette:

Great, thanks. Good afternoon, everyone. Thanks for taking the question. I guess if we go back to when McKesson acquired the European assets, seven, eight years ago, one of the drivers of the deal was to increase McKesson's generic drug purchasing power, I guess by announcing the sale to PHOENIX. My sense is you're probably not too worried about any dis synergies related to less generic purchasing power, you wouldn't do the transactions. I guess I'm just curious to hear a little more about the McKesson's purchasing power today, whether it's ClarusONE or other factors such that the additional European purchasing power as well as critical, and just to make sure we are not missing anything around this to hopefully well, I guess, is there any post deal agreement between McKesson and PHOENIX and generic purchasing collaboration? Or was that even explored? Thanks.

Operator:

Next we will go to Michael of Bank of America.

BrianTyler:

Sure, Michael, start with a couple of comments. So first off, we are pleased at the trajectory of the recovery that we have seen. And we, it's been more or less in alignment with the expectations we set out at the beginning of the year. And I think it's not just isolated to a particular segment. I think if you look at the market overall, we continue to see really through the first quarter, steady progression along the trend line that we signaled we thought would be the case. So we're very, we continue to be encouraged by that; we continue to think that we will reach full recovery, meaning pre COVID levels in the second half of our fiscal year, obviously we tracked the trends regularly. If we saw something that would cause us to deviate from that we would be sure to share it with you. But right at this point in time, the recovery has been more or less in line with how we thought. We're very pleased about that and we expect that we will get to the full recovery in the second half of this fiscal year.

Operator:

We will go next to Lisa Gill of JPMorgan.

BrianTyler:

Thank you for the question, Lisa. I'll maybe start with biosimilars, and then round into the oncology question. I mean biosimilars we think we are very well positioned, given our strength in the specialty business and including the oncology elements of that. It's still from our perspective is fairly early days, there's just under a dozen in the marketplace today, we think the pipeline does look good and that given the assets we have in oncology and biopharma and our footprint in the specialty space, we will benefit from that and we have seen a growing impact of biosimilars over the last several quarters. As it relates to oncology, we use the word ecosystem. And that's really just to try to introduce this notion that there are many assets that McKesson has that relate to our oncology businesses, whether it's just distribution, specialty distribution, GPOs, health economics outcome research, the latest addition to that portfolio of assets is the data and insights business that we call Ontada. And when we think of the oncology ecosystem, we think of these as all kind of self reinforcing and adding momentum to each other. We add providers that add scale to GPO that adds more customers and data to Ontada, as Ontada matures, as partnerships expand and we get more insights, we funnel that back a to provider which makes us a more attractive solution provider to them. So that's really how we're thinking about it. It's each into themselves is a good business, we think, but together we think there's real differentiation and strength.

Operator:

Next will be Eric Percher of Nephron Research.

BrittVitalone:

Yes, great questions, Eric. And thank you for those questions. And we're not going to break out the international business into a piece parts, which is something that we're ready to do at this point in time. And I would just say that every transaction that could happen in the future we will evaluate that based on the facts of the transaction for this particular transaction, we deemed that these assets would be in the health for sale perspective, but I can't really comment on what future transactions might look like, it's difficult to know how those transactions may or may not come together and what the specific details would be. Next question, operator?

CharlesRhyee:

Yes, thanks for taking question. Just wanted, Britt, just talk about the guidance here for the remainder of the year. Obviously, the large upside performance of the quarter, at least relative to what I think consensus was expecting, maybe if you could talk about how this came in, at least relative to what you're expecting coming into this quarter. And as we think about the rest of the year, if I looked at the pieces, it seems like we're getting a benefit from the DNA also a tax benefit. Is that really the big drivers here relative to your expectations coming in? And maybe any kind of thoughts around that as we think about the remainder of the year, relative to how you guys were? Your plan came in? Thanks.

Operator:

And we'll go to Kevin Caliendo of UBS.

BrittVitalone:

Well, let me start, appreciate the question and maybe phrase it a little bit differently. We don't provide conservative guidance, as we provide guidance is based on what we see in our markets and what we're seeing within our businesses. I would remind you that when we gave you our guidance, one of the things that we talked about is that the markets that we operate in had not fully recovered. And so we're coming off a year of one of the most dynamic environments that we've ever operated in. And when we provided that guidance, we were very clear that our market had not fully recovered. We expected that they would, but certainly it was going to evolve over time. Our businesses continue to operate at a very high level. And I think you saw that in the performance this quarter. We're very encouraged by the utilization trends that we see. We're very encouraged by the performance that each of the businesses has shown. And we're seeing really good reaction and response to a lot of the products that we have, it's specifically in the RxTS business as an example. So I think what you're seeing is an environment that is continuing to recover, not necessarily on an even basis over the last year and a half in a business that is performing very well in those situations.

RivkaGoldwasser:

Yes, Hi, good afternoon. Let's go back to kind of especially on Ontada, you talk, Brian about subcontractor relationship and sort of that cycle between providers and biopharma, et cetera. So for Ontada, our payers customers as well and is that sort of coincided and started that sort of a growth opportunity that you're looking, just guess I'm interested in CapEx opportunities to grow that oncology business beyond just the pipeline of drugs.

Operator:

Next question will come from Jailendra Singh of Credit Suisse.

BrittVitalone:

Thank you for your question. I'll give you one example in a medical business as an example. What we saw in the June quarter was that primary care patient visits improved from the fourth quarter, back to about 95% in pre COVID level. So continuing to see the improvement but not back at pre COVID level. So when we speak about utilization, we are seeing pre COVID levels for oncology and for specialty. We're not seeing that quite yet for primary care patient visits as an example, continuing to improve on the trajectory that we laid out in our earnings call that we had expected. But that's one example, for our business that is perhaps a little bit different.

Operator:

And thank you for joining today's conference call. You may now disconnect and have a great day.

Holly Weiss:

Thank you, Stephanie. Good afternoon and welcome everyone to McKesson’s fourth quarter fiscal 2021 earnings call. Today, I am joined by Brian Tyler, our Chief Executive Officer and Britt Vitalone, our Chief Financial Officer. Brian will lead off, followed by Britt, and then we will move to a question-and-answer session. Today’s discussion will include forward-looking statements, such as forecasts about McKesson’s operations and future results. Please refer to the cautionary statements in today’s press release and our slide presentation and to the Risk Factors section of our periodic SEC filings for additional information concerning risk factors that could cause our actual results to materially differ from those in our forward-looking statements. During this call, we will discuss non-GAAP financial measures. Additional information about our non-GAAP financial measures including a reconciliation of those measures to GAAP results, is included in today’s press release and presentation slides, which are available on our website at investor.mckesson.com. With that, let me turn it over to Brian.

Britt Vitalone:

Thank you, Brian and good afternoon everyone. Fiscal 2021 was an unprecedented year, as Brian talked about earlier. When we spoke a year ago, we just finished our fiscal 2020 as the COVID pandemic was beginning to take hold on our communities and economies. During that call, we provided our full year fiscal 2021 outlook with quite possibly the highest level of uncertainty in McKesson’s 188-year history. As I have said since the outset of the pandemic, McKesson’s operating momentum is the result of our strategic clarity, focus, execution and discipline. As a company, we’ve been operating in new ways for over a year. We’re proud of the way our teams continue to execute and innovate. We are stronger than before the pandemic. And our fiscal 2021 financial results give us even more confidence in our ability to continue delivering compelling performance in the future. Today, I’ll provide an update on our fourth quarter and fiscal 2021 results, including a detailed fiscal 2022 outlook, an overview which can be found in the Investors section of our website. We start now with our fiscal 2021 results. Our full year adjusted earnings per diluted share of $17.21 grew 15% above fiscal 2020 and within our updated guidance range. Our fiscal year began with each of our segments experiencing volume decline due to the impact of COVID-19. Volume improvements in our first quarter were earlier than originally anticipated and on a nonlinear trajectory followed to the remainder of the fiscal year, correlating to the trajectory of the COVID virus. Our fiscal fourth quarter experienced a continuation of the volatility from COVID as well as a weak cold and flu season and a winter storm that impacted portions of our U.S. Pharmaceutical business. We also recognized benefits from our leadership role distributing COVID-19 vaccines and ancillary supply kits in our U.S. Pharmaceutical and Medical-Surgical segments, respectively. And similar to previous two quarters, in the fourth quarter, we recognized unplanned gains on equity investments within our McKesson Ventures portfolio. Let me move now to a discussion of our adjusted earnings results for the fourth quarter. Fourth quarter adjusted earnings per diluted share was $5.05, an increase of 18% compared to the prior year, driven by the contribution from COVID-19 vaccine distribution and kitting programs of the U.S. government and the lower share count. These items were partially offset by a higher tax rate in the prior year contribution from the company’s investment in Change Healthcare. Let’s transition now to details of our consolidated results, which can be found on Slide 4. Consolidated revenues of $59.1 billion increased 1% compared to the prior year primarily due to market growth and higher volumes from retail national account customers in the U.S. Pharmaceutical segment, partially offset by the prior year increase in demand driven by the onset of the COVID-19 pandemic and the contribution of our German wholesale business through a joint venture with Walgreens Boots Alliance. Adjusted gross profit was approximately flat to prior year as inventory charges in our Medical-Surgical segment and the previously mentioned prior year demand increase, driven by COVID, largely offset the contribution of our COVID-19 vaccine distribution and kitting programs and the distribution of COVID-19 tests. Adjusted operating expenses in the quarter decreased 6% year-over-year, led by a reduction in operating expenses due to the impact of COVID-19 and the contribution of our German wholesale business to the joint venture with Walgreens Boots Alliance. This was partially offset by increased expenses related to our role distributing COVID-19 vaccines and ancillary supply kits and higher operating expenses to support growth investments in oncology and biopharma services. Adjusted operating profit was $1.2 billion for the quarter, an increase of 12% compared to the prior year. When excluding the $55 million contributed by Change Healthcare in the fourth quarter of fiscal 2020, which was previously recorded in other, adjusted operating profit grew 19%. Interest expense was $52 million in the quarter, a decline of 20% compared to the prior year, driven by the retirement of approximately $1 billion of debt and lower commercial paper balances. Our adjusted tax rate was 22.9% for the quarter, in line with our expectations. Fourth quarter adjusted earnings per diluted share also includes net pretax gains of approximately $44 million or $0.21 per diluted share associated with McKesson Ventures equity investments. In wrapping up our consolidated results, fourth quarter diluted weighted average shares were 161 million, a decrease of 8% year-over-year, driven by the successful tax-free exit of our investment in Change Healthcare at the end of fiscal 2020 and other open-market share repurchase activity. As a reminder, the exit of our Change Healthcare investment lowered our shares outstanding by approximately 15.4 million shares. Moving now to our fourth quarter segment results, which can be found on Slides 5 through 9, starting with U.S. Pharmaceutical. Revenues were $47 billion, an increase of 3%, driven by market growth and higher volumes from retail national account customers, partially offset by the prior year increase in demand driven by the onset of the COVID-19 pandemic and branded-to-generic conversions. Adjusted operating profit in the quarter increased 7% to $813 million, driven by the contribution from COVID-19 vaccine distribution, partially offset by the previously mentioned prior year COVID pandemic impact and higher operating costs in support of the company’s oncology growth initiatives and the impact of a weak cold and flu season. Adjusted operating profit for the full year increased 3% to $2.7 billion, driven by growth in specialty product distribution the contribution from COVID-19 vaccine distribution, offset by the previously mentioned prior year increase in demand driven by the onset of the pandemic and by higher operating costs in support of the company’s oncology growth initiatives. Next on to Prescription Technology Solutions, revenues in the quarter were $789 million, an increase of 7%, driven by higher volumes of technology and service offerings to support biopharma customers. Adjusted operating profit in the quarter increased 11% to $146 million, driven by organic growth from access and adherence programs supported by our Technology Solutions. Full year adjusted operating profit was $467 million, which was flat to the prior year, as organic growth from access and adherence solutions was offset by higher investment costs to support the growth of the company’s biopharma strategy. We finished the year with strong momentum from these investments, including our new product, AMP, which contributed to profit growth in the fourth quarter. Moving now to Medical-Surgical Solutions, revenues were $2.7 billion in the quarter, up 23%, primarily driven by demand for COVID-19 tests. For the quarter, adjusted operating profit increased 13% to $192 million and for the full year increased 19% to $805 million. We previously outlined that demand for COVID test kit and PPE products were closely associated with the rate of COVID case levels. Although COVID-19 test kit volume continued through the fourth quarter, these levels moderated significantly from Q3 levels as U.S. COVID cases trended lower throughout the quarter. As we discussed at various conferences during our fourth quarter, we anticipated that these elevated levels of demand would moderate. As we discussed in prior calls this year, early on in the pandemic, our Medical-Surgical business built supply quickly to meet demands from our customers for COVID-19 tests and elevated levels of demand for PPE. We procured these products in a market with unprecedented and unpredictable supply and demand levels, and the volatility associated with COVID case levels impacted the demand levels for PPE. The demand tapering occurred sooner than we had anticipated, and we took action to position the business for the lower demand levels. As a result, some PPE and related products experienced market-driven inventory charges. In our fourth quarter, we recorded $87 million of charges related to these products. Our underlying business was impacted by lower levels of elective procedures and patient visits, partially resulting from a continuation of a weaker cold and flu season. According to IQVIA, elective procedures trended approximately 20% below the prior year at times during the quarter. Excluding the impact of the incremental COVID-19 tests, PPE and distribution of ancillary supply kits for COVID-19 vaccine, adjusted operating profit in this segment increased approximately 1% in the quarter. Next, international, where revenues in the quarter were $8.6 billion, a decrease of 12% year-over-year, on an FX-adjusted basis, revenues decreased 18%, primarily driven by the contribution of our German wholesale business to a joint venture with Walgreens Boots Alliance effective November 1, 2020. Similar to the U.S. Pharmaceutical segment, the International segment was also impacted by the prior year increase in volumes, which corresponded with the onset of the COVID-19 pandemic. Excluding the impact from the divestiture of our German wholesale business, segment revenue increased 4% year-over-year and was down 4% on an FX-adjusted basis. Fourth quarter adjusted operating profit increased 1% year-over-year to $138 million. On an FX-adjusted basis, adjusted operating profit decreased 8% to $126 million due to the previously mentioned fiscal 2020 volume increase, again driven by the onset of the COVID-19 pandemic. Adjusted operating profit for the full year increased 5% to $485 million. And on an FX adjusted basis, adjusted operating profit increased 1% to $466 million. Moving on to corporate, for the quarter, adjusted corporate expenses were $125 million, a decrease of 42% year-over-year driven by gains of approximately $44 million on equity investments within our McKesson Ventures portfolio and prior year onetime expenses. For the full year, adjusted corporate expenses were $584 million, a decrease of 9% compared to the prior year, driven by gains of approximately $133 million or $0.60 of adjusted earnings per diluted share on equity investments within our McKesson Ventures portfolio, partially offset by lower interest income. As in the previous two quarters, net fair value adjustments related to several of our portfolio companies within McKesson Ventures. As we previously discussed, we can’t predict when gains or losses within our Ventures portfolio of companies may occur. And therefore, our practice has and will continue to not include Ventures portfolio impacts in our earnings guidance. We reported opioid-related litigation expenses of $153 million for fiscal 2021. Until a settlement is reached and executed, we anticipate a similar level of spend. For fiscal 2022, we estimate opioid-related litigation to approximate $155 million. And finally, fiscal 2021 also marked the end of our previously announced 3-year program to transform our operating model and drive cost reductions across the enterprise. We are proud to have achieved our original 3-year target of $400 million to $500 million in savings by the end of fiscal 2021. A portion of the savings has been reinvested in our growth areas of oncology and biopharma services. Turning now to Slide 11, we continue to place a sharp focus on working capital efficiency and cash flow generation. For fiscal 2021, we generated free cash flow of $3.9 billion, and we ended the quarter with a cash balance of $6.3 billion, ahead of our expectations. In fiscal 2021, we continued our long track record of solid cash flow generation, resulting from another year of operating profit growth and our continued focus on working capital efficiency. In fiscal 2021, our cash flow was impacted by the COVID-19 pandemic, including uneven levels of customer demand. Over the course of the year, the dynamics of the operating environment resulting from the early effects of COVID-19 introduced further volatility in our cash flow. We experienced higher levels of inventory primarily resulting from the increased quantities of COVID testing and PPE. We anticipated this additional working capital volatility, meeting the evolving needs of our customers, all while we’re increasing our work with the U.S. government to distribute COVID-19 vaccines and ancillary supply kits. In Q3, we utilized a portion of our free cash flow to retire approximately $1 billion of debt, and we issued a $500 million bond at attractive market rates. These actions which were in line with our stated intent to modestly de-lever further strengthen our balance sheet and financial position. In fiscal 2021, we made $641 million of capital expenditures, which includes continued investments in our strategic growth initiatives of oncology and biopharma services as well as investments to support our COVID-19 vaccine and kitting efforts. We returned $1 billion of cash to our shareholders through $770 million of share repurchases and a payment of $276 million in dividends. Let me now spend a few minutes on our fiscal 2022 outlook. And I’ll start by framing a couple of key macro-level assumptions that underpin our outlook for fiscal 2022. We do not assume a return wave of the virus, additional shelter-in-place or increased social distancing. As we’ve discussed throughout the year, volume trends in fiscal 2021 were nonlinear and varied over the course of the year. Our markets have not fully recovered, and we remain in a dynamic environment. We are, however, encouraged by recent signs that a broader recovery is forthcoming. We expect prescription volumes will continue to demonstrate steady improvement from volume levels at the end of our fiscal 2021 through the first half of our fiscal 2022, in line with the rate of increasing vaccinations and decreasing COVID cases. We anticipate a return to pre-COVID prescription and patient engagement levels in the second half of our fiscal 2022. For fiscal 2022, we expect adjusted earnings per diluted share to be in the range of $18.85 to $19.45, more heavily weighted towards the back half of the fiscal year. We also expect core growth across all of our segments. Rather than outlining each assumption, I will instead walk you through the key items, starting with the segments. For a full list of our fiscal 2022 assumptions, please refer to Slides 13 through 16 in our supplemental slide presentation. In the U.S. Pharmaceutical segment, we expect revenue to increase 4% to 7% driven by market growth and strong performance in our specialty business. Adjusted operating profit is expected to deliver 4% to 7% growth as volumes continue to improve compared to fiscal 2021. Our outlook also includes approximately $0.40 to $0.50 related to COVID-19 vaccine distribution in fiscal 2022, the majority expected to be realized in our first quarter. This compares with approximately $0.35 in fiscal 2021. We will also continue to invest in our leading and differentiated position in oncology and increase investments to support future growth. We expect these investments will represent an approximate $0.20 headwind in fiscal 2022. Normalizing for the COVID-19 vaccine distribution and our continued growth investments, we expect approximately 5% to 8% core adjusted operating profit growth. Finally, we anticipate branded pharmaceutical pricing to approximate mid-single-digit increases, which is consistent with fiscal 2021. And the generic market remains competitive yet stable. We continue to be pleased with the performance of ClarusONE, which provides competitive costs and supply stability to our customers. This combined with our disciplined approach to pricing and improving overall volume and utilization, gives us confidence in our ability to grow and generate positive spread. In our Prescription Technology Solutions segment, we expect revenue and adjusted operating profit growth of 12% to 17% driven by organic growth as we continue to recognize the benefits of the investments we’ve been making in technology offerings for our biopharma customers. Now, transitioning to Medical-Surgical fiscal 2021 saw notable impacts from the contribution of COVID test kits and personal protective equipment as well as impacts to the underlying business due to office closures, social distancing and reduced patient visits. Our Medical-Surgical business delivered strong results against these challenges, and we continue to position the business for long-term growth. In fiscal 2022, we expect demand for COVID test kits and PPE to moderate further as vaccinations increase and case counts decrease. As patients continue to return to their providers, we expect growth in our Primary and Extended Care segments of this business. Given these dynamics, we expect revenue to be down 5% to 1% growth, and we expect adjusted operating profit to be flat to 6% growth over the prior year as growth in our underlying business is offset by a lower contribution from COVID test kits. Included in this guidance is $0.10 to $0.20 of contribution related to the kitting and distribution of ancillary supplies for COVID-19 vaccines. Again, the majority will be realized in our first quarter. This compares to approximately $0.35 in fiscal 2021. Due to the timing of when we began executing our contract with HHS, a larger portion of kitting revenue was realized in fiscal 2021. Excluding the contribution of our COVID-19 kitting and distribution program, the contribution from COVID-19 test kits and the fiscal 2021 impairments for PPE and related products, we expect year-over-year adjusted operating profit growth of approximately 10% to 16%. Finally, in the international segment, we expect revenues to decline 2% to grow 3% as compared to the prior year, and this reflects the contribution of our German wholesale business to a joint venture with Walgreens Boots Alliance in the third quarter of our fiscal 2021. We expect adjusted operating profit growth in the segment of 4% to 8%, led by core business improvement as our geographies continue the recovery from COVID-19. And now turning to the consolidated view, we expect 3% to 6% revenue and adjusted operating profit growth compared to fiscal 2021. We expect corporate expenses to be $670 million to $720 million. And as a reminder, our corporate expenses in fiscal 2021 were offset by net gains of approximately $133 million or $0.60 per diluted share from equity investments within our McKesson Ventures portfolio. We assume a full year adjusted tax rate of approximately 18% to 19%, which may vary from quarter to quarter and includes anticipated discrete tax items that we expect to realize during the course of the year. As Brian mentioned in his remarks, we continue to transform and evolve our operating models to drive efficiencies. As part of this evolution, we plan to make changes to our real estate strategy to increase efficiencies, supporting increased flexibility, including a transition to a partial remote work model for certain employees on a go-forward basis. This will result in reduction to our real estate footprint. In executing this plan, we will incur GAAP-only restructuring charges of approximately $180 million to $280 million over the next year. We expect these actions will result in the realization of annual savings of approximately $60 million to $80 million when fully implemented. These actions will get underway in this upcoming fiscal year, and therefore, we do not expect to see a material benefit in fiscal 2022. We are in the early stages of this planning and we will provide additional detail at a later time. Let me wrap up our fiscal 2022 outlook with a few comments on cash flow and capital deployment. The past year has reinforced the importance of managing our business for the long term through a disciplined and balanced approach to capital deployment with a sharp focus on investments for innovation and growth to further enhance our competitive positioning and leverage our differentiated assets and capabilities. We expect free cash flow of approximately $3.5 billion to $3.9 billion, which is net of property acquisitions and capitalized software expenses. As we consider our capital deployment options, we first start with our commitment to maintain our current investment-grade credit rating. With respect to capital deployment, our priority is growth and the use of capital continues to be focused on supporting organic growth of our oncology and biopharma services strategies, followed by retaining flexibility for acquisitions to accelerate these strategies. We complement these growth drivers with the return of capital to our shareholders through a modest share-growing dividend and share repurchases. We continue to execute at a high level, and we have confidence in the business today and in the future. And we continue to believe that there’s great value in our stock. As indicated on Slide 16, our fiscal 2022 outlook incorporates plans to repurchase approximately $2 billion of stock, which we expect will be more heavily weighted to the first half of the fiscal year. As a result of this activity, we estimate weighted average diluted shares outstanding for fiscal 2022 to be in the range of approximately 153.5 million to 155.5 million. We also anticipate use of cash to purchase shares in McKesson Europe through exercises of a put rate option available to non-controlling shareholders. As a reminder, McKesson originally acquired 77% of Celesio, the remaining non-controlling interest shareholders retained a put option for their shares. The put right option of the minority stakeholders expires in Q1 of fiscal 2022. We estimate that the remaining put rate options could result in cash payments up to approximately $1.3 billion, which will be reflected in the financing activities section of our cash flow statement. During fiscal 2021, McKesson used $49 million of cash for exercise of these put rate options. In fiscal 2021, we delivered strong performance in an unprecedented environment, and we capped off our 3-year operating model transformation, setting the stage for an acceleration of growth. We look forward to continuing our role in the pandemic response by distributing COVID-19 vaccine and ancillary supply kits as we continue our leadership role in the pandemic response. Our outlook for fiscal 2022 reflects the continued confidence in our operating momentum with growth across all segments of the business, supported by the strength of our balance sheet and strong financial position. We will continue to invest in our strategies of oncology and biopharma services as we build out our connected ecosystems in these growth areas, delivering value to our customers and partners. We’re confident in our ability to leverage our position and capabilities to accelerate growth. In closing, I would like to acknowledge and thank all the McKesson associates across the world for their dedication, execution and unrelenting commitment to our customers and patients. The results we achieved this year could not have been possible if not for the dedication of team McKesson. We are pleased with our results in fiscal 2021 and confident in our outlook for fiscal 2022. And with that, Holly, let me turn the call back to you for Q&A.