McKesson (MCK) Financials

McKesson’s latest quarter shows strong top-line growth but weaker earnings quality and a more leveraged balance sheet. Revenue rose to $105.4 billion in Q1 fiscal 2027, up 7.7% from $97.8 billion in the comparable quarter and substantially above $67.2 billion in Q1 fiscal 2023. Gross profit increased to $3.7 billion, while the gross margin improved modestly to approximately 3.5% from 3.4% a year earlier. Operating income also rose 27% year over year to $1.3 billion.

Despite the operating improvement, net income attributable to common shareholders fell to $614 million from $784 million, while diluted earnings per share declined to $5.15 from $6.25. The primary issue was the much larger allocation of earnings to noncontrolling interests, which reached $418 million in the latest quarter versus $47 million a year earlier. EPS has also trended lower from $7.66 in Q3 fiscal 2023 and $7.02 in Q1 fiscal 2024, even as revenue has expanded.

Cash flow improved from the deeply negative operating cash flow reported in Q1 fiscal 2026, but it remained negative at $(220) million. Working-capital movements consumed $1.7 billion, partially offsetting $1.0 billion of net income and noncash adjustments. Financing activities supplied $1.6 billion, primarily through $3.2 billion of debt issuance, allowing cash and equivalents to rise to $5.2 billion. However, the balance sheet remains stretched: current liabilities exceeded current assets, total debt increased to approximately $9.7 billion, and common equity was negative $4.2 billion after substantial share repurchases.

• Revenue growth remains robust: Q1 fiscal 2027 revenue increased 7.7% year over year and is roughly 57% above the Q1 fiscal 2023 level.
• Operating profitability improved: Operating income climbed to $1.3 billion from $1.0 billion a year earlier, and the operating margin improved to approximately 1.25% from 1.06%.
• Gross margin edged higher: Gross profit grew to $3.7 billion, with gross margin improving from approximately 3.35% to 3.50% year over year.
• Share count continues to decline: Diluted shares outstanding fell to 119.2 million from 125.5 million in Q1 fiscal 2026, supporting per-share results despite lower common net income.
• Operating cash flow is recovering but volatile: The latest $(220) million result was a meaningful improvement from $(918) million a year earlier, although cash generation remained negative because of working-capital demands.
• Cash reserves increased: Cash and equivalents reached $5.2 billion, up from $3.0 billion in Q3 fiscal 2026, but much of the recent increase was supported by new borrowing rather than operating cash flow.
• Common earnings declined: Net income attributable to common shareholders dropped 22% year over year, and diluted EPS fell 18% to $5.15.
• Noncontrolling interests absorbed more earnings: The $418 million attributable to noncontrolling interests represented roughly 41% of consolidated net income, sharply reducing the amount available to McKesson common shareholders.
• Leverage increased: Total short- and long-term debt rose to approximately $9.7 billion from $6.6 billion at Q3 fiscal 2026, while Q1 financing cash flow depended on $3.2 billion of debt issuance.
• Balance-sheet equity remains weak: Current liabilities of $70.4 billion exceeded current assets of $62.8 billion, and reported common equity was negative $4.2 billion, reflecting the cumulative impact of large share repurchases and other equity adjustments.