McKesson raised its earnings target. Why cut the medical-supply outlook?

McKesson raised its annual earnings forecast again. The business it plans to separate moved in the opposite direction.

The healthcare distributor now expects adjusted earnings of $45.60 to $46.40 a share for the year ending March 31, 2027, up from $44.20 to $45. Its medical-supply division, however, is now expected to post an adjusted profit decline of up to 4%. The earlier forecast allowed for growth of up to 4%.

The split shows where McKesson's momentum lies: distributing medicines and serving specialist practices. Medical-Surgical Solutions is selling more, but earning less from those sales as it prepares to become an independent company.

More medical supplies, less profit

Medical-Surgical Solutions supplies physician offices, surgery centers, nursing homes and other providers outside acute-care hospitals. Its revenue rose 5% to $3.10 billion in the September quarter, the second quarter of McKesson's fiscal 2027.

Adjusted segment profit fell 10% to $225 million. Its adjusted margin narrowed to 7.27% from 8.45%. McKesson blamed a less favorable mix of products in ambulatory care, partly offset by stronger contributions from extended care.

The weaker profit forecast comes with an unchanged annual sales-growth range of 1% to 6%. The problem is therefore how much profit those sales produce. Management expects initiatives launched in the first half to support performance in the rest of the year.

Reported segment profit fell more sharply, to $164 million from $220 million. It included costs related to the planned separation, which McKesson removes from its adjusted result. The decline in adjusted profit shows that separation costs alone do not explain the weakness.

The drug business pulls the group higher

North American Pharmaceutical tells a different story. Revenue rose 6% to $91.4 billion, while adjusted segment profit increased 22% to $1.04 billion. Higher prescription volumes and specialty-drug distribution to health systems and strategic accounts drove the gains.

McKesson now expects that division's annual adjusted profit to grow 14% to 18%. In August, it had expected the high end of a 5.5% to 9.5% range.

Oncology & Multispecialty also grew. Revenue increased 24% to $15.0 billion and adjusted segment profit rose 8% to $427 million. That profit comparison includes a $51 million investment and market-related gain in the prior year. Removing that older gain, McKesson puts growth at 23%.

Across the group, revenue reached $111 billion, up 8%. Adjusted earnings rose 11% to $1.36 billion, while adjusted EPS increased 18% to $11.68. Buybacks reduced diluted shares to 116.7 million from 124.4 million, amplifying the per-share gain. Reported net income attributable to McKesson rose to $1.22 billion from $1.11 billion.

New acquisitions are already in the picture

McKesson completed its roughly $2.25 billion cash purchase of Precision Medicine Group on November 2. The clinical-research and commercialization business is expected to add $0.10 to $0.20 to adjusted EPS this fiscal year, mainly in the fourth quarter.

It also completed the purchase of a controlling interest in Spectrum Vision Partners for about $525 million. Both acquisitions join Oncology & Multispecialty from the current fiscal third quarter. Their results were absent from the September quarter.

The proposed $1.4 billion investment for a 49% stake in Option Care Health remains pending and is excluded from the current outlook. McKesson expects that deal to close in the first half of calendar 2027.

The medical-supply separation is unfinished too. Apollo funds bought a roughly 13% preferred-equity interest in June. McKesson still controls and consolidates the business.

The earnings target rises; the cash target holds

Annual free cash flow remains forecast at $4.5 billion to $4.9 billion, and planned buybacks at about $5 billion. The annual tax-rate and share-count assumptions are also unchanged from August. The higher EPS target comes alongside stronger operating forecasts and contributions from acquisitions, rather than another reduction in the expected annual share count.

First-half free cash flow reached $2.58 billion, up from $1.12 billion. Supplier-payment scheduling and the day on which the period ended helped the cash comparison, alongside higher earnings. McKesson spent $3.42 billion on buybacks over those six months; financing also included new medical-supply subsidiary debt and Apollo's investment.

The McKesson company profile tracks the updated forecasts, cash, debt and transactions. The contrast also echoes Cardinal Health's uneven results, where stronger drug distribution sits beside weaker medical-products profit. For McKesson, the next test is whether medical-supply margins recover while its faster-growing businesses absorb the latest acquisitions.