McKesson (MCK) FY2026: Revenue $403B and GAAP EPS +49%, But Underlying Operating Profit Grew Only ~10%

All figures from McKesson's Form 10-K for the fiscal year ended March 31, 2026, and the company's May 7, 2026 fourth-quarter and full-year earnings release. Dollars in U.S. currency.

McKesson's fiscal 2026 GAAP diluted EPS rose 49.2% to $38.38 — but the operating business improved at roughly a quarter of that pace. Revenue crossed $403.4 billion (+12.4%) and operating income leapt from $4,422 million to $6,212 million, yet a $480 million net gain on the Norway divestiture, a $210 million LIFO credit, and the absence of the prior year's $667 million Canadian remeasurement charge together account for the bulk of the swing. Strip the one-offs out of both years and underlying operating income grew roughly 10%. That gap matters because McKesson is simultaneously rebuilding itself — buying majority stakes in oncology and ophthalmology practices, selling Norway, and preparing to separate Medical-Surgical Solutions with Apollo as a minority partner — while running a business whose gross margin is only 3.6% and shrinking.

1. Consolidated Balance Sheet

1-1. Principal asset movements

The single loudest line is intangible assets, which nearly tripled. That is the accounting footprint of two acquisitions completed inside fiscal 2026: an approximately 80% controlling interest in PRISM Vision for about $850 million in cash (completed April 2, 2025) and an approximately 70% controlling interest in Core Ventures, the business services arm of Florida Cancer Specialists, for about $2.49 billion in cash (completed June 2, 2025). Cash used for acquisitions, net of cash acquired, was $3,416 million against just $24 million a year earlier. Amortization is already responding — total amortization of $473 million in FY2026 versus $394 million in FY2025, of which the acquisition-related portion that management's adjusted EPS excludes rose from $226 million to $276 million. That charge will keep climbing for years as the newly recognized intangibles are amortized over their useful lives: a non-cash drag on GAAP earnings, but one that runs off rather than lasting forever.

Receivables, net grew 9.1% against 12.4% revenue growth. Note that the reported growth understates the underlying trend: $483 million of previously reserved Rite Aid balances were written off during the year, which is neutral to the carrying amount (it removes the same sum from gross receivables and from the allowance) but strips $483 million out of the gross base. The allowance for credit losses fell from $450 million to $194 million, and the allowance as a percentage of trade and notes receivables dropped from 2.1% to 0.8% — mechanics of the write-off rather than a $256 million P&L release, and therefore not evidence on its own that credit quality improved. Trade and notes receivables were $24.5 billion before allowances at March 31, 2026; that figure is smaller than the $27,985 million "Receivables, net" line because the balance sheet caption also carries non-trade items such as supplier and customer receivables.

Financial leverage is modest and the maturity wall is not pressing. Total debt of $6,526 million carries $1,267 million in the current portion (19.4%), and interest expense of $247 million against estimated average debt of roughly $6.1 billion implies an effective cost near 4.1%. The May 30, 2025 offering added $2.0 billion net across 4.65% notes due 2030, 4.95% notes due 2032, and 5.25% notes due 2035 — proceeds explicitly earmarked for Core Ventures. Operating lease right-of-use assets of $2,058 million sit against $2,088 million of combined current and long-term operating lease liabilities.

1-2. Financial versus operating liabilities

This is where the McKesson model reveals itself. Financial liabilities are small: $6,526 million of total debt against $3,975 million of cash, for net debt of roughly $2.6 billion — under half a year of operating income. Operating liabilities are enormous: drafts and accounts payable of $59,973 million, up from $55,330 million.

Payables alone exceed the combined balance of inventories ($24,207M) and receivables ($27,985M) by $7.8 billion. Current assets of $57,210 million sit below current liabilities of $67,017 million, giving a current ratio of 0.85. In most industries that reads as distress; here it is the business model. Approximate days: inventory 22.7, receivables 25.3, payables 56.3 — a cash conversion cycle of roughly negative eight days, essentially unchanged from FY2025. Suppliers finance the working capital, and growth generates cash rather than consuming it.

The other operating liability worth naming is litigation. Total estimated opioid-related liabilities were $5,692 million at March 31, 2026 ($601 million current, $5,091 million long-term), down from $6,377 million. McKesson paid $512 million under settlement agreements during the year. The 10-K states plainly that the company "is not able to reasonably estimate the upper or lower ends of the range of ultimate possible losses for all opioid-related litigation matters," and Deloitte & Touche LLP identified the opioid-related loss contingency as a critical audit matter.

1-3. Capital structure

Total McKesson stockholders' deficit widened from −$2,074 million to −$2,172 million; including noncontrolling interests, total deficit was −$1,777 million. Book equity is negative not because the company lost money but because it has bought back more stock than it has retained. Retained earnings climbed to $22,291 million from $17,921 million, additional paid-in capital was $8,284 million, and treasury shares at cost reached $32,005 million against $27,439 million a year earlier — a $4,566 million increase in a single year. Accumulated other comprehensive loss narrowed from −$932 million to −$745 million.

A new line appeared: redeemable noncontrolling interests of $943 million, up from zero, arising from the Core Ventures and PRISM Vision transactions. These carry put rights not solely within McKesson's control, which is why they sit outside stockholders' equity — and why they represent a possible future cash call.

2. Consolidated Statement of Operations

2-1. Headline results

The most instructive row is gross margin, which has fallen 54 basis points in two years. Every dollar of incremental revenue is arriving at a lower gross margin than the dollar before it, largely because the fastest-growing piece is specialty and oncology distribution, where drug prices are high and spreads are thin. Operating margin nevertheless expanded 31 basis points in FY2026 — and it did so entirely through the expense line. Total operating expenses fell in absolute terms from $8,901 million to $8,338 million, dropping from 2.48% of revenue to 2.07%, versus 2.89% in FY2024.

Operating leverage looks spectacular on the surface: revenue +12.4%, operating income +40.5%, a ratio of 3.3 times. The honest version is smaller. Reversing the identifiable one-time items inside operating income — for FY2026, the $480 million net Norway gain, the $210 million LIFO credit, less $245 million of restructuring and impairment, $96 million of PRISM/Core acquisition and integration charges, and $77 million of Medical-Surgical separation costs; for FY2025, an $82 million LIFO charge, $667 million of Canadian retail remeasurement, a $206 million Rite Aid credit, $344 million of restructuring (the $286 million booked to the restructuring line plus $58 million absorbed in cost of sales), and $108 million of claims and litigation charges — produces roughly $5,940 million versus $5,417 million, or about +10%. A further wrinkle: antitrust legal settlement receipts collapsed from $444 million to $23 million, so on a basis that also excludes those, underlying growth would be closer to 19%. The true operating improvement lives somewhere in that 10–19% band, not at 40%.

Management's own non-GAAP figure agrees with the caution. Adjusted EPS was $39.11, up 18%, against GAAP diluted EPS of $38.38, up 49.2%. Adjusted EPS excludes amortization of acquisition-related intangibles, transaction-related expenses, restructuring and impairment, claims and litigation charges, gains from antitrust legal settlements, LIFO effects, and other adjustments — meaning that for once the GAAP number flatters the company rather than the reverse, because FY2026's one-offs were net favorable while FY2025's were net punitive. Management's FY2027 guidance of $43.80 to $44.60 in adjusted EPS, or 12% to 14% growth, is the cleaner bar to judge the company against.

EPS growth also outran net income growth. Net income attributable rose 44.5%, but diluted shares fell from 128.1 million to 124.1 million (−3.1%). Holding the share count flat would have produced $37.17 of EPS; buybacks contributed the remaining $1.21, or about 4.7 percentage points of the 49.2% increase.

Two items below the operating line deserve attention. The effective tax rate fell to 17.8% from 20.1%, helped in part by the Norway transaction being taxed lightly — the $480 million pre-tax gain carried roughly $70 million of tax, leaving $410 million after tax. And net income attributable to noncontrolling interests nearly doubled, from $186 million to $337 million, driven by Core Ventures and PRISM Vision plus a $122 million charge to remeasure the Core Ventures redeemable interest to redemption value. Buying 70–80% of practices rather than 100% means a growing slice of segment profit never reaches McKesson shareholders.

2-2. Segment mix

McKesson recast its segments in FY2026, replacing the old U.S. Pharmaceutical/International structure with North American Pharmaceutical and a separated Oncology & Multispecialty.

North American Pharmaceutical is 83% of revenue but only 50% of segment operating profit. Prescription Technology Solutions is the opposite: 1.4% of revenue and 14% of segment profit, at a 17.98% margin. Oncology & Multispecialty grew revenue 31% and operating profit 50%, and is clearly where capital is going. The "Other" segment's near-eleven-fold profit jump is almost entirely Norway: a $503 million gain was booked inside Other, and excluding it Other earned $87 million against $54 million. That $503 million is partly offset by a $23 million net Norway charge held at corporate, which is how the segment figure reconciles to the $480 million net pre-tax gain cited at the consolidated level.

Below the segments, corporate expenses, net rose 17% to $931 million, absorbing $52 million of Medical-Surgical separation costs, the $23 million net Norway charge, and higher restructuring. The $7,379 million segment subtotal therefore reconciles to reported operating income of $6,212 million through that $931 million of corporate expense plus $236 million of other reconciling items.

2-3. The Medical-Surgical separation is now more than an intention

The separation McKesson flagged a year ago has acquired a price tag and a partner. The company has signed a definitive agreement under which funds managed by affiliates of Apollo Global Management will acquire an approximately 13% minority interest in Medical-Surgical Solutions for about $1.25 billion, subject to regulatory approvals — implying a roughly $9.6 billion valuation for a segment that generated $11,507 million of revenue and $938 million of operating profit in FY2026. In April 2026, after the balance sheet date, McKesson completed initial financing in support of the separation: a $1.0 billion secured term loan and a $1.0 billion revolving credit facility. Neither the Apollo proceeds nor that debt appears in the March 31, 2026 balance sheet above, so the $6,526 million debt figure and the 0.85 current ratio both understate the post-year-end picture. The $77 million of separation costs already run through FY2026 operating income is the first installment, not the total.

3. Consolidated Cash Flows

Operating cash flow was essentially flat at $6,155 million against $6,085 million. Capital intensity is negligible: property, plant and equipment payments of $436 million plus capitalized software of $309 million equal $745 million, or 0.18% of revenue. Free cash flow on that definition was $5,410 million, up from $5,226 million. This is a business that requires almost no fixed capital to grow revenue by $44 billion.

Earnings quality remains above the line but is deteriorating. Operating cash flow to total net income including noncontrolling interests ran 1.37 in FY2024 and 1.75 in FY2025, then fell to 1.21 in FY2026 — cash generation did not follow reported profit upward, which is precisely what one would expect when a large slice of that profit is a non-cash divestiture gain rather than trading performance.

The uses of cash tell the strategic story more clearly than the income statement does. Investing outflows quadrupled to $3,432 million, almost entirely the $3,416 million spent on PRISM Vision and Core Ventures. Financing outflows widened to $4,631 million even after $2.0 billion of new notes, because treasury stock rose $4,566 million in the year. McKesson is funding acquisitions with debt and returning operating cash to shareholders — a workable arrangement while the cash conversion cycle stays negative and opioid payments stay near the $512 million annual run rate, and a tighter one if either changes.

Bottom line: the 40% operating profit jump in the headline is not the number to underwrite. Underlying operating growth of roughly 10–19%, adjusted EPS growth of 18%, and management's own FY2027 guidance of 12–14% are the honest range. What is genuinely changing is the shape of the company: thinner distribution margins, a fast-growing oncology platform that McKesson only owns 70% of, an ophthalmology platform it owns 80% of, a Medical-Surgical business it is preparing to hand 13% of to Apollo — and a $5.7 billion opioid liability the auditor still flags as impossible to bound.