管理層發言
Good morning and good afternoon, ladies and gentlemen. Welcome to the Cencora Q3 Earnings Call. My name is Jaquita. I will be your moderator for today's call. All lines will be muted on the presentation portion of the call with the opportunity for questions and answers at the end. Operator Instructions. I would now like to pass the conference over to your host, Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury. Bennett, please go ahead.
Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss Cencora's fiscal 2024 third quarter results. I am Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury. Joining me today are Steve Collis, Chairman, President and CEO; Jim Cleary, Executive Vice President and CFO; and Bob Mauch, Executive Vice President and COO. On today's call, we will be discussing non-GAAP financial measures. Reconciliations of these measures to GAAP are provided in today's press release, which is available on our website. We've also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will make forward-looking statements about our business and financial expectations on an adjusted non-GAAP basis, including but not limited to EPS, operating income, and income taxes. Forward-looking statements are based on management's current expectations and are subject to uncertainty and change.
For a discussion of key risks and assumptions, we refer you to today's press release and our SEC filings, including our most recent 10-Q. Cencora assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without the expressed permission of the company. You will have an opportunity to ask questions after today's remarks by management. We ask that you limit your questions to one per participant in order for us to get to as many participants as possible within the hour. With that, I will turn the call over to Steve.
Thank you, Bennett. Good morning and good afternoon to everyone on the call. As I prepared for this, my 53rd and last earnings call as Cencora's CEO, I look back at my prepared remarks from my first ever earnings call as CEO. On that call 13 years ago, I highlighted that it was the first time the company had eclipsed the $20 billion revenue mark for a quarter and the company reported $0.66 in diluted earnings per share. Fast forward to today and Cencora is proudly reporting quarterly revenue of over $74 billion and adjusted diluted EPS of $3.34, representing year-over-year growth of 11% and 14%, respectively. Further, we are pleased to be raising our full year outlook as Cencora continues to execute well against our pharmaceutical-centric strategy. The healthcare landscape continues to rapidly evolve and our strategic position as a global leader in healthcare, coupled with the agility and expertise of our teams, places us at the forefront of innovation.
We continue to leverage our commercial strength to capitalize on the opportunities presented by positive pharmaceutical trends and innovation to drive increased value for our customers, partners, and shareholders. Cencora's differentiated footprint and robust suite of services make us a partner of choice, providing integrated solutions to support pharmaceutical commercialization and access. Our teams collaborate cross-functionally, creating a seamless process to efficiently bring new products to market. We remain differentiated in the market by our comprehensive approach, which leverages expertise developed from our position at the center of healthcare and our deep collaboration. As an example, Cencora is serving as an integrated launch partner to a biopharma company launching their products outside the U.S. Cencora is supporting both market access and efficient distribution to ensure providers and ultimately the patients have reliable access to the novel therapy.
Partnerships like this exemplify how our holistic pharmaceutical solutions are providing value to our pharma partners and serve as a testament to how our diverse capabilities allow us to capture opportunity to drive innovation and access throughout the industry. Many of these innovations are increasingly complex, which creates challenges to access and opportunities for Cencora to differentiate ourselves as a partner. This quarter, we continued our ThinkLive trade show series by hosting a two-day Cell and Gene Therapy Conference where leaders across the biopharmaceutical and healthcare industry came together to share a range of perspectives on the developments and challenges throughout the developing market. By hosting events like this, we foster collaborative relationships and effective strategies that enable the launch of groundbreaking therapies and reduce barriers to patient access. On the provider side, just last week, we also hosted our Annual ThoughtSpot pharmacy trade show and conference in collaboration with our Good Neighbor Pharmacy network of independent customers.
Our ThoughtSpot Conference provides thousands of community pharmacists with the opportunity to connect with peers, attend educational sessions on the latest developments and technologies, and celebrate the positive impact community pharmacies have as trusted healthcare providers. We truly believe that by bringing our customers together, we help advance the healthcare landscape and promote a deeper collaboration across our teams. Independent pharmacies play a vital role in promoting access to healthcare in their local communities and we are proud that Good Neighbor Pharmacy ranked number one in customer satisfaction among chain drugstore pharmacies in J.D. Power's U.S. Pharmacy Study for the eighth consecutive year. The Good Neighbor Pharmacy network is clearly made up of leaders providing differentiated services for patients across the country. Forging deep strategic partnerships with market-leading customers is a strategic imperative and key differentiator for Cencora.
Through these relationships, we better understand the challenges our customers are facing, which allows us to strengthen our services and solutions, driving mutual value and growing better together. As we work to enhance our customer experience, one area of particular focus has been evolving how we leverage innovative technology and analytics to enhance our efficiency and effectiveness. This is important for continuing to improve our day-to-day operations and also finding new and creative ways to analyze and grow their business with actionable data Cencora can harness. These strategic relationships with customers also allow us to capture areas of opportunity in rapidly advancing sectors of the market. I am particularly proud of our specialty distribution and services offering. For close to three decades, we have been a leader and innovator in this space. Importantly, we continue to make forward-thinking investments that position us to capitalize on addressing the complexities these products pose in handling and distribution, and connect us with downstream providers where we are positioned to equip practices with offerings that advance the strength of their business.
As specialty continues to grow across all therapeutic areas, we are able to expand and develop the partnerships we have with customers, furthering our leading market position. Our leadership in specialty remains a key tenet of our long-term growth and strategy. We make forward-thinking investments in our infrastructure and emerging technologies to position Cencora as the best partner to address our customers' current and future needs. The value we create throughout the supply chain and for our shareholders is driven by our global team members and their commitment to our purpose. Our team members execute at the impressive level they do because of our purpose-driven culture, which promotes differing perspectives and points of view. In June, we celebrated our team members that identify as a part of the LGBTQ+ community by hosting a global pride celebration and events throughout the month. In recognition of our commitment to fostering an inclusive and supportive workplace for all our team members, we are also proud to have been recognized as a Best Place to Work for Disability Inclusion by Disability:IN for a second consecutive year.
Our leaders are dedicated to fostering a working community and culture that celebrates and embraces our team members as their authentic selves, which includes providing a safe and inclusive working environment for all as our talents' engagement and commitment to our purpose drives our business resiliency and long-term strategic growth. Cencora continues to efficiently adapt to industry changes, operate, and draw on our business synergies and execute across the geographies we serve, which results in our continued growth and resiliency. Our team members' diligence and passion for our purpose is inspiring and is fundamental to our success. With that, I will now hand the call over to Bob, our incoming CEO effective October 1. Bob?
Thank you, Steve. As I continue to prepare to transition to CEO in October, I'm focused on speaking to and learning from our team members and our customers. In my conversations with customers, I reinforce the value of Cencora's strategy, leadership, and expertise, and how we are investing and innovating to be the partner that they need now and into the future. In working closely with leaders in healthcare across every channel, prioritizing customer-centric solutions, maintaining a learning mindset, and embracing our enterprise-powered capabilities, we differentiate ourselves as partners, grow together, and anticipate advancements throughout healthcare. Our team members are motivated by the important work we do, the collective strength of our business, and the collaboration we enjoy across our company. The culture and pride our team members have in their work drive our purpose as we create healthier futures, and our success is a direct reflection of our team's pursuit of operational excellence.
We champion the diverse perspectives and backgrounds that our team members bring to the table, which enables us to take a thoughtful and creative approach to addressing industry challenges, enhancing the value we provide to customers, partners, shareholders, and the broader healthcare industry. Looking forward, we will continue to execute against our pharmaceutical-centric strategy, driving efficiency through the supply chain, and supporting the growth of innovative products through our higher-growth, higher-margin services. In closing, I'm incredibly honored to have the opportunity to succeed Steve as Cencora's next CEO. Cencora's position in healthcare is a direct result of Steve's vision and next-minded approach in growing and advancing the depth and breadth of our services. And I want to take a moment to congratulate Steve on his incredible tenure and the mark he made on this company as well as our industry.
Under Steve's leadership, Cencora has delivered tremendous growth and demonstrated our crucial role to stakeholders. Steve has led the company through major strategic decisions that position Cencora for long-term value creation, including customer partnerships with leading healthcare organizations, expanding our geographic footprint, and the various services and solutions we provide, as well as successfully navigating significant national and global challenges, all while remaining committed to our purpose and supporting our team members. Thank you, Steve, for your service to Cencora and your unwavering commitment. I'm working closely with Steve to ensure a seamless transition, and I look forward to his continued leadership, partnership, and guidance as he transitions to the role of Executive Chair. It's a privilege to work alongside Cencora's inspiring and passionate team members. And I look forward to building on our momentum as we are optimistic and excited about the future of Cencora and intend to keep up the track record of execution and performance. I will now turn the call over to Jim for a review of our fiscal 2024 third quarter financial performance. Jim?
Thanks, Bob. Good morning and good afternoon, everyone. Before I turn to a review of our consolidated third quarter results, as a reminder, my remarks will focus on our adjusted non-GAAP financial results, unless otherwise stated. For a detailed discussion of our GAAP results, please refer to our earnings press release and presentation. Cencora delivered another strong performance in the third quarter as we continued to benefit from positive utilization trends, our leadership in specialty, and the strong free cash flow generation of our business. As Steve mentioned, adjusted diluted EPS increased 14% to $3.34 as we benefited from strong results in the U.S. Healthcare Solutions segment, lower net interest expense and a lower share count due in part to approximately $550 million in opportunistic share repurchases in the quarter, as we continue to thoughtfully deploy capital and return value to shareholders.
Beginning with our consolidated revenue, in the quarter, we had $74.2 billion in revenue, up 11%, with continued growth in our distribution businesses, including increased sales of GLP-1 products, increased sales of specialty products to physician practices and health systems, and growth in sales to some of our largest customers. Our strong revenue growth was offset in part by the January 1 manufacturer price reductions in certain product classes. Sales of GLP-1 products in the quarter increased by $2.1 billion, or 38%, compared to prior year and increased 30% sequentially from the March quarter, when there was a notable slowdown in growth due to supply constraints, which have clearly now subsided. Excluding GLP-1s, consolidated revenue growth would have been approximately 8%. Turning now to gross profit. Consolidated gross profit was $2.4 billion, up 6% compared to the prior-year quarter.
Consolidated gross profit margin was 3.19%, a decrease of 14 basis points compared to the prior-year quarter, as a reacceleration of low-margin GLP-1 product sales negatively impacts our gross profit margin. Moving now to operating expenses. In the quarter, consolidated operating expenses were $1.5 billion, up 6% due to higher distribution, selling, and administrative expenses to support revenue growth and lapping the efficiency actions we called out last year on our May earnings call. Consolidated operating income was $878 million, an increase of 7% compared to the prior-year quarter, with strong growth in the U.S. Healthcare Solutions segment, which I will discuss in more detail when reviewing the segment-level results. Moving now to our net interest expense and effective tax rate for the third quarter. Net interest expense was $31 million, a decrease of 46% year-over-year, as interest income increased as a result of particularly strong cash flow in the quarter, in part due to our successful unwinding of the extended payments program we launched in the March quarter to support our customers during the Change Healthcare outage.
The combination of strong cash flow early in the quarter and higher investment rates compared to the prior year drove the significant decline in net interest expense year-over-year. Turning to income taxes, our effective income tax rate was 21.0% compared to 21.5% in the prior-year quarter. Finally, our diluted share count was 200 million shares, a 2% decrease compared to the prior-year third quarter, primarily driven by opportunistic share repurchases. In fiscal 2024, we have repurchased almost $1 billion of our shares, including $700 million directly from Walgreens Boots Alliance. Regarding our cash balance and adjusted free cash flow, we ended the quarter with a cash balance of $3.3 billion and $2.3 billion of adjusted free cash flow, as the $600 million impact from the Change Healthcare outage that I just spoke about reversed early in the third quarter. This completes the review of our consolidated results.
Now, I'll turn to our segment results for the third quarter. U.S. Healthcare Solutions segment revenue was $67.2 billion, up 12%, reflecting strong script utilization trends, including increased sales of GLP-1 products and specialty products to physicians and health systems. Excluding sales of GLP-1 products, segment revenue growth would have been approximately 10%. U.S. Healthcare Solutions segment operating income increased 10% to $698 million, as our specialty distribution business saw strong growth in both oncology and ophthalmology in addition to strong overall prescription volumes and biosimilar conversions. I will now turn to our International Healthcare Solutions segment. In the quarter, International Healthcare Solutions revenue was $7.1 billion, flat compared to prior year on an as-reported basis or up 6% on a constant currency basis. International Healthcare Solutions operating income was $179 million, a decrease of 4% on an as-reported basis, due to continuation of higher information technology expenses for our European distribution business and lower operating income at our global specialty logistics business as there were less international shipments and lower weights per shipment, all of which was partially offset by positive results at our Canadian business.
On a constant currency basis, International Healthcare Solutions segment operating income increased 1%. Our global specialty logistics business is starting to see some good early signs on the demand side and the business continues to invest to further differentiate its global strength in its complex high-touch market. That completes the review of our segment-level results. I will now discuss our updated fiscal 2024 guidance expectations. 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. I will also provide certain guidance metrics on a constant currency basis. I will start with updated adjusted diluted EPS guidance and then provide greater detail on the income statement items driving our improved earnings expectations. Today, we are pleased to raise our fiscal 2024 EPS guidance for the fourth time this fiscal year.
We now expect EPS to be in the range of $13.55 to $13.65, representing growth of 13% to 14%, up from our intra-period provided EPS guidance range of $13.35 to $13.55. Our updated guidance range reflects our expectation for continued growth in the U.S. Healthcare Solutions segment, tapered expectations in the International Healthcare Solutions segment, and lower net interest expense expectations for the fiscal year. Beginning with revenue, we now expect both our as-reported and constant currency consolidated revenue growth to be approximately 12% from our previous guidance range of 10% to 12%, given our increased guidance in the U.S. segment. In the U.S. Healthcare Solutions segment, we now expect segment-level revenue growth of 12% to 13% from the previous range of 11% to 13%. In the International Healthcare Solutions segment, we now expect as-reported segment-level revenue growth of 4% to 6% from the previous range of 4% to 7% and constant currency revenue growth of 7% to 9% from the previous range of 7% to 10%.
Moving to adjusted operating income, we now expect our as-reported consolidated adjusted operating income growth to be in the range of 10% to 11%, as we narrow our guidance from the previous range of 9% to 11%, and constant currency growth to be in the range of 11% to 12%, narrowed from the previous guidance range of 10% to 12%. Updated guidance reflects expected continued growth toward the upper end of our previous guidance range in the U.S. Healthcare Solutions segment and growth toward the lower end of our previous guidance ranges in the International Healthcare Solutions segment. In the U.S. Healthcare Solutions segment, we now expect our segment-level adjusted operating income growth to be in the range of 11% to 12% from our previous range of 10% to 12%, due to our continued strong growth expectations for the remainder of the fiscal year. As a reminder, in the fourth quarter, we will lap the prior-year contribution of $0.08 from exclusive COVID therapy distribution and will also begin comparing to prior-year quarters that had contributions from commercial COVID vaccines, which we expect to be comparable year-over-year.
In the International Healthcare Solutions segment, we now expect our segment-level adjusted operating income growth to be in the range of 5% to 7% from our previous range of 5% to 8%. On a constant currency basis, we now expect adjusted operating income growth to be in the range of 10% to 12% from our previous range of 10% to 13%. We are modestly narrowing our International operating income guidance range, bringing down the top end of the range due to our third quarter results in the segment and some softness in demand at PharmaLex. Moving now to net interest expense and share count. We now expect our net interest expense to be in the range of $170 million to $190 million, down from our previous range of $185 million to $215 million, driven by our better-than-expected free cash flow. For weighted average shares outstanding, we now expect our full year count to be under 201 million shares as a result of our opportunistic share repurchases in the quarter.
As you will recall, on May 22, we announced that we had completed $550 million in share repurchases in the month, including $400 million repurchase from Walgreens Boots Alliance, decreasing our weighted average diluted share count. Finally, turning to adjusted free cash flow, we now expect to generate $2.5 billion to $3 billion, up from our previous expectation of approximately $2.5 billion in adjusted free cash flow in the fiscal year, given our strong free cash flow generation in the third quarter. That completes the review of our updated guidance for fiscal 2024. As we near the end of the fiscal year, I'm proud of the strong results our purpose-driven team members have produced. The dedication and execution by our team members continue to drive our growth and enable us to deliver on our pharmaceutical-centric strategy. Cencora continues to demonstrate our ability to deliver long-term sustainable growth and create value for our customers, partners, and all our stakeholders.
Before handing the call back over to Steve, I want to extend my congratulations, once again, to both him and Bob as our company is well-positioned to continue creating value in the short and long term with the company's thoughtful leadership transition plan. Cencora has benefited from having such a purpose-driven leader in Steve for well over a decade and his vision for the company has created a strong foundation for value creation for our customers, partners, and shareholders. Under Bob's leadership, we will continue to build on Cencora's momentum and commercial strengths and drive further value for our stakeholders on our path toward our purpose of creating healthier futures. Congratulations to you both once again. Before turning the call back to Steve, I'm going to go through a little bit of historical data, which will take Steve by surprise. During the 13 years that Steve has been CEO of Cencora, the revenue compound annual growth rate has been 11%, and the adjusted EPS compound annual growth rate has been 14%.
Coincidentally, those were actually the same growth rates we had this most recent quarter, 11% revenue growth and 14% adjusted EPS growth. And also, during the 13 years that Steve has been CEO, the company has had a total shareholder return CAGR of between 15% and 16%. So, Steve, I thought I'd just go through that historical data, and now I'll turn it back over to you.
Thank you, Jim. You did take me by surprise. But with this being my final earnings call, I want to take a moment to thank our team members, our Board, and our stakeholders for the opportunity to serve as Cencora's CEO these last 13 years. In my first call as CEO, I highlighted that we would pursue opportunities to increase our value offering to existing customers, add to our strengths in core competencies, and increase shareholder value. Throughout my tenure, we have delivered on that framework and grown significantly, operationally, geographically, and financially, as we built upon our scale and expertise as a pharmaceutical distributor and leader in specialty by deepening and broadening our relationships upstream with pharma and advancing our solutions downstream with our provider customers. We have advanced our core distribution capabilities through organic and inorganic growth opportunities, expanding our reach and providing more patients with the life-saving medications they need.
Our leadership and capabilities in specialty make Cencora a driving force in supporting access and intelligence for cutting-edge therapies. Cencora's demonstrated growth over the past decade-plus speaks to the strength of our execution against our pharmaceutical-centric strategy. Our team's relentless focus has allowed us to continually capitalize on growth across healthcare and to be the partner of choice for both upstream biopharma and downstream providers. Cencora is strategically positioned at the center of healthcare, and as Bob steps into the role as CEO on October 1, the company will continue to build on our momentum, relationships, and capabilities, guided by his leadership to drive results and create value for all of our stakeholders. I've had the pleasure of working alongside Bob for almost 20 years, and I'm excited to see the future as we watch him lead Cencora. Bob's deep understanding of all facets of pharmaceutical distribution, logistics, and commercialization, experience leading all of our businesses during his tenure, and his integral role in helping to shape our strategy over the years makes him incredibly well-equipped to be the company's third-ever CEO.
It has been an honor and a pleasure to be a part of the company's evolution and I look forward to seeing how Cencora advances into the future. The numbers that I talked about at the opening of the call would not have been possible without the enormous contribution of so many of my colleagues throughout my 30-year career with the company, and I'm sincerely grateful and humbled by their achievements and dedication to being united in our responsibility to create healthier futures. With that, we will now move to Q&A. Operator?
分析師問答
Absolutely. We will now begin the question-and-answer session. Operator Instructions. The first question comes from the line of Lisa Gill with JPMorgan. Your line is now open.
Thanks very much, and congratulations, Steve. It's been great working with you for a number of years. And Bob, congrats to you as well. My question really is around how we think about things from here. Obviously, a great quarter, great last several years and also under your tenure, Steve, but as I think about '25, really two questions. One, Bob, any change in the philosophy of how you think about whether it's giving guidance to the Street or any of the growth metrics? And then secondly, for you, Jim, I know usually here in the third quarter, you'll give us some headwinds and tailwinds and things to think about as we think about fiscal '25.
Lisa, thank you for the kind words. Moving forward, I want to address our strategy first, as it relates to your question. As Steve mentioned, it's essential to recognize that he, the executive team, and I have been dedicated to our strategy for a long time, which is clearly reflected in our performance. Therefore, you shouldn't anticipate any changes in that area, including our guidance and projections for the future, but I'll let Jim provide more details on that.
Sure, Lisa, I'll address the second part of your question. We'll provide detailed guidance at the end of our fiscal year after finishing our year-end planning process. We are optimistic about our long-term guidance, which anticipates operating income growth of 5% to 8% and EPS growth of 8% to 12%. Regarding the factors that may influence this, we consider the growth in specialty products to physicians and health systems, the growth rate in that significant area of our business, ongoing positive utilization trends, the timing of capital deployment, and any share repurchases. Another point to consider for fiscal year '25 is the comparison to the first season with commercial COVID vaccines. In the first quarter of fiscal year '24, we had significant sales of these vaccines, and while we're preparing for the first quarter of '25, predicting the exact sales level is challenging. I want to emphasize that we have consistently achieved strong financial performance thanks to our leading market positions, the efforts of our team members, our pharmaceutical-centric foundation, and our competitive edge that allows us to adapt to market trends and continue delivering solid results. Thank you for your question, Lisa.
Good morning. Thanks for taking the question, and I'll echo Lisa's comments, Steve. It's been a pleasure. I know you're not going too far, but we'll certainly miss you on these calls. And welcome hearing from Bob more. Maybe just to kind of follow up a little bit on the second part of Lisa's question, as you think about the market today, you talked last quarter about some of the changes in list prices and how it impacted the quarterly results you saw, at least from a revenue basis in the U.S., a nice sequential uptick. Where do you see relative to where you'd expect? I mean, Jim, you mentioned the long-term trajectory, but where do you see the health of the markets today as you prepare to give us that full guidance? And in terms of what could be a positive/negative dynamic, obviously, you have a lot of customers, some big, some small going through strategic changes. How does that factor into how you think about the trajectory going forward for your business?
Yeah. I'll start out by talking about the overall health of the market. We continue to see very good utilization trends. We saw solid utilization trends in the quarter, which is something we've talked about for quite some time. Those include continued growth of GLP-1s, which of course, drive top-line, but are minimally profitable on the bottom-line. But we are also seeing particularly strong sales of specialty products to physician practices and health systems that continue to outpace the broader market growth. And within specialty, we're seeing positive trends in both oncology and ophthalmology. Other kind of macro things as you're asking about, drug pricing, really no new commentary there. Brand inflation, that we would have talked more about last quarter because of the timing, brand inflation continues to be in line with our expectations, but then of course, over 95% of our brand buy-side dollars are fee for service. And generic deflation, really the same commentary that we've had for quite some time now that we've seen a moderation of generic deflation. And of course, our business model is not as reliant on generic pricing because of our contract rebalancing. Overall, in terms of market trends, it's very consistent with our recent commentary.
Thank you for the question. Congratulations, Steve. I'm looking forward to collaborating more with you, Bob, in the future. I have a question about the PharmaLex business. Can you share insights on how that cycle is progressing? We've heard reports of some weakened spending in that area. Where do you believe we currently stand in that cycle? Also, what feedback have you received from your customers regarding their budgets for 2025?
We have noticed some softness in our consulting business, which has also been observed by other companies in the industry. There are some initial positive signs in the market. While it's still too early to declare a recovery, we are seeing early encouraging indicators. Our team is highly focused on identifying and prioritizing actions that will generate revenue. We remain confident in our strategic decision to acquire the business.
Yeah, Jim, I'll just add. And Elizabeth, first, thanks for the question, and thank you for the warm welcome, but I'll just reinforce what Jim said at the end there. We have a strong belief in the strategic thesis that the innovation in pharma will continue over a long period of time and that our pharma services businesses, which are higher-growth, higher-margin businesses will benefit from that. And from time to time, there will be partial slowdowns in that area, but as Jim said, we are seeing improvement.
Good morning, and thanks for taking the questions. First, congrats, Steve, on a really nice run here over the past 13 years. One question for Jim. The gross margin was relatively flat year-over-year last quarter, but now it seems to be continuing the normal trend down. Is that all due to the reacceleration of GLP-1s? I know there's a lot going on underneath the hood, insulin pricing, vaccine, currency headwinds in GLP-1s, but I'm curious if there's anything else to call out there. Thanks.
Yeah, thanks a lot for asking that question. The decline in gross profit margin this quarter is very explainable. First, let me say, year-over-year in the U.S., it's due to an increase in sales of lower-margin GLP-1s. And then, if you look at it on a consolidated basis, the balance is simply due to mix. The U.S. business grew faster in the quarter than the International business did, and the U.S. business has lower gross profit margins. The International business has more of the higher-margin businesses in it, and so that mix also had an impact during the quarter. Thank you for asking.
Thanks. I can't resist a kind of historic question for Steve, and Bob, I'll welcome you to comment as well. Of late, we've seen quite a few large oncology groups up for sale, and obviously, one of those benefited you last year with OneOncology, and another now in Florida in the news on a possible sale. Steve, do you think that there's a change going on? Is there pressure on these businesses that's leading to this change? Or do you think that they're looking to monetize from a position of strength? And then, the follow-through there is, does that ultimately create opportunity or risk for Cencora?
Hi, Eric. And thanks to everyone for the kind congratulations. On that question, look, the specialty market is very dynamic. There's no doubt that the aggregators in oncology are becoming more pronounced in their market share, even within our own business, as many community oncologists look to aggregate with shared services and offerings, more comprehensive offerings, but it's not for all of the customers that we have. I think geography and certain payer mixes within regions, mixes within the practice between Medicare and Medicaid, and a philosophy around value-based care, all of that can make a difference. We intend to be the leader in the market in oncology and we've demonstrated that for well over two decades. I think Bob is committed to that as I've been, and we'll look to participate vigorously in the market. And sometimes, if that needs investing, we've shown with OneOncology that we will do that. Bob, anything to add?
Yeah, Steve. Eric, thanks for the question. I would add, I think what we're seeing is a real demonstration of the value of community oncology within the healthcare system. They are a high-quality, lower-cost side of care. And as they come together, they're building scale, which will actually make them more efficient and more effective. And as Steve said, they'll be even better prepared to participate in value-based care programs when those are more widely available. So, I think as a macro trend, it's positive. And as Steve said, we will do our best to make sure that we continue to lead in that area.
Thank you for taking my question. Steve, I want to congratulate you on your successful tenure, and Bob, I look forward to collaborating with you more. I'd like to follow up on some earlier questions. Clearly, many of your large clients are undergoing restructuring, and there are still many details to be sorted out. When planning, can we assume you are engaging in discussions with your clients to navigate these changes? Do they share their future plans regarding closures and other considerations with you, or do you discover this information as it unfolds? Additionally, how do you incorporate this information into your projections for the upcoming year? Thank you.
Yeah, I'll start with that. So, the answer to your question in terms of how we work together and making sure that their strategic execution goes well, as you'd expect, we work very closely together. So, these are not plans that we would find out about after the fact. In fact, we would expect to and be involved in supporting that and helping, right, so that the most successful outcome possible is achieved. In the example of store closures, that's something that we'll work very closely with Walgreens on, and we expect that they'll have a good level of success in maintaining the volume, but we do work very closely together, not only on but overall in our position with Walgreens and really all of our customers is to make sure that we're doing everything that we can to support their strategy and build long-term strategic relationships. And that's exactly what we're doing as we sit here today with Walgreens.
Yeah, and I'll just very briefly answer the last part of the question. And I think it goes without saying, but of course, we stay close to our key customers and we always are estimating growth and take that into account as we're developing our annual plans.
Great. Thanks. So, excluding some of the FX dynamics in the International business, can you detail some of those moving pieces that you're seeing there, like the technology investments that you're making, but also underlying utilization trends kind of internationally? Is there anything else to kind of call out there? And then, just a second question on animal health. Any sort of update on underlying demand trends there across livestock and companion animal? Thanks.
There's a lot to cover, Erin, so let me go through it quickly. First, regarding the International segment, operating income decreased by 4.1% this quarter on a reported basis, but increased by 1% when adjusted for constant currency. We noticed a few factors impacting these results. As mentioned before, we experienced higher IT expenses in our European distribution operations, and we are committed to investing in IT to enhance our systems. Additionally, we observed lower operating income in our global specialty logistics business, which, while historically strong, faced a decline this quarter due to fewer international shipments and lower rates per shipment. However, our Canadian business performed well this quarter. Consequently, we adjusted the upper limit of our operating income growth range down by 1 percentage point in our International segment, equating to about $7 million. This modification reflects the third quarter results and some challenges in the PharmaLex business.
In general, our International results may be more variable than those of our U.S. business, primarily driven by pharmaceutical distribution and usage trends in the U.S. On the other hand, International includes more high-margin, high-growth segments that can fluctuate. Regarding animal health, there are no significant changes to report. Year-to-date, revenue growth stands at 7%, and we continue to observe the same trends in both companion and production animals, with our team executing well. I believe that covers everything, Erin. Thank you for your questions.
Hi. Thanks for taking the question. And I'll add my congrats to Steve for a tremendous run here and Bob for officially taking the reins. Jim, maybe one for you on guidance. It does imply on the U.S. side a bit of an outsized sequential decline in operating income for your fiscal 4Q. Curious if you could provide a little more detail on what specifically is driving that sequential decline, particularly given, I would assume that you'd see a bit more operating income from commercial COVID vaccines in 4Q versus 3Q. Thanks.
Yeah. So, let me address that, and I believe your question was focused on the U.S. segment. Of course, we are increasing our operating income guidance in the U.S. towards the upper end of the previous range. So, we were guiding at 10% to 12% adjusted operating income growth and now we're guiding at 11% to 12% adjusted operating income growth. Really, nothing specific to call out there beyond what we have been talking about is solid utilization trends and broad-based good performance across many business units and particularly strong sales of specialty products to physician practices and health systems. The COVID part of it is key, and so thank you for asking that. We expect the contribution from total COVID to be down year-over-year in our fourth quarter. The contribution from commercial vaccines we expect to be comparable year-over-year, but we expect very little contribution from therapies in the fourth quarter, and we are lapping the fourth quarter of last year when we had contribution of $0.08 from exclusive therapies. And so that is kind of the one thing that creates a bit of a headwind in the comp year-over-year, as we did have the $0.08 from exclusive therapies last year and we're expecting very little contribution from those commercial therapies this year. Thank you for asking the question.
Good morning, everyone. I want to send my best wishes to Bob and express my appreciation for working with you, Steve. Jim, I'm eager to continue our collaboration. I would like to ask a direct question about the relationship with Walgreens, as their management has been quite clear about wanting to extract more value from this partnership. There seems to be significant investor concern regarding both this relationship and the earnings stream generated by Cencora in relation to Walgreens. Steve or Bob, I would appreciate if you could provide insights on the status of that relationship and any earnings exposure. If you're able to share how you're working together to create value for Walgreens, that would be very helpful.
Yeah. Hi, George, thanks for the question and the warm wishes. Walgreens is an incredibly strategic relationship for us and a strategic partnership between the two of us. As I mentioned earlier in one of the operational questions, we work every day to make sure that we're supporting the strategy of WBA as they go forward. It's important to note that we have a very broad and strategic relationship. There certainly is the Walgreens distribution relationship, there's also the Boots distribution relationship, and of course, we buy generics together. As you would expect, we're working very closely with them. We want to do everything that we can to support their strategy as they go forward. But as long-term strategic partners, we're at the table doing everything that we can.
Yes, George, as you know, since 2013, we have also been supporting Boots, which is an important relationship. We take pride in this partnership, and you can expect that Cencora will approach it thoughtfully, focusing on creating long-term value.
Hey, guys. Congrats on the quarter. And echoing everyone else, Steve, congrats on a really strong track record over the years. We've seen a lot of movement in your end market, as George has called out, and as contracts kind of have changed hands this year at what feels like an accelerated rate. So, I wanted to ask you a two-parter. First, how are you differentiating yourself versus your peers during your renewals? Like, what are the big ways you're highlighting you are able to add value? And secondly, I know you've had some kind of changeover in how your contracts are structured as it goes through the years of the contract. Could you remind us on how that changes renewal dynamics? Thanks very much.
Yeah, I'll take that. Thank you, Stephanie, very much. Look, the environment is, as it has been for a long period of time, competitive, but also very stable. We work diligently to make sure that we're supporting all of our customers across our entire portfolio, which is really from end to end, from a provider standpoint, here in the United States and outside of the United States. Specifically, we're working to help drive efficiency. We'll work to help improve service levels where that's important to those customers. And it's a customized approach, and that's really important for the large customers in particular. Then, we also have our programmatic services that Steve mentioned, our ThoughtSpot conference and our Good Neighbor Pharmacy independent pharmacy customers. We’ve talked about community oncologists as we go through. Each of those customer segments requires a different approach, but in every case, we work diligently and we invest in having long-term strategic partnerships so that we bring the resources of Cencora to support that customer strategy.
Specifically, on the pricing front that you asked about, Stephanie, we have over many years worked to balance our contracts, so that when we work with a provider customer, pharmacy customer we are not subsidizing one product category over another, so that as mix changes happen, there's not a detriment to the customer or to Cencora. It's a bit more predictable as we go forward and as the market dynamics continue. We believe it's healthy and a positive in terms of our customer relationships.
Thanks very much. I think most of mine have been covered. I wanted to come back to just quickly on, it sounded like a combination of both specialty logistics and PharmaLex, if I understood correctly, it sounded like you referenced early positive signs of a rebound. Just correct me if I'm wrong, if it was just in specialty logistics? But what are those early positive signs or leading indicators that you referenced? Do you have any details you could share? Thanks.
Yes. When discussing specialty logistics, the early positive signs we referred to were related to some volume trends. Eric, that was specifically what we meant. Additionally, I would comment that this is a business that has consistently outperformed and grown significantly over many years, and it is truly a fantastic business for the long term.
Thanks. Appreciate the time. And, Steve, just want to say always appreciated your calming voice in this crazy world in which we operate sometimes. Super helpful.
Thank you.
I would like to know if you have been approached by any of your independent partners regarding the impact of NADAC. Have they sought your assistance or support due to the recent increase in reimbursement cuts, which have reached 20%? I'm curious about the feedback you've received from independent and small regional chains that are feeling the most significant effects of this situation.
Thanks, Kevin. I'll begin with a macro perspective. The independent businesses have shown remarkable resilience over a long period. As we've mentioned several times during this call, our goal is to maintain strong connections with them at all times. We continually engage with our customers, including those who are independent, to understand how we can best assist them. Regarding NADAC, it's a voluntary survey. We've noticed fluctuations in that survey, and at this moment, we're not receiving specific requests for help from our independent customers. However, we remain very attentive to this situation and closely monitor all market factors related to reimbursement while staying in touch with our customers.
Thank you. With that, we'll conclude our call, and I'll just make some concluding remarks. I just wanted to thank the analyst community for their interest and support and bearing through 53 quarters of the South African accent, which, of course, has been well shared. I also want to thank all the people that I don't necessarily call out on the call, including the people in Jim's team who helped prepare these numbers, and Bennett's team that are outstanding and so committed to the purpose of Cencora. In concluding, I just would also like to wish Bob as much success, performance, and pride during his tenure as CEO as I've enjoyed. Thank you for your time today.
Thank you, Steve.
That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.