管理層發言
Hello and welcome everyone to the Cencora Q1 fiscal year 2025 earnings call. My name is Becky and I’ll be your Operator today. During the presentation, you can register a question by pressing star followed by one on your keypad. If you change your mind, please press star followed by two. Should you have any issues, please press star followed by zero for Operator support. I will now hand over to your host, Head of Investor Relations, Bennett Murphy to begin. Please go ahead.
Thank you. Good morning and good afternoon, and thank you all for joining us for this conference call to discuss Cencora’s fiscal 2025 first quarter results. I am Bennett Murphy, Senior Vice President, Head of Investor Relations and Treasury. Joining me today are Bob Mauch, President and CEO, and Jim Cleary, Executive Vice President and CFO. On today’s call, we’ll 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 at investor.cencora.com. 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-K. Cencora assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without express 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’ll turn the call over to Bob.
Thank you Bennett. Hi everyone, and thank you for joining Cencora’s fiscal 2025 first quarter earnings call. Before we begin, I want to thank the 40,000-plus global Cencora team members. It’s because of their purpose-driven approach, expertise and dedication to meeting the needs of customers and patients worldwide that Jim and I have the pleasure of reporting strong Q1 results and updated guidance today. Cencora delivered a strong start to our fiscal year with revenue growth of 13% and adjusted EPS growth of 14%. We are also excited to share that due to the strength and execution in our U.S. business, we are raising guidance for the fiscal year. We benefit from our position as a leading healthcare solutions provider with a pharmaceutical-centric strategy and a purpose-driven culture which enables us to capitalize on positive industry trends and innovation. Today, I will emphasize three areas of progress in executing our strategy and driving performance in the quarter: first, advancing our leadership in specialty, where we took important steps forward; second, driving efficiency and productivity to advance technology and expert teams across the enterprise; and third, executing with a customer-centric mindset as we continue to collaborate and innovate with our customers throughout the supply chain.
I’ll begin with advancing our leadership in specialty. Our leadership supporting specialty providers is a key differentiator and growth driver for Cencora, and we have evolved our service offerings over time. Over decades, we’ve deepened our relationships with our specialty provider customers with the expansion of specialty GPOs and other capabilities. The logical next step is through managed service organizations. This is in line with our long-term commitment to support community providers, an extension of that work. After spending significant time understanding the MSO business through our investment in OneOncology, we announced the acquisition of RCA - Retina Consultants of America, and we are incredibly happy to have completed that acquisition on January 2. RCA is a leading retina MSO differentiated by its leadership team, clinical excellence, premier physician partner practices, and positioning at the forefront of retina innovation through its clinical research capabilities.
This acquisition, like our investment in OneOncology, fits squarely into our strategy and growth by expanding our leadership in specialty in a high-growth pharmaceutical-centric segment, building on our services for our customers and positioning us well in a medical specialty that has seen significant innovation. While it’s early days, we’re excited about what we believe our combined organizations will accomplish together. Next is driving efficiency and productivity through advanced technology and expert teams. We are focused on continuously enhancing our capabilities and increasing efficiency through advanced technology and collaboration across our global teams. Across the organization, we are working to streamline operations, optimize business processes, and unlock enterprise-wide value. In the quarter, we worked throughout our business to upgrade systems to safeguard the resiliency of our infrastructure and ensure we maintain best-in-class standards.
This allows us to streamline our operations for enhanced customer satisfaction. All of this aligns with our digital transformation strategy, which focuses on enhancing customer experience and accelerating decision-making as we leverage global talent and capabilities to enhance efficiency, scalability and innovation, all while meeting the needs of our partners both now and in the future. Finally, executing with a customer-centric mindset and innovating with our customers. At Cencora, we lead with market leaders. Our portfolio of customers is second to none, driving innovation through drug development, elevating patient care and access through their patient-first approaches. Cencora team members with world-class expertise are working in cross-functional teams, collaborating with customers to meet their evolving needs. In the quarter, we were able to displace solutions created as a result of working closely with our customers at our inaugural product showcase.
Our product showcase enabled us to demonstrate advanced solutions in areas like inventory planning and management, specialty GPO, as well as cell therapy and gene therapy solutions. Another example is our enterprise leadership team just returned from the United Kingdom, visiting elements of our international operations, spending time on the ground with our leaders, and engaging with several top biopharma customers. Our global footprint and expertise set us apart and gives us the unique ability to combine local expertise with global infrastructure, best meeting the needs of biopharma companies. We are focusing on building on our strengths and value proposition to pharma with our services like market access, regulatory, pharmacovigilance, and our unparalleled 3PL and specialty logistics networks. This differentiated approach is strategically important to our biopharma customer relationships over the long term and it’s how we capitalize on growth of specialty products in the European market, which has a different structure than in the U.S., but is similar in that our foundation of pharmaceutical distribution and portfolio of services enables us to support pharmaceutical innovation while growing our higher growth, higher margin services.
In closing and before I hand it over to Jim, Cencora’s performance is powered by an amazing global workforce who are advancing our leadership in specialty, driving efficiency and productivity through advanced technology and expert teams, and executing with a customer-centric mindset as we continue to collaborate and innovate with our customers. Looking ahead, we will maintain focus, executing against our strategy and amplifying the areas that are fundamental to our success, driving increased value for all our stakeholders. Thank you once again to all Cencora team members, and with that, I’ll turn the call over to Jim for an in-depth review of our first quarter results and our updated fiscal 2025 guidance.
Thanks Bob. Good morning and good afternoon everyone. As a reminder before I turn to my prepared remarks, unless otherwise stated, my remarks today will focus on our adjusted non-GAAP financial results. For a detailed discussion of our GAAP results, please refer to our earnings press release and presentation. Cencora delivered strong results in the first quarter of fiscal 2025 as our U.S. healthcare solutions segment outperformed expectations due to strong prescription utilization trends, and we capitalized on the growth of our industry, the continued momentum of our business, and the expertise of our teams. As Bob mentioned, adjusted diluted EPS increased 14% to $3.73 in the first quarter, and for the second time in fiscal 2025, we are raising our adjusted diluted EPS guidance for the full year. I’ll now turn to a review of our consolidated first quarter results, starting with revenue. Our consolidated revenue was $81.5 billion, up 13% primarily due to strong revenue growth in the U.S. healthcare solutions segment as we continued to benefit from overall market and volume growth, including increased sales of GLP-1 products.
Excluding sales of GLP-1s, our consolidated revenue growth would have been 9%. Turning now to gross profit, consolidated gross profit was $2.5 billion, up 6% with growth in both the U.S. and international healthcare solution segments. Consolidated gross profit margin was 3.11%, a decrease of 20 basis points driven by the continued increase in sales of low margin GLP-1 products combined with lower sales of commercial COVID-19 vaccines and a lack of sales of exclusive COVID-19 therapies, all of which negatively impacted our gross profit margin versus the prior year quarter. Moving now to operating expenses, in the quarter consolidated operating expenses were $1.6 billion, up approximately 6% due to higher distribution, selling and administrative expenses to support revenue growth. Consolidated operating income was $949 million, an increase of 7% compared to the prior year quarter primarily due to 10% growth in the U.S. healthcare solutions segment, which I will discuss in more detail in the segment-level results.
Moving now to our net interest expense and effective tax rate for the first quarter, net interest expense was $28 million, down 31% due to higher interest income resulting from higher average investment cash balances and interest rates, partially offset by an increase in interest expense. Turning now to income taxes, our effective income tax rate was 20% compared to 21% in the prior year quarter. Finally, our diluted share count was 195.2 million shares, a 3% decline compared to the prior year first quarter driven by approximately $1.5 billion of opportunistic share repurchases during the period of February through October of 2024. As a reminder, as it relates to capital allocation, in the near term we will prioritize deleveraging given the recent RCA acquisition. Regarding our cash balance and adjusted free cash flow, we used $2.7 billion of cash in our operations during the quarter, resulting in negative adjusted free cash flow of $2.8 billion due to the timing of flows at the end of the calendar year.
We continue to expect full year adjusted free cash flow to be in the range of $2 billion to $3 billion. This completes the review of our consolidated results. Now I’ll turn to our segment results for the first quarter. U.S. healthcare solution segment revenue was $74 billion, up 14% as we continued to see broad-based strong utilization trends including continued volume growth in GLP-1s and growth in sales to specialty physician practices and health systems. In the quarter, sales of GLP-1 products were up $3.2 billion, representing a 53% increase year-over-year. Excluding sales of GLP-1 products, U.S. segment revenue growth would have been 10% for the quarter. U.S. healthcare solution segment operating income increased 10% to $767 million, driven by growth at our human health distribution businesses, including specialty products, and across commercial segments including animal health, more than offsetting the significant headwind from lower sales of COVID-19 vaccines and lack of sales of exclusive COVID-19 therapies in the current year quarter.
To provide a little more detail on the headwinds, in the first quarter of fiscal 2025 the contribution from COVID-19 vaccines was about half that of the prior year quarter, and we expect a similar-sized operating income headwind in the second quarter of fiscal 2025, meaning no significant expected contribution from COVID vaccines in our second quarter of fiscal 2025; and as it relates to exclusive therapies, as a reminder, the first quarter of fiscal 2024 was the final quarter of contribution from exclusive COVID-19 therapies which contributed $0.06 to our first quarter of fiscal 2024. I will now turn to our international healthcare solutions segment. In the quarter, international healthcare solutions revenue was $7.5 billion, up approximately 6% on an as-reported basis and up almost 9% on a constant currency basis, due to increased sales at our European distribution business. International healthcare solutions operating income was $182 million, down 3% on an as-reported basis and up 3% on a constant currency basis.
In the quarter, lower operating income at our global specialty logistics business was partially offset by better results at our European distribution business. Our global specialty logistics business had a strong quarter in the prior year period, and this quarter was more challenging as clinical trial activity remained subdued. The business remains focused on its pipeline and targeted in its regional prioritization of new volume growth. We expect to see business performance improve later in fiscal 2025 as demand for our premium service capabilities increases from its current levels. That completes the review of our segment level results. I will now discuss our updated fiscal 2025 guidance expectations. As a reminder, we do not provide forward-looking guidance for certain metrics on a GAAP basis, so the following information is provided on an adjusted non-GAAP basis except with respect to revenue.
I will also provide certain guidance metrics on a constant currency basis. I will start with adjusted diluted EPS guidance and then provide detail on the income statement items contributing to the increase. On January 2, we announced the closing of the RCA acquisition and raised our adjusted diluted EPS guidance to the range of $15.15 to $15.45 to reflect the nine-month contribution from RCA in addition to continued momentum in the U.S. healthcare solutions segment. Today, we are pleased to again raise our full-year diluted EPS guidance to a range of $15.25 to $15.55, a $0.10 increase to both the top and bottom end of our adjusted diluted EPS guidance range to better reflect the strength and momentum exhibited by the U.S. healthcare solutions segment. Now moving to revenue, we expect consolidated revenue growth to be in the range of 8% to 10%, up from the previous expectations of 7% to 9%.
The updated guidance range primarily reflects an increase in our U.S. healthcare solutions segment revenue growth, where we now expect growth of 9% to 11%, up from our previous expectation of 7% to 9% growth due primarily to continued strong organic revenue growth and to a lesser extent RCA, which was already a distribution customer. In the international healthcare solutions segment, we now expect revenue growth in the range of 4% to 5%, down from the previous range of 7% to 9% to reflect updated foreign currency translation rates. On a constant currency basis, international healthcare solutions segment revenue guidance remains unchanged at 7% to 9% growth. Moving to operating income, we expect consolidated operating income growth to be in the range of 11.5% to 13.5%, up from our previous guidance of 5% to 6.5%. In the U.S. healthcare solutions segment, we now expect operating income growth to be in the range of 14.5% to 16.5%, up from our prior range of 5% to 6.5%.
Once again, segment-level guidance reflects expected contributions from our acquisition of RCA and continued strong broad-based growth in the segment, more than offsetting previously discussed COVID-related headwinds. Turning now to the international healthcare solutions segment, on an as-reported basis, we now expect operating income growth to be flat year-over-year due to the strengthening of the U.S. dollar against other currencies and lowering the top end of our expectations for the segment. On a constant currency basis, we now expect segment operating income growth to be approximately 5%, narrowed from the previous range of 5% to 6.5% as a result of the slower start for the international segment in the first half of fiscal year 2025. Moving to interest expense, we now expect interest expense to be in the range of $290 million to $310 million, up from our previous range of $150 million to $170 million due to the financing of our acquisition of RCA offset in part by lower net interest expense associated with foreign subsidiaries.
From a quarterly cadence perspective, we would expect interest expense to step up meaningfully in the second quarter, similar to the prior year quarter given typical seasonality and cash use as well. Finally, we expect that our full-year average share count will be under 196 million shares in fiscal 2025, given where our share count sits today. That concludes our updated full-year guidance assumptions. As it relates to quarterly cadence, I would point out that we expect the second quarter to be the lowest growth quarter in fiscal 2025 with adjusted diluted EPS growth in the mid single digits. This is driven by a few factors. First, as I mentioned earlier, the second quarter is expected to have the highest net interest expense for the fiscal year due to typical seasonality of cash use in addition to the financing costs associated with the RCA acquisition. Second, in the U.S. healthcare solutions segment, we have the COVID-19 vaccine headwind in the second quarter which I referenced earlier, and as it relates to RCA, accretion is expected to ramp over the course of the fiscal year.
Finally, the slower start for the international segment in the first half of the fiscal year and the income translation impact from the strength of the U.S. dollar. In closing, Cencora has achieved another strong quarter, demonstrating the efforts of our purpose-driven team members as we continued to execute on our purpose of creating healthier futures. Their dedication and drive to the advancement of our enterprise has a proven track record of success, which we see continuing in fiscal 2025 and creating value for all our customers, partners and stakeholders in the quarters to come. Now I will turn the call over to the Operator to open the line for questions.
分析師問答
Thank you. Our first question is from Michael Cherny from Leerink Partners. Your line is now open, please go ahead.
Good morning, and congrats on another great quarter and guidance. Maybe just Bob, given this is your second quarter as CEO, I’ll start on a strategic question and I’ll save some of the other modeling ones for down the road. But as you think now about your specialty business as a whole, it clearly is a driver of some of the outperformance. As you think about the mix of market growth versus your assets, especially off the back of the OneOncology investment and now RCA, where do you think the company is best positioned to outgrow the market on specialty? How much within the guidance do you think is market-oriented growth, and where do you think going forward the different dynamics of your specialty growth versus your peers could lie in terms of continuing to drive these potential sources of upside?
Hi Michael, thank you very much for the question, and also hello to everyone on the call - thank you for joining today. It’s a terrific question, and I’ll just start with the strategy, where we are, and begin with a pharmaceutical centered strategy. We’re going to stay focused on the pharmaceutical sector, and as you know and as we all know, the innovation is significant there. Secondly is we continue to build on our portfolio of services to be sure that we’re well positioned, both inside the United States and outside the United States, to make sure that we are able to support manufacturers and providers as that specialty product growth continues over the long term. Lastly, it really begins with having the best customer portfolio in the business, and we think that’s really where we’re differentiated. We spend a lot of time talking about our customer portfolio, not just in specialty but broadly, and believe that’s a big driver of growth.
If you’re with the market-leading providers with the market-leading manufacturers, then that’s going to position us well for growth. Kind of pulling back more specifically in the expansion of services, we’ve spent decades building a suite of services that support community providers from GPO to analytics, and many other services that we provide. We’re confident that the MSO services are the right logical next step for our strategy. It’s important to providers and it’s also very much in line with where we’ve positioned ourselves over a long period of time. I’d just reinforce the fact that we have not only just in the specialty space but across our portfolio invested in services that support community providers, and this is another example of that in part of the market where we expect to continue to lead. Again Michael, thank you very much for the question.
Thank you. Our next question is from Lisa Gill from JP Morgan. Your line is now open, please go ahead.
Thanks very much, and good morning. Thanks for taking my question. I just wanted to ask a numbers question. When I look at the strong revenue, especially within the U.S. segment, of roughly 14% in the quarter, the updated guidance is for 9% to 11%, I understand previously 7% to 9%; but can you help with the elements going forward, you know, are we seeing deceleration in some area, is it around GLP-1s, any of the store closings for Walgreens, or just the natural Cencora conservatism? If you can just help us to understand the cadence of that and what you’re seeing as far as potential deceleration in revenue in the quarters going forward.
Lisa, thanks a lot for the question. That’s an excellent question, and of course we had terrific revenue growth in the first quarter, and you’re asking about the U.S. 14% revenue growth, 10% revenue growth ex-GLP-1s. As you noted, in the U.S. we increased our revenue growth guidance by two percentage points at the bottom end and the top end of the range, and our guidance is 9% to 11% revenue growth for the fiscal year, but as you noted, that’s lower than the revenue growth during the first quarter, and of course we increased our adjusted operating income guidance in the U.S. by a lot more than we increased our revenue growth guidance. I would say there are a few call-outs for those sorts of things. One is our assumption in our guidance on GLP-1s is that growth is higher in the first quarter than in the balance of the fiscal year, and we’ll see if that assumption is correct. Of course, we had fantastic growth on GLP-1s in the first quarter - it was 53% growth, and we assume that that growth in Q1, it’s higher than it is in the balance of the year.
I think the key call-out here is that that particular assumption has a big impact on revenue growth, but it has a minimal impact on OI. We’ve always indicated that GLP-1s are profitable for us, but minimally profitable for us, so really the revenue growth assumption there doesn’t have much impact on OI growth. Then a second thing is our assumption that we see Humira conversion to biosimilar, and again that’s a revenue driver but it has a minor impact on operating income. As we’ve always said, the main channel there is the lower margin mail order channel, so again this adds a meaningful impact to revenue growth rates but a minor impact to operating income growth rates. Then probably a third thing I would call out is the acquisition of RCA, which we feel great about. It has a meaningful pick-up for us in operating income, but it’s not a large revenue pick-up from RCA. Again, it’s a meaningful pick-up in operating income but not a large pick-up on the revenue side, and compared to the balance of Cencora, RCA is a higher margin but lower revenue business, and they’d already been a distribution customer.
Then one kind of detailed thing I’d call out there is we don’t double-count the product revenue. We eliminate the sale of products from our specialty business to RCA so that we don’t count the double-count the revenue with regard to RCA. Overall, I’d say we feel really good about our guidance, but revenue guidance, the increase is not nearly as high as it is for operating income, but due to the things that I called out, which really don’t impact our strong operating income growth. Thank you for the question.
Thank you. Our next question is from Elizabeth Anderson from Evercore ISI. Your line is now open, please go ahead.
Hi guys, thanks so much for the question, and congrats on a really nice quarter. I had a question on the World Courier business and the pharma services, and sort of how you’re thinking about that over the course of FY25. Could you just maybe go into a little bit more detail about what happened to World Courier in the quarter and how to think about that, versus the rest of the year? Then broadly, where do you think we are in the pharma services demand cycle? It seems like we haven’t gotten too many additional pharma cuts in the last month or two, so are we getting through the cycle? I’d be curious to hear your thoughts on where we are in that.
I will start with the answer. Regarding World Courier, which is our global specialty logistics business, it faced a more challenging quarter due to subdued clinical trial activity. This has been a strong business for the past 10 years, but recently it has struggled because of a market pullback. However, we expect to see performance improve later in fiscal year 2025 as demand for our premium service increases. We met with the management team last week, and they are very focused on the pipeline and areas where we want to drive growth. Generally, the market for manufacturing commercialization services is also somewhat subdued, similar to our global specialty logistics business. I see Bob would like to add something.
Yes, thanks Jim. Elizabeth, thank you very much for the question. I think, just to take a step back strategically, and Jim certainly handled the part of your question related to the overall pharma services market, but I do want to just reinforce how important our global footprint is to the future growth of Cencora. It really is a differentiated component of our business. We hear loud and clear from customers how important not only the specialty logistics services from World Courier are, but also our consulting services that you mentioned as well as 3PL services. When we think about the future of specialty growth, these are services that are required and valued by the pharmaceutical manufacturers, and as you think about specialty launches in Europe in particular, the suite of services that we have built are very well positioned to support manufacturers in that process. We hear continually that our approach to having a very local approach or very local expertise in the markets we serve, as well as a global infrastructure to support that, is valued and is an important contribution to efficiency as we think about that market. We’re bullish on the strategy over the long term. We believe the market will continue to improve and we’re very well positioned to participate in that improvement.
Thank you. Our next question is from Steven Valiquette from Mizuho Securities. Your line is now open, please go ahead.
Great, thanks. Good morning. Just a quick question in relation to Walgreens. I think no one was really surprised by this last month, but when they more officially disclosed in their earnings call that they’re in active discussions with you guys in relation to the current contract, I’m just curious - I know you’re probably limited in what you can say on this topic, but just open ended, is there any update or additional comments that you have on this topic from your side, given their disclosures last month? Also just to confirm, your guidance presumably reflects any potential changes in that contract, at least as it pertains to your fiscal ’25? Just want to confirm that one way or the other as well. Thanks.
Yes, thank you, Steven. I’ll begin and then pass it over to Jim for the guidance. I hope it’s clear from our prepared remarks and responses that working closely with our customers to create value through innovation is fundamental to our approach. We are consistently engaged with Walgreens, exploring ways to generate mutual value as we move forward. They are a key customer for us, strategically important not only in the U.S. but also in the U.K., along with our sourcing relationship with WBAD, making them a top priority. As with all of our major customers, our teams are actively involved, bringing in world-class experts to collaborate on innovation and value creation.
Then just to quickly answer the last part of your question, yes, the guidance that we announced today includes our assumptions on all aspects of our business, Walgreens and every other aspect of our business, Steven. Thank you.
Thank you. Our next question is from Eric Percher from Nephron Research. Your line is now open, please go ahead.
Thank you. Bob, you mentioned that you studied the MSO business with OneOncology in real time, and I’d be interested in your perspectives on the challenges we’ve seen in practice management 20 years ago and physician enablement more recently, and what’s key to motivating and growing practices. Then Jim, on the financial mechanics of RCA, I want to make sure we understand how much of a retention element is paid out, and we’re seeing the accretion in U.S. healthcare but I assume that’s flowing through minority interest.
Thank you for your question, Eric. We are dedicating significant time to learning. As you may recall, our investment in OneOncology, in partnership with TPG, has proven to be a positive decision that aids our ongoing learning. I want to highlight a few key points related to your question. Firstly, strong physician leadership within these MSOs is crucial. While there are other managers and leaders involved, ensuring that the entire physician base remains engaged and motivated is essential. Secondly, the true strength of the MSO model lies in its ability to create value, which can be realized through new services such as clinical trial support, where RCA excels, as well as through analytics and other tools that enable physicians to enhance their practices for their patients and strive for optimal outcomes. Lastly, there is a long-term path for physicians entering this model, and it’s vital that we can attract both smaller practices and new physicians to the MSO. Both OneOncology and RCA excel in drawing in smaller practices and physicians directly out of fellowship.
Yes, and then I’ll answer the last part of your question, Eric. As you know, we acquired RCA on January 2 at the beginning of our Q2, and our updated guidance reflects RCA, and of course it’s a big reason for our increase in our operating income growth rate in the U.S. You’ll see that all presented and the details of that when we begin reporting quarters with them in our results, starting in Q2. Thanks.
Thank you. Our next question is from Daniel Grosslight from Citi. The line is now open, please go ahead.
Hi, thanks for taking the question, and congrats on a strong quarter here. I’ll stick with the MSO topic. I’m sure you saw this, but one of your competitors made an acquisition in the ophthalmology focused MSO space. I was wondering if you could talk a little bit about the competitive environment within the MSO space, specifically ophthalmology and retina, both from competition from MSO assets as you seek to acquire those, and for the physician, the affiliated physicians as you try to attract more of those to your MSOs. Thanks.
Thanks Daniel. I can only speak to where we’re focused, and we are very confident in that, in Retina Consultants of America we have the leading retina MSO, and not just leading in terms of size but leading in terms of their management team, clinical excellence, the prominence of the practices that are within that, and as I mentioned in the previous question, also a robust clinical research network. Those are the reasons that we’re confident that, in that case, we’ll be able to continue to attract physicians and practices to that platform. The very same things are true with OneOncology - we believe we have the leading platform, it’s the right model, they’re successfully growing, and again it’s because of the model that they’ve built and the services that they’re providing that they continue to add practices. Look - we’ve talked a lot about why this is the right strategy for Cencora, so it’s not surprising to us that we would see others in our space executing in a similar manner; but again, we’re really happy and confident in the partners that we’ve chosen, and we’ll continue to execute upon that.
Thank you. Our next question comes from Stephen Baxter from Wells Fargo. Your line is now open, please go ahead.
Hi, thanks for the question. I was hoping you might be willing to give us an update on what the guidance revision for the U.S. business would have been on an organic basis - just trying to compare that on an apples-to-apples basis. Similarly when we think about the accretion from RCA that you’re going to get in this fiscal year, it sounds like it’s not quite as simple as just taking the $0.35 and scaling it based on the nine months, so maybe just give us a better sense of kind of the ramping in the second quarter and when we’re going to get closer to that full rate. Thank you.
Yes, those are excellent questions. While we don’t provide detailed guidance in the specific format you requested, I can mention that our U.S. segment had a very strong first quarter, and we are seeing solid momentum there. This positive performance is not solely attributed to RCA; it is also influenced by utilization trends and broad-based success in specialty areas as well as other businesses, which are recovering from the COVID headwind we previously mentioned. In regards to our guidance, we have indicated twice that we will be updating and improving it due to the strength observed in the U.S. segment. It's safe to say that the performance we are witnessing there, excluding RCA, exceeds the initial guidance range of 5% to 6.5%. You also asked about RCA accretion. As we have communicated, we anticipate $0.35 of accretion in the first 12 months following the acquisition, with nine months of this falling within fiscal year '25. We expect this to increase throughout fiscal year '25, primarily due to growth in the business along with the execution of strategic initiatives at RCA.
Thank you. Our next question is from Charles Rhyee from TD Cowen. Your line is now open, please go ahead.
Thank you for taking my question. I wanted to ask about the specialty business in relation to RCA. If I'm correct, you are the largest distributor for Regeneron on Eylea, and Amgen recently launched their version, Pavblu. I believe there's another one expected to be released this summer as well. I'm curious about how the launch is going for you and what kind of opportunity you see with biosimilar Eylea. Additionally, does your ownership of RCA help you drive better adoption of biosimilars? This is a more general question regarding all your MSO practices. Thank you.
Hi Charles, thanks for the question. I’ll start by saying that we have a long history of partnering with retina physicians, so we have a strong understanding of the area. We have extensively studied the pipelines for new innovations and biosimilars, and we are confident that this will lead to a healthy market with continuous new innovations and biosimilars being introduced. This will benefit patients, the MSO, and Cencora. Additionally, we have observed that biosimilar adoption, particularly in oncology and retina, is promising. It's more rapid in the Part B space compared to Part D, and we anticipate this trend will continue. Ultimately, the key takeaway is the presence of a healthy market, ongoing innovation, and suitable biosimilars being introduced, allowing physicians to make the best clinical decisions for their patients.
Thank you. Our next question is from Allen Lutz from Bank of America. Your line is now open, please go ahead.
Good morning, and thanks for taking the questions. As we kind of look back to 2024, utilization was really strong in U.S. healthcare. I think we’ve seen that broadly across the different distributors, and some of that I think was due to just this post-COVID re-acceleration of scripts as patients are going back to the physician. There were a few things you called out - GLP-1s and then Humira. If we back those things out, how should we think about new script growth more broadly in 2025 versus 2024? Is what’s embedded in the current guidance a normalization of utilization? Is there anything that you’re seeing from the benefit design changes that were put forth on January 1? Just curious if there’s anything embedded within the guide outside of the things you called out, that’s a little bit different in 2025 versus 2024. Thanks.
That's a great question. Throughout fiscal year '24, we observed strong utilization trends, and this continued in the first quarter. As we look ahead to the balance of fiscal year '25, this is why we have provided a range for our projections. The key factor influencing our range, which spans two full percentage points for both consolidated and U.S. top line growth, is largely based on various assumptions regarding utilization trends for the remainder of the year. However, we believe that our company's performance, along with the strength of the market, is quite robust and resilient, which gives us significant confidence in our guidance for fiscal year '25. Thank you for your question.
Thank you. Our next question is from George Hill from Deutsche Bank. Your line is now open, please go ahead.
Good morning guys and thanks for taking the question. I’m going to come back to the MSO businesses for a second. Jim, you talked about the clinical trial component, but what I was going to ask is could you rank order the value drivers that allow, whether it’s Cencora or RCA or OneOncology, to add value to its physician partners in these practices. We know GPO was a piece, clinical trials is a piece, rev cycle is a piece. Just if you could kind of rank out the three or four main drivers of value creation, I think that’d be very helpful for investors.
Hey George, it’s Bob. I don’t think we can rank them necessarily. Within the different physician practices, within the different specialties, I think there’s a different mix of things that are valuable to those physicians, and those are going to be the value drivers. Probably the second point of that is it’s continually changing, right, so it’s a very dynamic marketplace. The needs of physicians are always changing, and that’s one of the great things about having the robust suite of MSO services, is you have the infrastructure then to make sure that we’re doing our best to keep up with and stay a step ahead of what they need, kind of that same approach that we’ve been emphasizing, which is working really closely with our customers to bring solutions and innovation to the market. Again, we do that across all of our business, but the MSO platform gives us an opportunity, obviously even a step closer to the provider to do that on a continuous basis, which will be our intent.
Thank you. Our next question is from Erin Wright from Morgan Stanley. Your line is now open, please go ahead.
Great, thanks. I think you mentioned specialty strength was broad-based, but any key therapeutic categories to call out there; and if I can ask a two-parter here, I’m switching species but I’m just curious what you’re seeing in animal health. There seems to be just a lot of commotion in this space and competition at both the manufacturer and the distributor level to some extent, and just bigger picture, it’s been roughly 10 years since the NWI deal closed, and how would you characterize how you see NWI sitting in the enterprise now, your commitment to the business, does it detract at all from some of the broader efforts and long term vision across specialty or your MSO strategy, and just curious on your bigger picture thoughts there. Thanks.
Thank you for your questions. To start with your inquiry about specialty, our specialty business has primarily been driven by oncology, particularly in Part B, which involves our sales to specialty physician practices and health systems. This has been a key component of our business growth. Additionally, we've seen significant contributions from the ophthalmology sector, especially in the retina area. This is why we've made substantial investments into MSOs, first focusing on oncology and then the retina market, as it's a natural progression for our successful specialty business. Regarding animal health, I'm pleased to report that our animal health business had a strong quarter, with 7% top line growth. While we don’t provide detailed breakdowns, we observed positive growth in both the companion animal sector, which represents about two-thirds of our business, and the production animal market, which accounts for the remaining third. Both sectors experienced impressive growth, leading to not just good revenue but also robust profits. While some of this growth can be attributed to market conditions, we believe we are also gradually gaining market share. Overall, we are very optimistic about the animal health business, and we commend our management team for their excellent performance. Thank you for your questions, Erin.
Thank you. Our next question is from Kevin Caliendo from UBS. Your line is now open.
Thank you. Thanks for taking my question. Does your fiscal ’25 guidance embed any incremental customer loss beyond FCS? I know you detailed that back in November - that was the first part. Just specifically on the Paxlovid or the COVID headwind, was it better or worse than expectations in fiscal 1Q?
Can you repeat the last part of your question?
Oh, I’m sorry. Sure. Just on the COVID headwind, was it better or worse than expectations in fiscal 1Q versus what you originally thought, when you originally guided?
Yes, so the first was, I think, our guidance, does it expect any customer losses other than the one that you mentioned, and I would say generally, the answer is yes. It assumes some customer losses and gains, but really there is none other than the one you called out that’s a meaningful amount of profit or loss, that would be worth calling out, and so we don’t call it out. Then the second question had to do with COVID and with regard to exclusive COVID therapies, which I think what you’re asking about is it was a $0.06 headwind during the first quarter, but the first quarter of fiscal year ’24 was the last quarter that we had exclusive COVID therapy contribution, so it’s not a headwind for the balance of the year. With regard to COVID vaccines, we really called this out in our prepared remarks that in the first quarter of fiscal 2025, the contribution from COVID-19 vaccines was about half that of the prior year quarter, and we expect a similar-sized operating income headwind in the second quarter of fiscal 2025, meaning no significant expected contribution from COVID vaccines in our second quarter fiscal 2025. The strong guidance raise and increase that we did this quarter is in spite of that COVID vaccine headwind. Thank you for the questions.
Thank you. Our next question is from Eric Coldwell from Baird. Your line is now open, please go ahead.
Thanks very much. I didn’t think World Courier could get this much attention on a call, but I do have some World Courier questions. First, I wouldn’t disagree that there are some market challenges - subdued clinical trial activity, that all makes sense for the softness you cited. You also do cell and gene therapy and other specialty shipments unrelated to clinical trials, so I’m wondering how those are faring. Part B, what is the basis for saying clinical trial activity will pick up later this year, and Part C on World Courier, any additional commentary on competition in the market? We’ve seen some noise from UPS Healthcare and others. I just want to make sure the weakness in World Courier is more temporary and end market-related, as opposed to something going on, on the competitive front. Thanks very much.
Yes, let me begin. First, we are optimistic about the opportunities in the cell and gene therapy market due to our World Courier strength and our other commercialization services. In the long term, we believe we are well-positioned to lead in this market, although it has not yet reached a size that significantly impacts our bottom line. Regarding your question on potential improvements in global specialty logistics later in the fiscal year, our teams are focused on the pipeline, which we believe will yield results as the year progresses. Lastly, on the topic of competition, the market is indeed competitive. We have a premium service and have maintained our position as a market leader for many years, and we plan to continue to do so despite the competitive landscape.
Yes, Eric, I would like to emphasize that being a premium provider means we are continually innovating in that area. The initiatives we have discussed, such as temperature monitoring and tracking products throughout the specialized supply chain, are areas we will keep advancing. This is just one example, but despite the competition, we plan to keep innovating to ensure we remain a leader in the field.
Thank you. We currently have no further questions, so I’ll hand back to Bob for closing remarks.
Great, thank you Becky. Again, I want to thank everyone for joining today. I also want to thank again our Cencora team members. This performance is due to your purpose-driven approach, your expertise and your dedication to meeting the needs of our customers and patients worldwide. I know you will continue to advance our leadership in specialty, drive efficiency and productivity, and execute with a customer-centric mindset. Thanks everyone.
This concludes today’s call. Thank you for joining. You may now disconnect your lines.