McKesson FY 2Q17 Earnings Call Notes

McKesson (MCK) Q2 2017 Results

Lowering outlook due to moderating branded pharma inflation trends

“we now provide an update to our expectation of a lower profit contribution, resulting from recent customer pricing activities, and lower operating profit as a result of further moderating branded pharmaceutical inflation trends, compared to previous expectations, both of which affect our U.S. pharmaceutical business within Distribution Solutions.”

Witnessed some evidence of inflation and pricing softness in line with original assumptions

“In our first quarter, we witnessed some evidence of inflation and pricing softness in line with our original assumptions. However, this softness became much more pronounced in our second quarter, first around brand inflation and later, around customer pricing. While we generally do not provide specific assumptions around customer pricing activity, we do operate in a competitive environment. And though competitive, we’ve always been focused on delivering value to our customers, value not just defined by price, but by service, innovation that helps our customers partner, manage, and run their operations, and manage their capital more effectively, and innovation that helps our customers connect with patients in a more informed and intimate way.”

Average price increases don’t necessarily capture price change dynamics

“branded inflation, it’s plus or minus what you’ll see from published sources of inflation. But it is also important to point out that those averages sometimes don’t necessarily tell the whole story, because of the mix, or the relationship, or the individual products that are going up or going down in the portfolios can be materially different. And so I do think the economics aren’t always necessarily driven with the direct correlation to the average price increases that everybody talks about.”

Pricing wont improve market share because our customers don’t want to change

“And that’s where we plan to stay. And I know at McKesson, at least, we think growing market share through a price-oriented approach ultimately will not be successful, because customers don’t want a change. Our customers, when they get a better deal, come to us and say, hey, listen, can you match this deal because I’d like to stay with you. And so that customer pressure to remain with us because they like us always provides McKesson an advantage when we’re in these discussions.”