Cencora, Inc. Q2 FY2026 Earnings Call

Hello, everyone, and thank you for joining us, and welcome to Cencora Inc. Q2 2026 Earnings Call. After today's prepared remarks, we'll host a question-and-answer session. I will now hand the conference over to Bennett Murphy, Senior Vice President, Head of Investor Relations and Enterprise Productivity. Please go ahead.

Good morning, good afternoon. Thank you all for joining us for this conference call to discuss Cencora's fiscal 2026 second quarter results. I am Bennett Murphy, Senior Vice President, Investor Relations and Enterprise Productivity. Joining me today are Robert Mauch, President and CEO; and James Cleary, Executive Vice President and CFO. 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, investor.cencora.com. We have also posted a slide presentation to accompany today's press release on our investor website. During this conference call, we will discuss 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 forward-looking statements, and this call cannot be rebroadcast without the express permission of the company. You will have the opportunity to ask questions after today's remarks by management. We ask that you limit your questions to one participant at a time in order for us to get to as many as possible within the hour. With that, I will turn the call over to Robert.

Thank you, Bennett. Hi, everyone, and thank you for joining Cencora's fiscal 2026 second quarter earnings call. In our fiscal second quarter, we saw operating income growth in both our U.S. and International Healthcare Solutions segments and delivered adjusted diluted EPS growth of 7.5%. These results reflect the resilience of our business, and we remain confident in our full year fiscal 2026 guidance. Building upon that confidence, today, we announced the resumption of opportunistic share repurchases. Today, I'll focus on how our growth priorities and performance drivers support continued long-term growth. Specifically, building upon the critical role we play within the pharmaceutical supply chain through digital transformation, strengthening our position in specialty pharmaceuticals across channels, and optimizing our portfolio to focus on our pharmaceutical-centric strategy. I'll start with building on the critical role we play within the pharmaceutical supply chain through digital transformation. We serve as the backbone of the pharmaceutical supply chain, ensuring the safe and secure delivery of medications from the manufacturers who develop them to the sites of care supporting patients. Every day, our teams move millions of medications through the supply chain to thousands of health care sites, creating significant efficiency for our manufacturer and provider partners through advanced technology and a network of highly automated fulfillment centers. We help simplify ordering and inventory processes, providing centralized access to products, ranging from over-the-counter treatments to highly complex specialty pharmaceuticals. Our services streamline the industry's logistics and working capital needs, provide data and insights and drive reliable patient access, ultimately lowering costs. Given our critical role, we continuously invest to strengthen our physical and digital infrastructure, driving enhanced customer visibility, accelerated issue resolution and improvements depending on the value we provide. We are seeing positive impact from these efforts, recently launching AI-supported tools, improving consistency and quality across our customer support operations benefiting both our customers and team members. We're excited to continue deeply embedding these capabilities across our enterprise. Second, we are strengthening our position in specialty pharmaceuticals across channels. I've spoken extensively about the investments we've made in management services organizations that provide physician practices with the tools needed to thrive. But MSOs are just one example of how we're supporting the growth of specialty pharmaceuticals across Cencora. In our global specialty logistics business, the efforts we've taken to improve performance have yielded results and we're pleased to report our second consecutive quarter of operating income growth. We're winning new contracts in areas like cell and gene therapies and laboratory logistics as well as executing productivity initiatives to drive sustained success. As manufacturers increasingly develop products targeting smaller patient populations, our global reach and ability to support complex specialty products positions us uniquely as a trusted partner. Health systems represent another area where specialty pharmaceuticals have seen continued growth and our teams have worked to build comprehensive solutions designed to provide end-to-end support to these customers. Through our Accelerate Pharmacy Solutions portfolio, we offer services aimed at streamlining the complexity of health systems operations from specialty strategy enablement to freight management optimization. This offering has been well received in the market with health systems increasingly seeking to deepen and form new partnerships with us due to our differentiated consultative approach. The breadth of our specialty solutions and market-leading customer portfolio allow us to capitalize on the growing specialty pharmaceutical market. And finally, we're optimizing our portfolio to provide focus. During the quarter, we took key steps in our ongoing work to focus our portfolio, including the agreement to merge MWI Animal Health with Covetrus and the sale of our U.S. hub consulting services positioning these businesses for success with strategically aligned partners. Optimizing our portfolio supports focus on our investments in MSOs and ongoing integration efforts. While it's still early days, we are encouraged by our initial progress in building shared capabilities across OneOncology and RCA that will drive growth across our MSO platform. We've established joint teams to share best practices in key areas like research and clinical trials, back-office services and physician recruitment and retention, so we can leverage what is working well across the platform. Before turning to my closing remarks, I'll now pass the call to James for a discussion of our financial results and updated fiscal 2026 guidance. James?

Thanks, Robert. Good morning and good afternoon, everyone. Cencora delivered solid performance in our second quarter, demonstrating the resilience of our business and our team members' execution to serve our customers and partners. In the quarter, we delivered adjusted diluted EPS of $4.75, reflecting growth of 7.5% and which puts us on track to achieve our increased EPS guidance of $17.65 to $17.90. During my remarks today, I'll provide an overview of our consolidated results before turning to our segment level results and updated guidance. As a reminder, unless otherwise stated, my remarks will focus on our adjusted non-GAAP financial results. For further discussion of our GAAP results, please refer to our earnings press release and presentation. Turning now to consolidated revenue. Consolidated revenue was $78.4 billion, up 4%, driven by growth in both reportable segments and in Other, which I will describe in more detail when discussing segment level results. Moving to gross profit. Consolidated gross profit was $3.4 billion, up 16% primarily due to growth in the U.S. Healthcare Solutions segment. Consolidated gross profit margin was 4.31%, an increase of 45 basis points, largely driven by the February 2026 acquisition of OneOncology. Consolidated operating expenses were $2.1 billion, up 22.5%, which included the impact of the February 2026 acquisition of OneOncology. Excluding both MSOs, operating expenses grew 5% on a constant currency basis. In the second half of the year, we expect our core expense growth will moderate particularly in the fourth quarter with an easier comparison for the U.S. Healthcare Solutions segment, excluding OneOncology. Turning now to operating income. Consolidated operating income was $1.3 billion, an increase of 6% compared to the prior year quarter, driven by solid growth in both our U.S. and International Healthcare Solutions segments more than offsetting the slight decline in Other. Moving now to our interest expense and effective tax rate for the second quarter. Net interest expense was $140 million, an increase of $36 million versus the prior year quarter, primarily due to debt raised in February to finance the OneOncology acquisition. We expect third quarter net interest expense to be roughly the same as our second quarter interest expense. Our effective income tax rate was 18.9% compared to 20.8% in the prior year quarter as we benefited from discrete tax items in the current year quarter. Finally, diluted share count was 195.4 million shares, a 0.1% increase compared to the prior year second quarter. Regarding our cash balance and adjusted free cash flow, we ended March with $2.2 billion of cash reflecting $1.1 billion of free cash flow generated in the March quarter. Our full year adjusted free cash flow guidance of approximately $3 billion remains unchanged as we expect to continue to generate cash in the back half of the fiscal year. This completes the review of our consolidated results. Now I'll turn to our segment results for the second quarter. U.S. Healthcare Solutions revenue was $68.8 billion, up 3%. In the quarter, we saw continued volume growth, including specialty sales to health systems and physician practices and in sales of GLP-1s, which increased $1.9 billion year-over-year. Despite these trends, our revenue growth was tempered by three main factors, two of which were fully contemplated. The two factors that were fully contemplated were: first, manufacturer list price reductions, which represented a $2 billion revenue headwind in the quarter; and second, the previously disclosed fiscal 2025 loss of an oncology customer and a grocery customer. The third factor, which was not fully contemplated, was the speed of brand conversions for our large mail order pharmacy customer. These sales are low margin, which concentrates their impact to our revenue line. The increase in brand conversions is a meaningful contributor to our reduced revenue growth expectations for the fiscal year but results in higher margins for Cencora overall. Moving now to operating income. U.S. Healthcare Solutions segment operating income increased 6% to $998 million. In the quarter, we saw good trends across much of our business. However, there were a few items that impacted our growth. First, we have not yet lapped the loss of an oncology customer that began to hit our numbers in July 2025 due to its acquisition. This headwind was larger than the contribution we recognized from our February 2026 acquisition of OneOncology. Second, many physician offices had lower volumes due to missed patient appointments as a result of inclement weather across the U.S. And given our leading presence in this channel, we saw some lighter volumes in late January and early February. We were encouraged to see a rebound in patient appointments and specialty product volumes in March. Overall, we estimate that weather represented a $10 million headwind to U.S. segment operating income growth in the quarter. And finally, as we noted on our earnings call last May, we had a $15 million contribution from COVID-19 vaccines in the fiscal 2025 second quarter. This quarter, COVID vaccines represented a $10 million operating income headwind for the segment. Taking a step back, if we exclude the OneOncology acquisition and the 2025 loss of the oncology customer the U.S. Healthcare Solutions segment growth would have been approximately 7% in line with our long-term guidance in spite of the transitory weather and COVID items. Turning now to our International Healthcare Solutions segment. International Healthcare Solutions revenue was $7.6 billion, up 13% on an as-reported basis and up 7% on a constant currency basis primarily driven by growth in our European distribution business. In the quarter, International Healthcare Solutions operating income was $176 million, up approximately 14% on an as-reported basis and up 13% on a constant currency basis. In the quarter, our European distribution business benefited from the shift in timing of manufacturer price adjustments in a developing market country, as I called out last quarter, and the continued rebound of our global specialty logistics business, where we saw a second consecutive quarter of operating income growth. We are very pleased with this rebound of our global specialty logistics business. Moving to Other. Revenue in Other was $2.1 billion, up 5% and largely due to growth at Pro Pharma and MWI Animal Health, partially offset by an expected revenue decline in our legacy U.S. hub consulting services, which was divested on April 30. Operating income was $92 million, down 1% due to a decline in operating income in our U.S. hub consulting service business resulting from the fiscal 2025 loss of a manufacturer program partially offset by operating income growth at MWI Animal Health. That completes the review of our segment level results. I will now discuss our updated fiscal 2026 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 start with adjusted diluted earnings per share. We are pleased to raise our full year guidance range to $17.65 to $17.90, up from $17.45 to $17.75. The updated guidance reflects our strong full year fiscal 2026 operating income growth expectations for the U.S. and International Healthcare Solutions segments and our updated expectations in Other. I will now turn to updates to our revenue guidance. On a consolidated basis, we now expect revenue growth to be in the range of 4% to 6%, down from the previous expectations of 7% to 9%. This is driven by our lower expectations for revenue growth in the U.S. Healthcare Solutions segment, where we now expect revenue growth of 4% to 6%. As a reminder, our guidance for fiscal 2026 has always contemplated the impact of manufacturer WAC price reductions. However, our updated guidance reflects the faster-than-expected branded conversions at our large mail order customer and slower anticipated GLP-1 growth than we had been expecting. In the International Healthcare Solutions segment, we now expect revenue growth to be in the range of 8% to 10% on an as-reported basis to reflect changes in foreign exchange rates. Our International Healthcare Solutions segment constant currency revenue growth expectations remain unchanged at 6% to 8% growth. Our revenue growth expectations for Other remain unchanged. Moving to operating income. We expect consolidated operating income growth to be in the range of 12% to 14%, up from our previous guidance of 11.5% to 13.5%. This is driven by our updated full year expectations for Other to show operating income growth in the high single-digit percent range due to MWI now being accounted for as an asset held for sale and as a result, depreciation expense being suspended. Our full year operating income expectations of 14% to 16% growth for the U.S. Healthcare Solutions segment remain unchanged, but as you think about our second half cadence, we continue to expect to see our strongest growth of the fiscal year in the fourth quarter after we lapped the loss of the oncology customer that occurred on July 1, 2025, and as OneOncology accretion ramps. Our expectations for International Healthcare Solutions segment operating income growth remain unchanged at growth of 5% to 8%. Moving now to interest expense. We expect interest expense to be approximately $485 million compared to our previous range of $480 million to $500 million reflecting progress on debt paydown and incrementally better-than-expected rates on our senior notes that we priced in February. As you look at your models, in the third quarter, we anticipate net interest expense will be at a similar level as this quarter before modestly stepping down in the fourth quarter, given working capital dynamics. Finally, turning to share count. We expect our full year diluted shares outstanding to be under 195.5 million shares as we resume opportunistic share repurchases and, as we indicated in our press release, we expect to repurchase $1 billion worth of shares by calendar year-end. That concludes our updated full year guidance assumptions. As it relates to quarterly cadence, I would point out that we expect third quarter adjusted diluted EPS growth to be in the high single digits, partly as a result of our net interest expense remaining at that $140 million level in the quarter. To close, I am proud of our teams who worked diligently to support our customers and partners guided by our purpose and pharmaceutical-centric strategy. As we continue to prioritize a balanced approach to capital deployment, we are pleased to be resuming opportunistic share repurchases that will support value creation. Despite noise today, given some transitory items causing our results to be below expectations, we remain on track to deliver strong guidance for fiscal 2026 and I'll now turn the call back to Robert for some closing remarks before moving to Q&A. Robert?

Thank you. As James said, today's results are impacted by transitory items and our full year guidance remains strong, reflecting the strength of our business and execution to drive sustainable long-term growth. The critical role we play in the pharmaceutical supply chain and the investments we are making allow us to capitalize on growth opportunities. As we look to the balance of the fiscal year and beyond, our focused strategy guided by our purpose, growth priorities and performance drivers positions us to continue creating value for all our stakeholders. Before opening the call for Q&A, I want to take a moment to acknowledge that today is James's final earnings call before his retirement as CFO in June and from the company in December. On behalf of all of us at Cencora, I thank James for his many years of service. His leadership and expertise have shaped our company and performance, and James has been a terrific partner to me. I wish him all the best.

Your first question comes from Lisa Gill at JPMorgan.

James, I wish you the best in your retirement. I just really wanted to understand and James, I appreciate you kind of laying out that the core underlying growth was about 7%. But when we look at stripping out WAC, IRA changes, the lost business, everything you talked about. How do we think about the impact to operating profit from those changes as well as the shift in the mail channel that you talked about, generally, that's going to be lower margin. And how—when we put this all together, how do we think about—does this have an impact on your long-term growth rates on either revenue or operating profit as we see these changes, especially on WAC and IRA moving forward?

Sure. Thank you very much for the question, Lisa. And what I'll do is I'll go through our revenue and our operating income and the key drivers in Q2. And so as you know, our revenue growth was 4% during the quarter and in the U.S. Healthcare segment, it was 3%, and I'll go through some of the growth drivers and the growth headwinds. First of all, with regard to growth drivers, we saw continued volume growth, including specialty sales to health systems and physician practices. We also saw $1.9 billion of growth from GLP-1s and we're still seeing growth in GLP-1s, of course, but at a slower pace than we expected, which is contributing to our lower revenue guidance. And then we saw some growth headwinds on the revenue front. For instance, we saw $2 billion from WAC reductions. And so that had a 3% impact to U.S. revenue growth during the quarter. And then as previously disclosed, there's a loss of an oncology customer and a grocery customer that impacted growth in the quarter. And then there were also faster-than-anticipated brand conversions at a large mail order customer that meaningfully contributes to the reduced revenue growth. Of course, in International, we saw a 13% revenue growth, primarily due to Alliance Healthcare, but also saw growth in global specialty logistics. And then in Other, we saw 5% growth driven by MWI pro forma. So you ask what is driving the operating income growth during the quarter. Let me go through those factors. Operating income was up 6% in the quarter and U.S. operating income was up 6%. We continue to have the headwind related to the loss of an oncology customer due to its acquisition, and this headwind during the quarter was larger than the contribution we recognized from the February acquisition of OneOncology. If we exclude the impact of the oncology customer loss and our February 2026 acquisition of OneOncology our growth would have been approximately 7% in line with our long-term guidance. We were able to achieve this in spite of two headwinds. The two headwinds were a $10 million operating income headwind related to weather and specialty practices due to some patient visit cancellations and delays; we did see the business rebound in March and saw good trends in April as well. We also had a $10 million operating income headwind related to COVID-19 vaccines. As a reminder, we had $15 million of COVID-19 contributions in the second quarter of fiscal 2025. We haven't called out the faster-than-anticipated brand conversions, which are lower margin, and we haven't called out the WAC reductions when we're talking about the quarter. In international, we had good growth of operating income in the quarter, 14% driven by growth in our European distribution business and we benefited from a shift in the timing of manufacturer price adjustments in a developing market country, which was mentioned on our February call. We also saw the second consecutive quarter of growth at our global specialty logistics business. We were very pleased to see this business continue to rebound. As we talk about long-term guidance, we continue to have confidence in our long-term guidance, which is 7% to 10% organic operating income growth, another 3% to 4% from capital deployment and 10% to 14% EPS growth. Thanks a lot for the question, Lisa.

So I'll just follow on to James's excellent answer and just summarize by reinforcing the last point that James just made, which is while there are times where there'll be revenue pressure, they are generally lower margin activities. In the case of WAC decreases, we've been able to recoup the value of those changes. We guide on operating income for the long term, and it's for that very reason because there can be some variability in revenue, especially as we cycle through some of the policy initiatives and other things that we'll see in the U.S. market, but our confidence in maintaining our operating income growth is high.

Your next question comes from the line of Michael Cherny at Leerink Partners.

And yes, I'll echo Lisa's comments, James. Congratulations and good luck in retirement. Lisa kind of hit on some of the longer-term dynamics, I want to dive in, if I can, on the second half of the year. As I understand, as I think through the moving pieces, obviously, you have some comp dynamics, you have some deals. But as we think about the acceleration of growth, can you kind of risk weight where you have the most confidence versus the most potential variability in terms of the U.S. AOI build, in particular, into the back half of the year, both because of comp dynamics, but also because of what you're seeing in the market relative to customer behavior and other key factors?

Yes. Thank you very much for that question. Michael, what I'll do is I'll start by describing our guidance update and some of the key drivers. And then I'll finish up with what really gives us confidence in our growth acceleration in the balance of the fiscal year. First, with regard to our guidance update and drivers: we are increasing our EPS guidance to a range of $17.65 to $17.90 up from the previous range of $17.45 to $17.75 and this reflects our strong fiscal 2026 guidance and growth in both the U.S. and International Healthcare Solutions segments. It also reflects the increase in expectations for Other as a result of MWI being classified as an asset held for sale. Excluding this asset held for sale benefit, our full year fiscal 2026 EPS guidance would have remained largely unchanged with the incrementally lower interest expense and share count moving EPS up modestly. Our revenue growth guidance for the fiscal year is now 4% to 6% down from the previous range. In the U.S. Healthcare segment, growth is also 4% to 6% for revenue, down from the previous range and this is driven by a reduction in growth expectations for GLP-1s. Given the size of this product class, a 5% delta in growth year-over-year represents approximately $2 billion in annual revenue. It's also driven by the faster-than-expected brand conversions at our large mail order pharmacy customer and updated expectations for mix, including slower growth in lower-margin categories. In International, we're now guiding to growth of 8% to 10%, up from the previous range of 7% to 9%, and this reflects updates to foreign exchange rates and our constant currency guidance remains unchanged. Now talking about operating income growth, we've increased our operating income growth guidance to 12% to 14%, up from the previous range of 11.5% to 13.5%. U.S. Healthcare and International Healthcare Solutions guidance for operating income remains unchanged for the segments, and our guidance for Other now calls for high single-digit growth, which reflects MWI being classified as an asset held for sale. What's giving us confidence in our growth acceleration in the balance of the year: we do have high confidence in our full year fiscal 2026 guidance that contemplates operating income growth of 12% to 14% and strong growth across both reportable segments and Other. There are a few factors that support the growth ramp in the balance of the year. In U.S. Healthcare, there's the lapping of the loss of the oncology customer due to its acquisition in July 2025. We also see OneOncology accretion ramping over the fiscal year, and we also see an easier expense comparison for our U.S. Healthcare Solutions segment in the fourth quarter. Also, in the International Healthcare Solutions segment, our global specialty logistics business is seeing continued growth and it also has easier comps in the balance of the year. And then another factor is the benefit of MWI asset held for sale accounting treatment. Those are some of the key things that give us confidence in growth acceleration in the balance of the year and give us confidence in our guidance for the fiscal year. Thank you for the question.

Your next question comes from the line of Glen Santangelo at Barclays.

I also have a longer-term operating profit growth question. It seems to me that investors are obviously aware of the increasing generics and biosimilar pipeline that is emerging here over the next couple of years. And while I think the traditional generics opportunity is well understood, I think especially the biosimilar conversion is much less understood. We saw it perhaps have an impact on revenues this quarter with your mail order customer. But more importantly, we're hearing concerns from investors that the lower-priced biosimilars could potentially have a negative impact on some of the profit pools in your specialty. What I was hoping you'd do is just spend a minute and talk about these biosimilar conversions and maybe the longer-term impact you think they'll have on your long-term operating profit growth in your distribution business.

Thanks, Glen. I'll take that. Terrific question. I think it's best to start by taking a step back and separating the biosimilar market in the Part D mail market and then the biosimilar market in the Part B space. If we go down the Part D path, that's where people would rightly assume that as a product moves from brand to biosimilar that it's very likely to move away from the wholesaler, which is exactly what happened in oral generics. So that's part of the model that we have with our customers currently. That's not a surprise. On the revenue and profit side, that is a revenue hit, but it's not a meaningful profit hit. To the extent that the mail order pharmacies and PBMs have selection choice over the biosimilar and that could go around the wholesaler, I think that is true in many cases, and that's part of the model today. Next, it's important to talk about how the Part B space is different. The Part B space is where we have an important presence both with our GPO distribution and with MSOs, and as a product converts from the brand to the biosimilar in that space, it actually can be incrementally beneficial to the practice and to Cencora. So those are good things for us to watch over time. These dynamics are things we have contemplated in our planning. There's not unknown pressure out there as biosimilars grow in the Part D space, and there is actually benefit as biosimilars grow in the Part B space. Thank you for the question.

Your next question comes from the line of Elizabeth Anderson at Evercore ISI.

James, congrats on your retirement. My question is about U.S. oncology. I heard your call out about some of the transitory issues and OneOncology. I heard some of your transitory issues about weather and stuff in the first quarter. My question is how are you thinking about that business and its performance on a run-rate basis? Can you talk to us a little bit more about the synergy from the acquisition? How is the rest of it tracking versus your expectations, minus obviously the transitory issues?

Thanks, Elizabeth. We couldn't be happier with being able to acquire OneOncology in February. We now have full ownership of that business. What's exciting is having the opportunity for RCA and OneOncology to now collaborate. As I said in my prepared remarks, we're really starting to see the benefits of that collaboration. As we signaled over several quarters while we were awaiting full acquisition, there are best practices that exist within both of those MSO platforms that are transferable to the other. There are strengths within one that are different than the strengths in the other. Now we're able to get those teams together and they're working on making sure that we can deliver value to the practices, which is value to the patients, ultimately, and it's going really well. As you mentioned, a significant storm could have some pressure on office visits, but as James said, the volume comes back, which we've seen already, and we're very happy with the acquisition and the integration progress to date. Most importantly, we're really happy that OneOncology and RCA are now able to work more closely together along with the expertise that we have within Cencora to make sure that we're driving long-term value.

Bob, I'll just add one thing. OneOncology and RCA have both been significant contributors to our specialty growth for several years. It's wonderful to have the MSO presence now, which we're very pleased with both platforms, but I also wanted to call out that they've been significant contributors to our important specialty growth for many years.

Your next question comes from the line of Eric Percher at Nephron Research.

A question relative to some of the pressures that you faced from price reductions. I'd like to better understand when you sit across from a manufacturer and you have a discussion whether it has been AMP or where we are this year with the price reductions and also as we think about GLP-1 reductions coming 1/1/2027. What is the basis for the discussion of value? Is it simply pick-pack and ship? Is it receivables or capital put to work? And how confident are you that you continue to be able to maintain absolute margin on lower prices?

Eric, thank you for the question. It's an important question. I'll begin with the end of your question: we're very confident that we can maintain dollar profit through these discussions because of the scope, scale and quality of the services that we provide to manufacturers and providers. You listed a few of them — our ability to run high-quality, efficient distribution with massive investments in distribution networks, the technology for ordering, highly automated distribution, secure handling of products — all of that is very efficient, low cost and very high value and frankly would be difficult to replicate outside the existing system, particularly in the United States. We often reference a study that demonstrates those services contribute significantly to the health care system. It's not automatic — we do have to have real conversations with partners that have to see the value in what we do. But we are confident that manufacturers will continue to see the value in what we do for all of the reasons I described. Of course, that's the base case, and we're always working to innovate to create new services and new solutions and new data and analytics opportunities that provide value. It's a commercial relationship and we have to demonstrate our value continuously, but because of the investments we've made over decades, we feel confident that will continue.

Your next question comes from the line of Charles Rhyee at Cowen.

James, good luck on your retirement and best wishes. First, to follow up a little on Glen's question. Bob, I appreciate that Part B is the real focus, particularly when we think about specialty, and that in the Part D side it's more of a revenue hit. Is it fair to think that you're still making some margin on these revenues? When we think about your large mail order customer shifting and then moving that volume to their own distribution business, how do we understand the speed of conversion that might have been outside your expectations? When we think about the pipeline of future drugs, is that something you contemplate in your long-term guide about what products will continue through your channel versus what might go through customers' internal channels? Secondly, James, you talked about the loss of the big oncology contract last year as well as the grocery store chain. Were there any other movements? I know there are other M&A activities in the space. Were the ones you called out the only meaningful headwinds?

Charles, I'll take the biosimilar part first. There are two or three things happening. One we called out is the speed of conversion from the brand to the biosimilar was something we hadn't necessarily planned for. That's not something we'll always know. Traditionally, the speed from brand to generic within the PBM/mail space hadn't always been quick; there have been products where that transition took longer. So the pace we saw was faster than anticipated. Two, yes, we would have a small part of the margin if that biosimilar stayed with the wholesaler, but that's not the norm. Historically, when products moved from brand to generic in the PBM/mail model, they tended to be insourced. So the wholesaler wasn't generally providing that generic, whether oral generics or biosimilars. So what we're seeing is consistent with the model; the notable point here was the pace of conversion was faster than we had anticipated.

Charles, I'll take the last part of that question. With regard to the brand conversion to the biosimilar at the large mail order customer: brand sales to this customer are low margin, so the impact of the shift is impactful to the revenue line but not a meaningful driver of operating income. With regard to the last part of your question, we've called out the loss of the oncology customer in July of last year and the grocery customer. There's nothing else of size that would be meaningful for us to call out. Regarding the oncology customer, we've indicated that it does have an impact on operating income and we disclosed that in the past. The grocery customer wasn't something that we called out as having an impact on operating income.

From time to time there are smaller customers who would be acquired or who would move that wouldn't be material enough for us to call out. Those smaller activities have been contemplated in our guidance, but there's nothing else material to call out beyond the items we discussed.

Next question comes from the line of Allen Lutz at Bank of America.

First, James, congrats on your retirement. A clarification question: On the 7% U.S. Healthcare Solutions EBIT growth, excluding OneOncology and the loss of an oncology customer, can you also mention that there's a $10 million headwind from COVID-19 and another $10 million headwind from weather? So is it fair to assume the starting point, excluding those, would be higher. And more broadly on GLP-1 growth, you said that grew $1.9 billion in the quarter. How much lower are GLP-1s growing relative to your expectations? And as that mix shifts from injectable to oral, are you seeing or expecting any change in profitability there?

Yes. Let me first say the answer is yes to the first part of your question. We saw the $10 million operating income headwind related to weather and specialty practices due to some patient visit cancellations and delays. We did see a rebound in March and April. The $10 million COVID-19 headwind is also accurate. As a reminder, we had $15 million of COVID-19 vaccine contributions in the second quarter fiscal 2025 and we were $10 million down from there. If you add back both of those things, our operating income would have been $20 million higher during the quarter and our growth rate would have been higher. Regarding GLP-1s, we saw $1.9 billion of growth in the quarter, but growth is slower than we previously expected, which influenced our revenue guidance. In terms of mix shifting from injectable to oral, these products currently represent a growing product class and their impact on profitability depends on channel dynamics and reimbursement structures; we continue to monitor mix impacts and expect these to influence revenue more than operating income given the margin profiles.

Your next question comes from the line of Daniel Grosslight at Citi.

I'd like to focus on the international business and really the solid quarter that you delivered with World Courier. You mentioned some nice new contract wins. As we look to the remainder of the fiscal year, I'm curious how sustainable that growth is. I get that comps get easier in the second half of the year. But on a sequential basis throughout the year, do you think you'll continue to see World Courier growth?

Thanks for the question. We're really pleased with the progress that World Courier is making. It's a combination of the market not getting significantly worse and our work to commercially rightsize the business — sales process, pricing and making sure we're as efficient as we can be. We've been working hard at the business and are happy to see multiple quarters now of operating income growth and volume growth within the business. We're excited about that progress.

I'll just add that we have good confidence in our guidance for the fiscal year in our international business. We've been very pleased with World Courier and with our distribution and 3PL businesses internationally. It's nice to see growth in that business and we're optimistic for future growth.

Your next question comes from the line of Kevin Caliendo at UBS.

James, it's been a pleasure knowing you over all this time even back to the MWI days. Good luck. I want to focus on—you made a comment that ex all the one-timers and weather and everything else, your EBIT growth would have fallen within your long-range plan at roughly 7%. That's still a core slowdown in core growth from what we've seen over the last several years. What exactly changed this quarter that you saw? Also, these changes in pricing and changes in GLP-1s—one might have expected to see a decline in gross margin, but the issue seemed to be G&A leverage was worse than anticipated. Is there anything that changed there? I'd love additional color on that aspect as well as on core growth.

Let me address both. First, we were pleased to see the core operating income growth aligned with our long-term guidance despite weather-related softness and the lower demand for COVID-19 vaccines. We were within that long-term guidance rate before those headwinds; if you add them back it moves us up within the long-term guidance range. Regarding gross margin and operating expenses: we had high operating expense growth in the quarter. It's important to look at our business excluding MSOs, because the shape of the MSO income statement is very different than the core distribution income statement. If you back out the MSO business, our operating expense growth rate in the quarter on a constant currency basis was about 5%. The MSOs raise our gross margin and operating margin; you saw a nice increase in operating margin during the quarter largely because of the MSO business. It's important as you model gross margin to operating expenses to think about the business without the MSOs.

Your next question comes from the line of Erin Wilson Wright at Morgan Stanley.

Great — James, it's been great working with you. Going back to the MWI days, appreciate all the support. On capital deployment, you mentioned you'll be back in the market potentially buying back shares. Do you still see longer-term opportunities across the MSO assets that are out there? How do you think about that in the context of timing and magnitude of share repurchases?

We'll continue to have balanced capital deployment, which includes investments in the business and CapEx, strategic M&A, opportunistic share repurchases, and growing our dividend over time. We're getting back into opportunistic share repurchases; we had paused because of acquisitions but have been successful paying down term loans—$500 million so far this fiscal year and we plan to pay down $1.3 billion of term loans during the fiscal year. We anticipate hitting our guidance of $3 billion in free cash flow which gives us the opportunity for opportunistic buybacks. We're planning on repurchasing $1 billion between now and the end of the calendar year. Regarding MSO opportunities, we're pleased to have announced the South acquisition and we see very good bolt-on opportunities for MSO businesses over time. We feel our strong platforms will be attractive to physicians.

Your next question comes from the line of George Hill at Deutsche Bank.

James, I'll echo everyone's well wishes. Mine's simple: as we think about pro forma for the acquisition of iSouth, is there any change you would give us about what portion of the AOI in the U.S. segment now comes from physician-administered or Part B businesses versus the key businesses? Over the last year we've had the loss of the grocery customers and other smaller losses and lots of acquisitions. Trying to get a sense of the apportionment of the business from an earnings perspective at this point.

I think what you're asking is the earnings split from Part B versus Part D. That's not the way we currently present the financials, but it's something we're always evaluating to give the best visibility. Thank you for the question.

And George, just to be clear, the current FY '26 guidance does not include any contribution from iSouth, as we stated in the press release announcing that deal. We've disclosed pieces to indicate the relative size of the different MSOs; we've lapped the RCA one-year annualization and we're beginning on the OneOncology side, which will continue to ramp in the balance of the year.

Thank you, Bennett.

We've reached the end of the Q&A session. I will now turn the call back to Robert Mauch for closing remarks.

Thank you, everyone, for your thoughtful questions and continued interest in Cencora. As we've emphasized today, we have conviction on our fiscal 2026 guidance, reflecting the strength and resilience of our pharmaceutical-centric strategy. We're executing on our growth priorities and performance drivers, positioning our business to deliver sustainable long-term value creation. Thanks, everyone.

This concludes today's call. Thank you for attending. You may now disconnect.