Cencora, Inc. (NYSE:COR) Q3 2025 Earnings Call Transcript

Cencora, Inc. (NYSE:COR) Q3 2025 Earnings Call Transcript August 6, 2025

Cencora, Inc. beats earnings expectations. Reported EPS is $4, expectations were $3.85.

Operator: Hello, everyone, and thank you for joining the Cencora Fiscal 2025 Third Quarter Results call. My name is Lucy, and I’ll be coordinating your call today. [Operator Instructions] It is now my pleasure to hand over to your host, Bennett Murphy, Senior Vice President of Investor Relations and Treasury, to begin. Please go ahead.

Bennett S. Murphy: Thank you. Good morning, good afternoon, and thank you all for joining us for this conference call to discuss Cencora’s Fiscal 2025 Third 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 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 our management’s current expectations and are subject to uncertainty and change. For a discussion of key risks and assumptions, we refer to today’s press release and our SEC filings, including our most recent 10-Q. Cencora assumes no obligation to update any forward-looking statements, and this call cannot be rebroadcast without the expressed permission of the company. You will have the 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.

Robert P. Mauch: Thank you, Bennett. Hi, everyone, and thank you for joining Cencora’s Fiscal 2025 Third Quarter Earnings Call. To start, I’d like to thank the over 51,000 Cencora team members for the industry-leading expertise and purpose-driven approach they bring to work each day. Their talent and commitment fuel our growth as we continue to strengthen our position as an end-to-end health care solutions provider. Through the strength of our strategy, services and unwavering standards, Cencora’s business model is driven by pharmaceutical distribution and complemented by higher-margin, high-growth value-added services and solutions for our biopharma and provider customers. In our third quarter, Cencora delivered strong performance with adjusted operating income growth of 21% and adjusted diluted EPS growth of 20%.

In recognition of our outperformance during the quarter and year-to-date, both in the U.S. segment and on a consolidated basis, we are pleased to once again raise our fiscal 2025 guidance. Today, I will highlight 3 growth priorities: First, enhancing patient care and adherence. Through decades of investment in physical and digital infrastructure, our core pharmaceutical distribution services ensure access to life-saving medications; Second, strengthening our specialty leadership. As we focus on future growth, we are differentiating the services and solutions we offer to pharmaceutical manufacturers to support specialty product innovation. And third, leading with market leaders. By prioritizing active learning and active leading, we identify opportunities to create value in collaboration with our leading customer portfolio.

I’ll begin with how Cencora enhances the patient access to pharmaceuticals through our critical role as a leader in pharmaceutical distribution. Our global reach, coupled with our local expertise, ensures patients have access to the medications they need, when and where they need them in an efficient, reliable and secure manner. We’ve invested in our distribution capabilities for decades, enhancing our efficiency, security and ability to handle increasingly complex medications, allowing us to meet the needs of innovation and the increased use of pharmaceuticals. We are responsible for delivering millions of pharmaceutical orders overnight or the same day to hundreds of thousands of health care providers we serve, ensuring pharmacists, physicians, veterinarians and other health care providers have access to the medications they require to treat patients.

Specifically, we believe our investments over the past decade have made Cencora a market leader in ensuring that the supply chain is supported and equipped to comply with the enhanced tracking and visibility requirements of the Drug Supply Chain Security Act, DSCSA, which goes into effect later this year in the United States. The significant investments made over the past several years in support of the DSCSA is yet another clear proof point of the vital role Cencora and our industry play to ensure patients efficient, safe and reliable access to medication. Next, Cencora is strengthening our leadership in specialty by enhancing capabilities through RCA. RCA’s physician-centric approach in retina is enhancing clinical trial access, supporting specialty product innovation and improved outcomes for patients.

Recently, physician and business leaders across the RCA organization came together at our offices outside Philadelphia for their business and medical leadership board. The time our team spent together demonstrated collective value as we focused on practice management, value creation and the future of patient care. In addition, retina specialists across RCA had a significant presence at the annual American Society of Retina Specialists Meeting, which was oriented around highlighting the rapid innovation in retina treatments. RCA physicians drove discussions in clinical research with a demonstrated clinical excellence, strong clinical trial patient enrollments and novel therapeutic approaches, including the delivery of an investigational gene therapy.

We are proud to support these groundbreaking clinicians. Additionally, Cencora’s long-standing leadership in specialty distribution, including deep relationships in the retina market, equips us with specific expertise to support manufacturers product launches. As a result, we look forward to serving as a specialty distributor for several recently approved retina therapies that are beginning to enter both the U.S. and international markets. Through these partnerships, we are facilitating streamlined market entry, secure storage and distribution. Innovation is driving specialty pharmaceutical market growth and Cencora is deepening our leadership in specialty are remaining at the forefront through our portfolio of services and solutions, end-to-end from manufacturers to specialty providers.

And finally, our focus on active learning and active leading is bolstering relationships with our industry-leading portfolio of customers, furthering our leadership with market leaders. Our teams are prioritizing focused engagement with our partners to deeply understand their business challenges and growth opportunity. The intentional time we spend with our customers is helping inform how we invest and expand our business to best create value. Throughout the quarter, we drove meaningful interactions with our customers and partners across the supply chain. As an example, we hosted our annual Good Neighbor Pharmacy ThoughtSpot conference, giving our independent pharmacy customers the opportunity to learn about the latest trends shaping the industry and connect with peers.

Our enterprise leadership team recently had the opportunity to visit a Good Neighbor Pharmacy member that is a great representation of a pharmacy that has positioned itself as a differentiated care provider. Community pharmacies are vital accessible health care destinations, providing care tailored to the community they serve. I’m continually inspired by the creativity and tenacity, these community pharmacists exhibit, and I’m proud of Cencora’s partnership with these market leaders. In closing, and before I hand it over to Jim, as I near the end of my first year as CEO, I’ll remind you we are focused on 4 drivers that will strengthen our execution: digital transformation, talent and culture, productivity, and prioritizing growth-oriented investments.

We’re focused on Cencora’s digital transformation using data and advanced analytics to accelerate operational excellence and enhance both the customer and team member experience. We’re committed to developing our team members, ensuring Cencora is a place where best-in-class talent come to grow their careers and furthering our purpose-driven culture. We’ve elevated our concentration on productivity, equipping us to identify ongoing capability and process improvements. And finally, our commitment to leading now and in the future, means we prioritize investments in strategic growth-oriented areas. As evidenced by our continued investment in technology and capabilities for our customers, our acquisition of RCA and our investment with a pathway to full ownership in OneOncology.

This also means that we continually evaluate the areas which are less strategically aligned where we should deemphasize investment. To close, I want to again thank the Cencora team members. It’s due to their expertise, efficient execution of our strategy and dedication to our purpose that Jim and I are able to once again report such strong results. With that, I will turn the call over to Jim for an in-depth review of our third quarter results and our updated fiscal 2025 guidance. Jim?

James F. Cleary: Thanks, Bob. Good morning, and good afternoon, everyone. As a reminder, before I turn to my prepared remarks, 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 financial performance in our fiscal third quarter and we’re pleased to be raising our full year fiscal 2025 guidance as we move into the fourth quarter. Our pharmaceutical-centric strategy and positioning in key markets has allowed us to capitalize on favorable industry trends and our growth-oriented investments to advance our leadership in specialty are driving significant value as evidenced by our adjusted diluted EPS growth of 20%.

Before reviewing our updated guidance I’ll first turn to a review of our consolidated and segment-level third quarter results, beginning with revenue. Our consolidated revenue was $80.7 billion, up 9% and driven by revenue growth in both reporting segments. In the U.S. Healthcare Solutions segment, which makes up the significant majority of our revenue and operating income, we continue to benefit from strong utilization trends and volume growth, including continued growth in GLP-1 products. Excluding sales of GLP-1s, our consolidated revenue growth would have been 8%. Turning now to gross profit. Consolidated gross profit was $2.9 billion, up 21%, primarily due to the U.S. Healthcare Solutions segment. Consolidated gross profit margin was 3.55%, an increase of 36 basis points, primarily driven by the gross profit contribution from our acquisition of Retina Consultants of America.

Moving now to operating expenses. In the quarter, consolidated operating expenses were $1.8 billion, up 21%, driven primarily by the RCA acquisition and to support our revenue growth. Consolidated operating income was $1.1 billion, an increase of 21% compared to the prior year quarter due to continued strong performance in our 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 third quarter. Net interest expense was $82 million, an increase of $50 million versus the prior year quarter, primarily due to the $3.3 billion in debt raised to finance a portion of the RCA acquisition. Turning now to income taxes. Our effective income tax rate was 20.7% compared to 21.0% in the prior year quarter.

Finally, our diluted share count was 195.2 million shares, a 2% decrease compared to the prior year quarter driven by approximately $1 billion in opportunistic share repurchases over the past year. Regarding our cash balance and adjusted free cash flow, we ended June with $2.2 billion of cash and year-to-date adjusted free cash flow of approximately $100 million. Our full year adjusted free cash flow guidance of $2 billion to $3 billion remains unchanged. This completes the review of our consolidated results. Now I’ll turn to our segment results for the third quarter. U.S. Healthcare Solutions segment revenue was $72.9 billion, up 9% as the strong pharmaceutical utilization trends continued, including growth in GLP-1. Across the segment, we saw broad-based revenue growth in all customer classes.

As it relates to GLP-1 products in the quarter, GLP-1 sales increased $1.4 billion or 19% year-over- year. Turning now to operating income. U.S. Healthcare Solutions segment operating income increased an outstanding 29% to $902 million, driven by growth across our distribution businesses and the contribution from RCA. In the quarter, specialty remained a key growth driver in both health systems and specialty physician practices where we benefited from strong volumes and saw good biosimilar conversion trends. I’ll now turn to our International Healthcare Solutions segment. In the quarter, International Healthcare Solutions revenue was $7.8 billion, up approximately 11% on an as-reported basis and up 9% on a constant currency basis, primarily driven by revenue growth in our European distribution business.

International Healthcare Solutions operating income was $156 million, down 13% on an as- reported basis and down 16% on a constant currency basis. The decline was driven by continued softness for our higher-margin global specialty logistics as well as a decline in our consulting business. While our global specialty logistics business did have a decline year-over-year, it grew sequentially from the March quarter as our teams have taken steps to optimize the business and drive value for our customers. We expect to see the same type of sequential improvement in operating income from the June quarter to the September quarter for this business. In the third quarter, we also saw solid performance in our 3PL business as our differentiated footprint is resonating with manufacturers.

That completes the review of our third quarter results. I’ll 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 and share count. 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. We are raising and narrowing our fiscal 2025 EPS guidance and now expect EPS to be in the range of $15.85 to $16, up from the previous range of $15.70 to $15.95 and representing growth of 15% to 16%. The updated guidance reflects the continued strong performance of our U.S. Healthcare Solutions segment and reflects a lower expected contribution from our International Healthcare Solutions segment.

Moving to revenue. we are narrowing our consolidated revenue guidance to be growth of approximately 9%. At the segment level, we are updating both our U.S. and International Healthcare Solutions segment revenue growth outlook. In the U.S., we now expect segment revenue growth to be in the range of 9% to 10%, narrowed from our previous range of 9% to 11%. And given the trends we have seen and foreshadowed last quarter, we will likely finish in the lower part of that revenue range for the U.S. For the International segment, we now expect our segment revenue growth to be in the range of 6% to 7% and on an as-reported basis, up from our previous range of 3% to 4% to reflect the weakening of the U.S. dollar relative to several key currencies and sales mix for our European distribution business.

On a constant currency basis, we now expect International Healthcare Solutions segment revenue growth to be in the range of 7% to 8%, up from the previous range of 6% to 8%. Moving to operating income. We are raising and narrowing our expected consolidated operating income growth guidance to be in the range of 15% to 16%, up from our previous range of 13.5% to 15.5% growth. In the U.S. Healthcare Solutions segment, we now expect operating income growth to be in the range of 20% to 21%, up from our prior range of 17.5% to 19.5%. The updated guidance reflects our strong performance and execution and expectation for continued strong pharmaceutical utilization trends in our fourth quarter despite the previously disclosed loss of an oncology customer due to its acquisition.

Turning now to the International Healthcare Solutions segment. On an as-reported basis, we now expect operating income to be down approximately 6% compared to our prior expectations for operating income to be down 4% to down 1%. The updated guidance range reflects the pressure we have seen in our higher-margin global specialty logistics and consulting businesses. On a constant currency basis, we now expect segment operating income to be down approximately 5%. As we move into the fourth quarter, we have an easier comparison and with continued sequential improvement from our global specialty logistics business, we expect to see the International Healthcare Solutions segment operating income returned to growth exiting the fiscal year. That concludes our full year guidance update.

As we near the end of our fiscal year, I remain inspired by our team members’ dedication to being a differentiated and solution- oriented partner for our customers, which continues to result in strong financial results. Cencora continues to drive impressive performance powered by our U.S. Healthcare Solutions segment as we are positioned to capitalize on positive industry trends and our investments in high-growth specialty are generating value, grounded in our pharmaceutical-centric strategy Cencora is delivering sustainable growth, investing in our strengths and is well positioned to continue driving long-term value for all our stakeholders. Now I will turn the call over to the operator to open the line for questions. Operator?

Q&A Session

Operator: [Operator Instructions] The first question comes from Lisa Gill of JPMorgan.

Lisa Christine Gill: Bob and Jim, congrats on a very strong quarter. First, can we just start with the U.S. Healthcare segment, where we saw strong gross profit, strong operating profit, but a slight trim in the revenue, Jim, that you talked about from a guidance perspective. Can you talk about what some of the key drivers are there on each side? And then secondly, I just want a clarification on the international business. I’m assuming that some of the things that you talked about from an environmental perspective are around the SMID or midsized biotech pharma environment, and you talked about that getting better as we exit the year. Can you maybe just talk a little bit about what you’re seeing there as well?

James F. Cleary: Sure. Lisa, thanks so much for the questions. Very much appreciate it. First question had to do with our particularly strong performance in the U.S. business, but revenue growth moderating a bit there. But I’ll say, first of all, we were really pleased to be able to increase our adjusted operating income guidance in the U.S. business to a range of 20% to 21% because of the excellent performance there. Now if we look at revenue versus operating income, we did see revenue growth moderating a bit in the U.S. segment, and I’ll really call out a few things. One is biosimilars, both Part D and Part B, which, of course, impact top line growth, particularly Part D. Another thing is moderated GLP-1 growth. GLP-1s are still growing, but the growth we saw is 19% in the most recent quarter.

So while the growth is still strong, it’s decelerating versus prior year. And then a third thing on the top line is a grocery customer that we no longer have, that was a very kind of high revenue customer, but a very low-margin customer. So those are some of the things that are impacting revenue growth guidance in the U.S. segment. If we look at operating income results in the most recent quarter and our guidance, it really shows just excellent performance and excellent growth. And I’ll just kind of call out things that we’ve been talking about for quite some time, broad-based strong performance in the U.S. segment, specialty sales to physician practices and health systems. So some of our higher-margin businesses are performing quite well. And then also Part B biosimilar growth that’s moderating sales growth a bit.

It’s kind of very positive from an operating income standpoint. And so those are some of the things that are just causing our operating income growth in the U.S., which is excellent to be faster than our top line growth. And then you were asking about international and just some of the things that we’ve been seeing there. And as other players in the market have been calling out the clinical trial activity this year has been subdued, which has been pressuring some of our businesses in the International segment, particularly our global specialty logistics business and the earlier stage pharma consulting projects that impacts our consulting business. And so the rebound has been slower than expected in the segment and been impacting our global specialty logistics business and our consulting business.

And one thing I did say in my prepared remarks is that the global specialty logistics business, while it’s declining year-over-year, it did grow sequentially in the June quarter versus the March quarter, and we also expect sequential growth in the September quarter versus the June quarter. And so as we look ahead in the segment, we are encouraged by better clinical trial start statistics that we’ve been seeing the last couple of months that other people have been calling out also, and we see that as a positive leading indicator for potential future demand. And so we do expect, of course, to see business performance improve. And as we move into the fourth quarter, we do have an easier comparison and with the continued sequential improvement from our global specialty logistics business, we expect to see the International Healthcare Solutions segment operating income to return to growth in the fourth quarter.

So thank you very much for those questions, Lisa.

Operator: The next question comes from Elizabeth Anderson of Evercore ISI.

Elizabeth Hammell Anderson: Evercore ISI Institutional Equities, Research Division Congrats on a nice quarter. You obviously referenced RCA and sort of how it’s been going since you closed on the purchase there. Can you talk about some of how that’s tracking versus your expectations and what some of the early customer feedback is? And then on a related note, obviously, there’s been lots of political commentary around MFN, and that seems to be a changing landscape. Can you talk about sort of the exposure of businesses like RCA and sort of the general, the medical specialty to that and how we should think about the potential impact there?

Robert P. Mauch: Elizabeth, thanks very much for the question. I’ll start with the question around RCA, and we couldn’t be more pleased with where we are so far with the acquisition. I mentioned in the prepared remarks, we had the both the clinical and the management leaders from RCA at our offices in the last few weeks. And aside from the work that we got done, which was meaningful in terms of how we’ll work together, how integration will progress, how we’ll identify new opportunities for growth and value creation. But I think importantly, it’s just the cultural fit is really, really strong. And there’s an appreciation from the physicians and the practice leaders about the value that Cencora can bring to them in terms of their continued growth.

And what that means is more care for patients, which is absolutely terrific. When you think about customer reaction, it’s nothing remarkable there, right? So I mean, the market is adapting to an era where us and our peers are investing in MSOs. As I’ve said previously, it’s important to note that the MSO investments or ownership are analogous to the work that we’ve done over decades to support community providers, whether they be a community pharmacist or veterinarians or physicians with the wraparound services that we have. And the MSOs are just the next evolution of that. So the market understands that and the customer market understands that. So I’d say, all is well there. I’ll take MFN quickly and just overall policy, Elizabeth. Obviously, there’s a lot of news, a lot of things happening right now from IRA implementation to the letter sent to the CEOs. And I would say we continue to believe it’s just too early to call where all this goes.

I think it’s clear at this point what we all know, which is these things take a long time. And we’re doing what you would expect that we are. We’re staying very engaged. And as things are happening, we’re spending time in Washington, D.C. We’re able to really communicate the need to make sure that access to community providers is maintained. So when you get beyond the headlines of drug prices, in many cases, that flows to reimbursement to physicians, in particular, in the Part B space. So we’re spending time making sure that legislators and regulators understand that, that most cost-effective site of care is maintained. And somehow that is not an unintended consequence of focus on drug prices. So too early to call. We’re very focused there, and thank you very much for the questions.

Operator: The next question comes from Michael Cherny of Leerink Partners.

Michael Aaron Cherny: I know typically as you get to the end of the year, you’re working on your forward year planning. As you sit here today, given the moving pieces we’ve had into the end of the year between RCA annualizing between the international sequential upticks, how should we think about the moving pieces into next year framed against your long-term 5% to 8% segment growth, 8% to 12% earnings growth? It seems like the Street is sitting around 10% EPS growth for next year. I know you still have some contribution from RCA, but how should we think about what could provide a source of upside versus downside, especially given areas of strength like the recent specialty trends?

James F. Cleary: Michael, thank you very much for that question. And of course, as you know, we’ll provide comprehensive fiscal 2026 guidance at the end of our fiscal year after we’ve completed our year-end planning process. And of course, we’re really actively involved with our teams in that planning process now. And I will say that Cencora, we’ve consistently delivered strong financial performance driven by our leading market positions and the continued execution by our team members. And I’d also say that our pharmaceutical-centric foundation and competitive positioning enables us to capitalize on these market trends and to continue to deliver strong results. I’ll say that we have confidence and we feel confident about our long-term guidance that contemplates organic operating income growth of 5% to 8% and EPS growth of 8% to 12%, including capital deployment.

We will benefit from RCA as we lap the close of the acquisition that occurred in our fiscal second quarter. So we had 3 quarters of RCA in fiscal year ’25. We’ll have 4 quarters of RCA in fiscal year ’26. As we also look at moving pieces, we’ll have 3 quarters of impact due to the loss of the previously disclosed oncology customer due to M&A activity that was acquired by a peer. And so we have 1 quarter impact from that in fiscal year ’25, the September quarter, and we’ll have 4 quarters impact from that in fiscal year ’26. Now other key items that will move us within the range include changes in utilization trends. And of course, we’ve seen very strong utilization trends. And those include things like growth in specialty products, sales to physician practices and health systems.

Other things that will impact our guidance, of course, include timing of capital deployment, for instance, timing of share repurchases. And as you said, another thing that will impact guidance is, we’ll assume better international growth given the soft fiscal year ’25. So those are some of the moving pieces. But as I said before, we have confidence in our long-term guidance of 5% to 8% organic operating income growth and EPS growth of 8% to 12%. Thank you for the question.

Operator: The next question comes from Stephen Baxter of Wells Fargo.

Stephen C. Baxter: Just a numbers question here. I was hoping that you could better help us understand the acceleration in U.S. Healthcare earnings growth. I believe it was 23% last quarter to more like 29% this quarter. I’m guessing part of it is that the year-over-year contribution from RCA is greater in the third quarter, but it does feel like the acceleration goes beyond just that. I was hoping to see if there’s any other adjustments or kind of drivers in the acceleration you can maybe speak to.

James F. Cleary: Yes. Yes, thanks. I appreciate the question. And I will say just it was a really strong quarter. And of course, RCA had an impact on the growth rate and that we didn’t have it at this time last year. But I will say that if we look at kind of beating expectations and those sorts of things, it was really more driven by just the strength of the core business and strength of what we saw in specialty market. And as we talked about many times, utilization trends and sales of specialty products to physician practices and health systems. So our core business just performed very strong in the U.S. segment, really good expectation — excuse me, really good execution by our team members and just very strong broad-based performance.

One probably other thing, if we look at kind of relative comps is less of a COVID headwind compared to other points in time. But overall, the 29% adjusted operating income growth in the U.S. segment during the quarter just reflects outstanding execution by our team. Thank you.

Operator: The next question comes from Eric Percher of Nephron Research.

Eric R. Percher: Bob, I appreciate your commentary. That was a little early for you to go deep on MFN, but I’m wondering if the tariff topic is a little bit different. And you’ve had 3 months to process the full spectrum of potential policies. Any thoughts on potential impact across brand versus generic? Any change to your approach to inventory or sourcing? And do you think we may be heading into a naturally more inflationary environment?

James F. Cleary: I’ll start, Eric. Thanks a lot for the question. And of course, we continue to monitor the evolutions around tariffs in the pharmaceutical market. As you can imagine, we have teams in place analyzing the impacts of the tariffs on our business and on the supply chain. Importantly, as it relates to our business, we’ve not called out any material impacts as a result of tariffs. And as you know, we’re pharmaceutical-centric and manufacturers are the importer of record for pharmaceuticals. And so the main focus is ensuring patients have access to life-saving medications, and we’re supporting our upstream and downstream partners as they navigate any uncertainty. And we’ll continue to advocate on behalf of our customers to ensure they receive adequate reimbursement for the services that they provide.

And of course, we’re evaluating things and kind of many announcements that come out as to whether or not they impact branded pharmaceuticals versus generic pharmaceuticals. But from a financial standpoint, we haven’t called out any material impacts on our business as a result of tariffs. And with that, I’ll turn it over to Bob.

Robert P. Mauch: Yes. Thanks, Jim, Eric. Thanks for the question. I think the headline is, we’re not changing our sourcing practices based on this. We have confidence in the supply chain, and we’ll continue to work through that. I do think the watch out is there is a difference between the supply chains for brands and generics. And I think what we are being — what we’re carefully monitoring is the risk of shortages and then therefore, a disruption to patient access. So that’s again, an unintended consequence that would not be positive. So we’re thinking about that. We’re analyzing it. As Jim said, we’re also educating in Washington about that. Again, it’s one of the roles that we play in Washington is to make sure that ideas that are put forward are thought all the way through.

We are one of the very few player — health care players that really have end-to-end visibility of the supply chain. So we can play an education role. And as you think about that, it’s the patient access impact of shortages that we’re doing everything that we can to mitigate.

Operator: The next question comes from Charles Rhyee of TD Cowen.

Charles Rhyee: I wanted to just go back to international and just trying to get a sense when you’re looking — obviously, understanding that the comps get a little easier and it sounds like sequentially, some of the business like specialty logistics was improving. What is the lead time generally for projects that come in for you? Is that like a year ahead of time? Like how far ahead are projects booked for the various business there, particularly maybe in consulting as well? Or is it kind of a short-cycle type of business? Or does it tends to be longer? I’m just trying to get a sense on what kind of visibility forward you have in terms of demand.

Robert P. Mauch: Yes. Thanks, Charles. We have, as you would expect, visibility in terms of bookings and then our ability to pull through and then the sales cycle is in your question as well. And I would just say it’s variable. I mean the size of the project, the market, the type of work that it is. So there’s not a simple answer to that, certainly, but you can be assured that we have — we do have good visibility in terms of where we’re tracking in terms of future growth. Our teams are very focused on execution on the sales side, and we’re also making sure that we’re optimizing the services that we have. So as the market begins to turn more positively that we’re going to be even better positioned to take advantage of that.

Operator: The next question comes from Kevin Caliendo of UBS.

Kevin Caliendo: I wanted to expand a little bit on the headwinds and tailwinds for ’26. Jim, I appreciate the details that you gave us, but the reality is your growth in the U.S. segment, especially has been so much above your LRP, you’re talking about incremental things around RCA 1 quarter and the 3 quarters loss of FCS. And I understand that. But I guess, is there anything fundamental that you can see that would bring your growth rate down closer to your LRP, where it’s been exceeding it now for almost 2 years, fantastic performance. I’m just wondering, is there anything in biosimilars? Is there — is GLP-1 slowdown something that could bring you back to within that range as you sort of described within the range earlier?

James F. Cleary: Yes. Thank you very much for the question, and thank you for your commentary on our results that we’ve been having also, that’s very much appreciated. Let me just kind of answer one very specific thing that you said, and then I’ll get into a broader answer. Kind of slowdown in growth in GLP-1s really wouldn’t have a major impact on our guidance because as we’ve said for a long time, GLP-1s add a lot to top line growth, and they are profitable for us, but they’re minimally profitable for us. And as we said during the second quarter earnings call, we’ll say the same thing here that as we look at things like the remainder of the year and next year, we certainly expect to see good growth, but we aren’t assuming the same level of outperformance that we’ve had in the recent past.

And so we do have a lot of confidence in our long-term guidance. We have confidence in the momentum that we have and what that is kind of translating in, in terms of achieving the long-term guidance. But we probably wouldn’t assume the same level of rapid growth that we’ve had in the recent past, especially as we begin to comp against periods of exceptional growth that we’ve had. But having said that, I’ll say we are very confident in our long-term guidance ranges, and we’ll continue to evaluate them annually. Thank you for the question.

Operator: The next question comes from George Hill of Deutsche Bank.

George Robert Hill: Bob and Jim, I’m wondering if you could comment a little bit on the competitive environment in specialty distribution, especially in the Part B space. One of your large customers last week talked about trying to rapidly expand their business in this space. So maybe talk about how you think about market segmentation and where you guys kind of want to be strong and where you might have less of a competitive advantage.

Robert P. Mauch: Yes. Thanks, George. We are focused in our areas of strength, which align very well with our strategy. So I wouldn’t call out anything necessarily changing about the market. We are a leader in the market, in particular in retina and oncology, and we’re very focused on making sure that we execute well there for the near term and the long term. And also, we’re continuing to evaluate what future opportunities that there are. But as we sit here now, I wouldn’t call it anything changing. We’re happy with our positioning. We’re very happy with the investments that we’ve made, both in RCA and in OneOncology as well as in our internal capabilities. By the way, I don’t want to leave that out, right? When you talk about kind of the future of specialty distribution and how things are evolving.

I do want to probably remake the point that I made in a slightly different context in my prepared remarks, but we’re continually investing in our capabilities across our network, both digital capabilities as well as physical infrastructure. So we feel good about being able to continue to grow, meet the needs of our customers, both manufacturer customers as well as provider customers. Thanks for the question, George.

Operator: The next question comes from Erin Wright of Morgan Stanley.

Erin Elizabeth Wilson Wright: Bob, another thing from your prepared remarks. You mentioned that you’re continually evaluating, I guess, areas that are less strategically aligned and where you should deemphasize investments. I guess — maybe I’m reading too much into the comment, but how are you thinking about commitments to the international business, the different components of that business? I’ll throw in animal health as well and your commitment to that business. But how are these all fitting now with the core? Is there this clear synergy that you originally thought and where there may be kind of, I guess, less so as these businesses have evolved?

Robert P. Mauch: Yes. Thanks very much for the question, Erin. Yes, what I’m really saying here and there’s not reading between the lines. What I’m trying to clearly say is that we’re applying rigorous discipline to our entire portfolio of services and making sure that they are the right strategic fit. And then as we go through that, that will help us identify how to best deploy our resources, whether that’s CapEx or OpEx or talent that we make sure that we are investing in a differentiated way in the areas that are going to grow for us and are aligned with our strategy and that we’re deprioritizing investment in areas that we see as less aligned. Thanks for the question, Erin.

Operator: The next question comes from Steven Valiquette of Mizuho Securities.

Steven James Valiquette: So just based on our channel checks, it seems that brand drug manufacturers put in a bigger wave of AWP list price increases in mid-’25, really relative to any other midyear period in almost a decade, it seems. So I’m just wondering if you were seeing this as well, even though I know you’ve commented that brand inflation has less beneficial impact to your P&L today versus history. But just curious if you’re really seeing the activity?

James F. Cleary: Yes. Thank you very much for the question. What I’ll say is that what we saw in terms of branded price appreciation was about in line with our expectations, may have been a little bit ahead of our expectations, certainly not something big enough for us to call out. But — so I’d just say it was generally in line with our expectations or a little bit ahead. And as we’ve talked about in the past, it has less of an impact on our overall P&L than it did at one point in time. And as we’ve rebalanced contracts and making sure that we make a fair profit across the board on brand, specialty and generic products. Thanks. Appreciate the question.

Operator: The next question comes from Daniel Grosslight of Citi.

Daniel R. Grosslight: Congrats on the strong quarter. Really just a couple of policy questions for you guys. The proposed hospital outpatient prospective rule seeks to end the pricing advantage that hospital-owned off-campus outpatient facilities have in drug administration. I’m curious how that may impact the competitive environment and growth for your MSO assets. And separately, I’m also curious if there are any tax benefits you’re realizing from the OBD, VA and if that’s having any meaningful benefit to your free cash flow in the near term?

James F. Cleary: Yes. I’ll start with the second part of that question. The new tax bill moving forward will have some incremental benefits for us. So as we look at our effective tax rate moving forward as a global company, there’s always a lot of things that impact our consolidated effective tax rate. But the new tax bill is incrementally beneficial for us as it is for many companies. Thank you for that question.

Operator: The final question is from Brian Tanquilut of Jefferies.

Jack Garner Slevin: It’s Jack Slevin on for Brian. Just wanted to double-click on the comment around GLP-1s, and I appreciate the commentary that a slowdown there shouldn’t be particularly impactful when you think about consolidated earnings or U.S. Healthcare earnings. But maybe more broadly, as you cast forward, just thinking about what are the moving pieces that need to happen as we see more competition in that category for earnings to expand there or for margins to expand there? Is it something that’s just not really possible? Or do you think over time, as we get more and more competition and in that, that that’s something that you can achieve?

James F. Cleary: Yes. Thank you very much for the question. And as we’ve consistently said for quite some time, GLP-1s have really been a driver of top line growth, and they are profitable for us, but they are minimally profitable for us. At some point in time, as there are more competitors on the market, maybe it will move to a more normalized fee-for-service, and they will become more profitable for us at some point in time. But it’s certainly not — we’re doing, for instance, our fiscal year ’26 planning, it’s not something that we’re anticipating in our fiscal year ’26 plan. We’re expecting them to remain profitable, but be minimally profitable for us in kind of that type of time horizon. Thank you very much for the question.

Operator: We currently have no further questions. So I’ll hand back to Bob for closing remarks.

Robert P. Mauch: Thanks, everyone, for your time and interest in Cencora. We’re continuing to deliver strong results powered by our strength in specialty, our leading customer portfolio and our ability to enhance patient care. I want to again thank our incredible team members at Cencora who every day are executing at a very high level, bringing their passion and expertise to our customers, both upstream to manufacturers and downstream to providers and delivering our purpose every day. Thank you, everyone.

Operator: This concludes today’s call. Thank you for joining. You may now disconnect your lines.