Cencora, Inc.
Analysis
Cencora keeps raising its profit outlook while cutting its revenue outlook: the drug-price cuts and biosimilar switches shrinking the top line are low-margin work, while the specialty clinics it bought lift profit. It now has to outrun the earnings it is selling off. Which businesses are left to sell once MWI and the hub unit are gone?
- Profit and revenue have come apart.
Management cut the year's revenue outlook in Q2 FY2026 but raised its earnings outlook, because the list price cuts and biosimilar switches hitting revenue are low-margin. Q3 grew operating income 17% on 5% revenue growth. How much of the U.S. profit now comes from Part B versus Part D?
- The specialty clinics Cencora bought are beating the plan.
OneOncology and RCA both beat expectations in Q3 FY2026. Excluding them and a lost oncology customer, U.S. operating income grew at a double-digit rate, up from 7% the quarter before. Those dollars carry a wider margin than distribution. How much of OneOncology's profit comes from clinical trial research?
- The businesses it is selling were still earning money.
The other bucket is all profitable, and MWI was still growing. If the MWI-Covetrus merger closes mid-fiscal 2027 it takes $150 million of operating income and about $0.35 a share out. The cash funds specialty, but the profit leaves first.
- Specialty mix lifts profitThe bull case is that specialty pharmaceuticals and the physician practices Cencora now owns carry higher margins than the plain distribution business they replace.
- Pricing holds through price cutsCencora renegotiates with manufacturers whenever list prices fall and has kept its gross profit dollars, so revenue declines do not automatically reach operating income.
- Cash funds the build-outCash generation pays for the distribution network, the practice acquisitions and the buyback, so growth does not depend on issuing new shares or on borrowing more.
- Revenue growth is slowingThe bear case is that price cuts and faster brand-to-biosimilar switching keep shrinking reported revenue, and management has already cut its revenue outlook once.
- Customer losses hit the baseCencora lost an oncology customer to a rival acquisition, off-boarded a grocery customer, and is seeing volume move in-house at its largest mail order customer.
- Acquisitions add debtThe practice acquisitions were funded with borrowed money, raising interest costs, and a large distribution build-out is committed before the returns show up.
| Politician | Transaction | Amount | Traded | Filed |
|---|---|---|---|---|
Donald Trump Republican · Executive | Purchase | ≥$50K | Jun 12 | Aug 22 |
Donald Trump Republican · Executive | Sale | ≥$100K | May 18 | Jul 1 |
Donald Trump Republican · Executive | Sale | ≥$1K | May 18 | Jul 1 |
Donald Trump Republican · Executive | Sale | ≥$50K | May 18 | Jul 1 |
Donald Trump Republican · Executive | Sale | ≥$50K | May 11 | Jul 1 |
Congressional trading data provided by QuiverQuant
How Cencora turned $321B of revenue into $2.6B of operating income.
| Revenue | ||
|---|---|---|
| Pharmaceutical Distribution | $285B | ▲ 9.74% YoY |
| International Healthcare Solutions | $30.4B | ▲ 6.07% YoY |
| Animal Health | $5.7B | ▲ 6.13% YoY |
| Total revenue | $321B | |
| Gross profit | $11.5B | 3.6% |
| Operating income | $2.6B | 0.8% |