# Cencora, Inc. (COR): Business, Risks and Management's Discussion Cencora's fiscal year ends September 30. This document covers the annual report for fiscal 2025 (the year ended September 30, 2025), the quarterly report for the third quarter of fiscal 2026 (the three and nine months ended June 30, 2026), and current reports filed through late September 2026. All amounts are in US dollars. ## Business *From the fiscal 2025 Form 10-K, accession 0001140859-25-000131, as updated by the third-quarter fiscal 2026 Form 10-Q, accession 0001140859-26-000034.* Cencora is one of the largest pharmaceutical sourcing and distribution companies in the world. It buys brand-name, specialty and generic drugs from manufacturers and distributes them, together with over-the-counter products, home healthcare supplies and related services, to acute care hospitals and health systems, independent and chain retail pharmacies, mail order pharmacies, physician practices, medical and dialysis clinics, long-term care and alternate-site pharmacies, and veterinarians in the United States and selected international markets. In its distribution businesses it is usually the customer's primary supplier. Margins are thin. In fiscal 2025, revenue was $321.3 billion, gross profit was $11.48 billion (about 3.6% of revenue) and operating income was $2.63 billion. As a result, profit is sensitive to volume and to manufacturer pricing: brand price inflation and the timing of manufacturer price increases, and generic price deflation. Generics have historically carried higher gross margins than brand-name drugs. Profit also depends on services sold to manufacturers and providers. Customer concentration is high. Walgreens and Boots together accounted for about 25% of fiscal 2025 revenue and about 38% of accounts receivable at September 30, 2025. Evernorth Health Services accounted for about 13% of revenue, and the top ten customers, including governmental agencies and group purchasing organizations, for about 66%. No single manufacturer supplied 10% or more of purchases, but the ten largest suppliers made up about 57%. The company had more than 51,000 employees at fiscal year-end 2025, about 41% of them in the U.S. Its main competitors are McKesson and Cardinal Health in U.S. distribution and UPS Logistics in specialty logistics. **Reporting structure since fiscal 2026.** After a strategic review, Cencora began reporting under a new structure in the first quarter of fiscal 2026. It revised its fiscal 2025 segment figures to match in a February 2026 current report (accession 0001140859-26-000012). - **U.S. Healthcare Solutions** (U.S. human health, excluding legacy U.S. Consulting Services) is the core of the company. It covers U.S. pharmaceutical distribution, specialty distribution to physicians (especially oncology and retina) and health systems, and plasma, vaccine and other specialty products. It also includes the Good Neighbor Pharmacy franchise program for independent pharmacies, the Elevate Provider Network managed-care network, a private-label generics program based in Ireland, and packaging solutions. It now also includes two physician-practice management services organizations (MSOs): Retina Consultants of America (RCA), acquired in January 2025, and OneOncology, consolidated since February 2026. On the revised basis, fiscal 2025 segment revenue was $285.0 billion and segment operating income was $3.28 billion. - **International Healthcare Solutions** comprises Alliance Healthcare (pharmaceutical wholesale, mainly in Europe), Innomar (Canada), World Courier (specialty transportation and logistics for the biopharmaceutical industry) and the strategic parts of PharmaLex (regulatory, pharmacovigilance and other life-sciences consulting). On the revised basis, fiscal 2025 revenue was $28.3 billion and segment operating income was $587.8 million. - **Other** is not a reportable segment. It groups businesses for which Cencora has begun exploring strategic alternatives: MWI Animal Health, Profarma (a Brazilian distributor that Cencora controls and consolidates without owning all of it), U.S. Consulting Services, and the remaining PharmaLex components. On the revised basis, Other had fiscal 2025 revenue of $8.2 billion and operating income of $351.7 million. U.S. Consulting Services was divested in April 2026. MWI Animal Health is classified as held for sale under a pending merger with Covetrus (see Current quarter). **Strategy.** Management's stated strategy is to run its core U.S. and international distribution efficiently while investing in higher-margin, faster-growing adjacent businesses. These include specialty distribution, services that help manufacturers develop and commercialize therapies, and management services for community specialty practices. The RCA and OneOncology transactions both build on its position in specialty pharmaceuticals with community providers. Management describes the current approach as a "pharmaceutical-centric" strategy. ## Risk factors *From the fiscal 2025 Form 10-K, accession 0001140859-25-000131, Item 1A. The third-quarter fiscal 2026 Form 10-Q (accession 0001140859-26-000034) reports no material changes.* The risks that matter most for valuing the business fall into four groups: customer concentration, drug pricing and reimbursement policy, opioid litigation, and acquisition and balance-sheet risk. - **Walgreens/Boots dependence.** Walgreens and Boots together made up about 25% of fiscal 2025 revenue and about 38% of receivables. Sycamore Partners acquired Walgreens Boots Alliance on August 28, 2025. The U.S. distribution agreement and the generics purchasing arrangement with Walgreens Boots Alliance Development run to 2029, and the Boots supply agreement runs to 2031. The company warns that the new owners may seek changes to these relationships, or may expand the plan disclosed in October 2024 to close about 1,200 U.S. stores. A disruption to the generics purchasing arrangement could also hurt margins. - **Loss or repricing of other key customers.** Evernorth accounted for about 13% of revenue. Contracts with customers and GPOs come up for renewal regularly, and renewal on worse terms would reduce revenue and cash flow. An oncology customer's contract was terminated in June 2025 after a notice of non-renewal. - **Manufacturer pricing.** U.S. brand-name purchases and many sales use wholesale acquisition cost (WAC) as the reference price, and some manufacturer agreements include a price-appreciation component. Slower brand price inflation or faster generic deflation therefore reduces gross profit. The company specifically names Executive Order 14297 (most-favored-nation drug pricing, May 2025) and possible direct-to-consumer models that bypass wholesalers. - **Reimbursement and drug-pricing legislation.** The Inflation Reduction Act's Medicare price negotiation applies from 2026 for Part D and 2028 for Part B. How the "maximum fair price" will reach pharmacies and providers, and what role distributors will play, is still unsettled. Other named risks are changes to Medicaid and ACA subsidies (including under the OBBBA, enacted July 2025), a CMS rule tightening the bona fide service fee exemption in average sales price (ASP) calculations, and disputes over 340B contract pharmacies and rebate models that could displace the chargeback mechanisms Cencora administers. - **Supply-chain regulation.** The DSCSA traceability rules, EU falsified-medicines rules and proposed EU stockpiling and shortage-prevention requirements (the Critical Medicines Act) raise compliance and inventory costs. - **Opioid litigation.** At September 30, 2025 the accrued liability under the Distributor Settlement Agreement and related settlements was $4.3 billion, payable over 13 years. The company says it cannot estimate the range of possible loss for matters outside the accrual. The settlement also imposes anti-diversion injunctive terms, with a monitor for five years and a data clearinghouse funded for ten years. - **Acquisitions and divestitures.** The company warns that RCA and OneOncology may not perform as expected. Owning physician-practice management services organizations adds exposure to billing and coding, patient-referral, corporate-practice-of-medicine and MSO-specific rules. Divestitures may be delayed by regulatory approvals and can leave continuing obligations. - **International operations and currency.** The company operates in more than 50 countries, which produced about 9% of fiscal 2025 revenue. Türkiye is accounted for as a highly inflationary economy. Tariffs, including possible Section 232 tariffs on pharmaceuticals, could raise costs or disrupt supply. The main currency exposures are sterling, the euro, the Turkish lira, the Brazilian real and the Canadian dollar. - **Cybersecurity and IT.** Cencora disclosed cybersecurity incidents in February 2024 and March 2023 and operates in one of the most frequently targeted industries. Integrating the systems of acquired businesses increases the risk that a breach in one unit spreads to others. - **Credit and capital markets.** Most sales are on credit, often unsecured or behind customers' primary lenders. A credit-rating downgrade, which litigation or higher debt could cause, would raise borrowing costs. - **Goodwill impairment.** Weak demand for life-sciences consulting led to a full impairment of the remaining $723.9 million of PharmaLex goodwill in fiscal 2025, following a $418.0 million impairment in fiscal 2024. - **Healthcare fraud and abuse, anti-corruption and tax.** Anti-kickback, False Claims Act (including qui tam suits) and FCPA exposure can bring penalties or exclusion from federal programs. The company also flags global tax changes and audits that could raise its effective tax rate. ## Management's discussion: fiscal 2025 *From the fiscal 2025 Form 10-K, accession 0001140859-25-000131, Item 7. Segment figures below are as originally reported, under the two-segment structure then in use.* Fiscal 2025 revenue rose $27.4 billion, or 9.3%, to $321.3 billion. U.S. Healthcare Solutions grew 9.7%, driven by unit volume, higher specialty sales to health systems and physician practices, and a $7.7 billion (26.9%) increase in sales of GLP-1 products for diabetes and/or weight loss. Sales to the two largest customers rose $6.2 billion. International Healthcare Solutions revenue rose 6.1%, including $1.3 billion more at the European distribution business. Gross profit rose $1,568.5 million, or 15.8%, to $11.48 billion. U.S. Healthcare Solutions gross profit rose 23.1% on higher sales and the January 2025 acquisition of RCA, and the segment's gross margin widened 30 basis points to 2.72%. That gain was partly offset by the mix effect of low-margin GLP-1 products and lower sales of higher-margin COVID vaccines. International gross profit was essentially flat (down 0.2%) as weaker specialty logistics and consulting offset gains in European distribution. Consolidated gross profit also included $236.4 million of antitrust settlement gains (versus $170.9 million) and a LIFO credit of $76.9 million. Operating expenses rose $1,115.2 million, or 14.4%. The increase came mainly from RCA, the $723.9 million PharmaLex goodwill impairment, and $291.0 million of acquisition-related deal and integration expense, which included $121.7 million tied to equity units retained by RCA physicians and management. Litigation and opioid-related expense was lower. Total segment operating income rose 15.8% to $4.22 billion: U.S. Healthcare Solutions was up 21.8% to $3.57 billion (a 1.23% operating margin), while International fell 9.1% to $648.3 million on weaker specialty logistics and consulting. Reported operating income was $2.63 billion, up 20.8%. Net interest expense rose 85.7% to $291.5 million. The main causes were $1.8 billion of senior notes issued in December 2024 and a $1.5 billion term loan, both used to fund RCA, along with heavier revolver use and €1.0 billion of notes issued in May 2025. Other loss included a $113.5 million impairment of an equity investment. The effective tax rate rose to 30.6% from 24.2%, mainly because the PharmaLex and equity-investment impairments are largely non-deductible. Operating cash flow was $3.9 billion. Accounts payable rose $3.7 billion, more than offsetting increases of $1.9 billion in receivables and $1.3 billion in inventories, and opioid settlement payments reduced the long-term litigation liability by $404.1 million. Capital expenditures were $668.0 million. Investing outflows included $3.9 billion for RCA. Financing included the RCA debt raise, $700 million of term-loan prepayments, repayment of $500 million of notes that matured in March 2025, $437.1 million of dividends and $435.5 million of share repurchases. At September 30, 2025 the company had $4.4 billion of cash and $882.2 million left under its March 2024 $2.0 billion repurchase authorization. It had expanded its multi-currency revolving credit facility to $4.5 billion (maturing June 2030) and its commercial paper program to $4.5 billion. ## Current quarter: third quarter of fiscal 2026 (three months ended June 30, 2026) *From the third-quarter fiscal 2026 Form 10-Q, accession 0001140859-26-000034, and the earnings release furnished as Exhibit 99.1 to the Form 8-K filed August 5, 2026, accession 0001140859-26-000032.* **Results.** Third-quarter revenue rose 5.1% to $84.75 billion, and nine-month revenue rose 4.8% to $249.04 billion. Gross profit rose 24.1% in the quarter to $3.61 billion, and gross margin widened to 4.26% from 3.60%. Operating income rose 29.1% to $1.12 billion. Net income attributable to Cencora was $763.5 million, and GAAP diluted EPS was $3.94, up from $3.52. The company's non-GAAP adjusted diluted EPS rose 12.0% to $4.48. For the nine months, operating income was $3.02 billion (up 15.8%). Nine-month pre-tax income of $3.79 billion included a $1,086.6 million gain recorded when Cencora took control of OneOncology (described below). **What drove the quarter.** - **U.S. Healthcare Solutions** revenue rose 4.9% to $74.86 billion. The drivers were unit volume growth, higher specialty sales to health systems and physician practices, and a $2.3 billion (25.5%) increase in GLP-1 sales. Partly offsetting these were lower manufacturer prices on certain brand drugs, the 2025 loss of an oncology customer, and lower sales to the large mail order customer as brand drugs converted to generics. Segment gross profit rose 31.2% and gross margin widened 63 basis points to 3.17%, mainly because of OneOncology, partly offset by the low-margin GLP-1 mix. Segment operating income rose 15.9% to $966.2 million, a 1.29% margin. - **International Healthcare Solutions** revenue rose 5.9% to $7.68 billion, led by European distribution. Segment operating income rose 20.8% to $165.9 million, helped by manufacturer price increases in a developing-market country and by the global specialty logistics business. In constant currency, revenue rose 6.1% and operating income 23.1%. - **Other** revenue rose 6.9% to $2.25 billion, with growth at Profarma and MWI partly offset by the April 2026 sale of U.S. Consulting Services. Operating income in Other rose 24.8% to $108.7 million. The release attributes part of that increase to lower depreciation now that MWI is classified as held for sale. - **Items outside segment results.** The quarter included a LIFO credit of $94.3 million (versus $52.1 million), which management attributes mainly to lower manufacturer prices on certain brand drugs. Litigation and opioid-related items were a net credit of $88.6 million, including a $102.0 million reduction of the opioid liability related to the dismissal of opioid litigation. Acquisition and divestiture-related expense was $113.1 million, including equity-unit adjustments for RCA and OneOncology. Net interest expense rose 72.0% to $140.7 million because of the debt raised for OneOncology and lower interest income. The effective tax rate was 22.1%, down from 23.0%. **OneOncology.** On February 2, 2026 Cencora bought the majority of the OneOncology equity it did not already own. OneOncology is a physician-led national platform for independent oncology-focused specialty practices, which Cencora had owned 34.9% of through a joint venture with TPG since June 2023. Total fair-value consideration was $7,387.1 million: $4,648.7 million in cash, $1,934.2 million for the remeasured prior stake, $752.1 million of contingent consideration for the 8% interest retained by OneOncology physicians and management, and $52.0 million for settlement of a pre-existing receivable. The preliminary allocation assigns $3.87 billion to goodwill and $3.06 billion to intangible assets, chiefly a $2.33 billion management services agreement amortized over 20 years. Taking control produced a $1,086.6 million gain on remeasurement of the prior stake and extinguishment of the put option liability. Since the acquisition date, OneOncology has added $820.0 million of revenue. Most OneOncology practices are not consolidated. **Portfolio actions.** - **U.S. Consulting Services** was divested in April 2026, after a $249.5 million impairment (including $165.7 million of goodwill) recorded earlier in the fiscal year. - **MWI Animal Health / Covetrus.** On February 18, 2026 Cencora and Covetrus announced a definitive agreement to merge MWI Animal Health with Covetrus, in a deal valuing MWI at an enterprise value of $3.5 billion (Form 8-K, accession 0001104659-26-016785). At closing Cencora is to receive $1.25 billion in cash, $800 million of preferred equity, and $1.45 billion of common equity in the combined company, a 34.3% non-controlling stake. MWI's $3.84 billion of assets and $869.7 million of liabilities are classified as held for sale. On May 20, 2026 the FTC issued a request for additional information and documents (a second request) in its review of the merger. The company's fiscal 2026 guidance assumes the deal will not close in fiscal 2026. - **EyeSouth Partners' retina business.** On March 23, 2026 Cencora announced a definitive agreement, signed March 21, to acquire the retina business of EyeSouth Partners for $1.1 billion. Its affiliated retina physicians are to join RCA (Form 8-K, accession 0001104659-26-033022). The company expects the deal to add slightly to adjusted diluted EPS, net of financing costs, in the first twelve months after closing, subject to regulatory approvals, and its fiscal 2026 guidance does not assume a closing in fiscal 2026. The June-quarter 10-Q does not report the transaction as completed. **Balance sheet and financing.** Total debt was $11.72 billion at June 30, 2026, up from $7.66 billion at September 30, 2025. Cash was $2.82 billion, down from $4.36 billion. The OneOncology funding came from three sources: - a $3.0 billion 364-day term loan, repaid in February 2026 from $3.0 billion of senior notes issued February 13, 2026 (2029, 2030, 2033, 2036 and 2056 maturities, coupons from 3.950% to 5.650%; Form 8-K, accession 0001104659-26-015272); - $1.5 billion of delayed-draw term loans, of which the $500 million 2028 tranche was repaid in March and April 2026, leaving the $1.0 billion 2029 tranche; - cash on hand. During the quarter the company also prepaid $400 million of the term loan originally used to fund RCA. Nine-month operating cash flow was $1.7 billion, up from $0.7 billion, and capital expenditures were $511.0 million. The company expects about $900 million of capital expenditures for fiscal 2026. The opioid settlement liability was $4.2 billion at June 30, 2026, with about $396.2 million expected to be paid by June 30, 2027. **Capital returns.** The company bought back $1.0 billion of stock in the nine months, all within the third quarter. Of that, $882.2 million completed the March 2024 authorization and $117.8 million was spent under a new $2.0 billion authorization approved in May 2026, which had $1,882.2 million remaining at June 30, 2026. Management says it completed in the quarter the $1 billion of repurchases it had expected to finish by the end of calendar 2026. The quarterly dividend is $0.60 per share, raised 9% in November 2025. **Litigation developments in the period.** - On April 24, 2026 the Maryland Supreme Court vacated the Baltimore public-nuisance judgment against the company's AmerisourceBergen Drug Corporation subsidiary and sent the case back to the trial court. On May 8, 2026 the City of Baltimore voluntarily dismissed all claims against the company with prejudice. - In the West Virginia bellwether case, which the Fourth Circuit had remanded, the district court held a hearing on May 28, 2026 and is to issue a revised ruling. - In the nine months the company recorded an $86.8 million credit from insurer payments under the settled Delaware derivative suit. **Guidance.** On August 5, 2026 the company raised its fiscal 2026 adjusted diluted EPS guidance to $17.75–$17.95 (fiscal 2025: $16.00). The range had already been raised from $17.45–$17.75 to $17.65–$17.90 with second-quarter results, and to $17.70–$17.90 on May 21, 2026. The full fiscal 2026 outlook, all on an adjusted (non-GAAP) basis: - revenue growth of 4% to 6%; - adjusted operating income growth of 13% to 14%, with U.S. Healthcare Solutions up 14.5% to 15.5%, International about 9% and Other about 10%; - net interest expense of about $490 million; - an adjusted tax rate of about 20%; - about 194 million diluted shares; - adjusted free cash flow of about $3.0 billion; - capital expenditures of about $900 million. The company also reaffirmed (Form 8-K, accession 0001104659-26-068357) its long-term targets of 7% to 10% annual growth in adjusted operating income and 10% to 14% in adjusted diluted EPS. ## Subsequent events *Events after June 30, 2026, from the third-quarter fiscal 2026 Form 10-Q (accession 0001140859-26-000034, Notes 7 and 10) and later current reports. The 10-Q has no separate subsequent-events note.* - **Revolving credit facility enlarged (July 31, 2026).** Cencora amended and restated its multi-currency senior unsecured revolving credit facility, raising commitments from $5.5 billion to $7.0 billion and extending maturity from June 2030 to July 2031. Borrowings are priced at 69.5 to 110 basis points over Term SOFR and the other benchmark rates, depending on the company's credit ratings (Form 8-K, accession 0001104659-26-090691). The $5.5 billion starting point reflects an earlier step: the facility was $4.5 billion at September 30, 2025, and a January 12, 2026 amendment increased its commitments by $1.0 billion to $5.5 billion (Form 8-K, accession 0001104659-26-004524; 10-Q, Note 7). - **Receivables securitization facility resized (July 31, 2026).** Commitments were cut from $1.5 billion to $1.0 billion, the accordion feature was raised from $500 million to $1.0 billion, and a new uncommitted purchaser was added (Form 8-K, accession 0001104659-26-090691). The facility still expires in June 2028 (10-Q, Note 7). - **RCA term loan repaid (July 2026).** The company made a $400 million principal payment that retired in full the term loan due 2027 originally borrowed to fund the RCA acquisition (10-Q, Note 7). - **DOJ Controlled Substances Act case.** On July 29, 2026 the federal court in the Eastern District of Pennsylvania entered a fifth amended scheduling order that keeps the fact-discovery deadline at November 13, 2026 and the expert-discovery deadline at June 15, 2027. The company denies the allegations (10-Q, Note 10). - **Third-quarter results and dividend (August 5, 2026).** The company reported the results above, raised fiscal 2026 adjusted diluted EPS guidance to $17.75–$17.95, and declared a $0.60 quarterly dividend payable August 31, 2026 to holders of record on August 14, 2026 (accession 0001140859-26-000032). - **Walgreens volume (disclosed August 12, 2026).** Starting July 1, 2026, certain Walgreens volume that Cencora had served outside its prime vendor agreement began moving outside Cencora. The company says the prime vendor agreement, which accounts for the vast majority of its Walgreens business, is unchanged, and that the shift was fully reflected in the fourth-quarter expectations it gave on August 5. It reaffirmed the $17.75–$17.95 guidance (Form 8-K, accession 0001104659-26-094676). - **Board changes.** Lorence H. Kim, M.D. resigned from the Board on August 13, 2026 on his appointment as CFO of Commonwealth Fusion Systems. He stated that his resignation was not due to any disagreement with the company (Form 8-K, accession 0001104659-26-097096). On September 24, 2026 the Board elected Robert E. Sanchez, Executive Chair and former Chair and CEO of Ryder System, as an independent director effective October 1, 2026, expanding the Board from ten to eleven members (Form 8-K, accession 0001104659-26-110624). - **Pending transactions.** None of the filings through September 2026 reports a closing of either the MWI Animal Health–Covetrus merger or the $1.1 billion EyeSouth retina acquisition.