01—Abstract
Summary
Summary of the 10-K filed August 13, 2014. Cited figures are marked; the original filing is the authoritative source.
Cardinal Health Inc.'s (CAH) 2014 10-K report highlights a year of significant revenue decline primarily due to the expiration of its large contract with Walgreens.
Despite this, the company demonstrated resilience, with a substantial increase in operating earnings and earnings from continuing operations, largely driven by the absence of a significant goodwill impairment charge from the prior year. The company's strategic focus remains on its two core segments: Pharmaceutical and Medical, with ongoing efforts to enhance efficiency and reduce costs for healthcare providers. Key developments include the formation of a generic pharmaceutical sourcing joint venture with CVS Caremark, Red Oak Sourcing, aiming to leverage combined purchasing power.
The Medical segment saw expansion through the acquisition of Access Closure Inc., adding to its portfolio of self-manufactured products. Cardinal Health continues to manage its capital effectively through share repurchases and dividend payments, while maintaining a strong liquidity position. Investors should note the company's significant reliance on its largest customer, CVS, which accounted for 28%a of fiscal 2014 revenue.
02—Key points
Key Highlights
- Revenue declined 10% to $91.1 billion in fiscal 2014, largely attributed to the expiration of the Walgreens distribution contract.
- Operating earnings increased significantly to $1.885 billion from $996 million in fiscal 2013, primarily due to the absence of a large goodwill impairment charge in the prior year.
- Established Red Oak Sourcing, LLC, a 50/50 joint venture with CVS Caremark for generic pharmaceutical sourcing, effective July 2014.
- Acquired Access Closure, Inc. in May 2014 for $320 million, expanding the Medical segment's self-manufactured product offerings.
- Acquired AssuraMed, Inc. in March 2013 for $2.07 billion, strengthening the Medical segment's presence in homecare.
- CVS represented a significant customer, accounting for 28% of fiscal 2014 revenue.
- The company repurchased $673 million of its common shares during fiscal 2014 and maintained a $2.9 billion cash and equivalents balance.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Cardinal Health Inc kept $0.01.
- Revenue$91.08B100.0%
- Cost of revenue−$85.92B94.3%
- Gross profit$5.16B5.7%
- Operating costs−$3.28B3.6%
- Operating income$1.89B2.1%
- Interest, other & tax−$719.0M0.8%
- Net income$1.17B1.3%
Where FY2014 revenue went
$91.08B- Cost of revenue: $85.92B, 94% of revenue
- Net income: $1.17B, 1.3% of revenue
- SG&A: $3.03B, 3.3% of revenue
- Interest, other & tax: $719.0M, 0.8% of revenue
Kept 1.3% as net incomeNet income $1.17B · 1.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed August 13, 2014Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $91.08B$101.09B | −9.9% |
| Cost of Revenue | $85.92B$96.17B | −10.7% |
| Gross Profit | $5.16B$4.92B | +4.9% |
| SG&A Expenses | $3.03B$2.88B | +5.3% |
| Operating Income | $1.89B$996.00M | +89.3% |
| Interest Expense | $133.00M$123.00M | +8.1% |
| Net Income | $1.17B$334.00M | +249.1% |
| EPS (Basic) | $3.42$0.98 | +249.0% |
| EPS (Diluted) | $3.38$0.97 | +248.5% |
| Shares Outstanding (Basic) | 341.00M341.00M | 0.0% |
| Shares Outstanding (Diluted) | 345.00M344.00M | +0.3% |
05—Questions
Frequently Asked Questions
What was the primary driver of the revenue decrease in fiscal 2014?
The primary driver of the revenue decrease in fiscal 2014 was the expiration of Cardinal Health's pharmaceutical distribution contract with Walgreens on August 31, 2013. This contract represented a significant portion of the company's revenue.
How did the company manage its capital and shareholder returns?
Cardinal Health focused on capital deployment through share repurchases totaling $673 million in fiscal 2014 and increased its quarterly dividend by 18% over the prior year. The company also maintained a strong liquidity position with $2.9 billion in cash and equivalents at the end of fiscal 2014.
What is the significance of the Red Oak Sourcing joint venture with CVS Caremark?
Red Oak Sourcing is a strategic joint venture established in July 2014 aimed at leveraging the combined purchasing power of Cardinal Health and CVS Caremark to negotiate more favorable contracts for generic pharmaceuticals. This initiative is expected to enhance efficiency and cost savings in the pharmaceutical supply chain.
Are there any significant risks related to customer concentration?
Yes, the company has significant customer concentration risk. CVS accounted for 28% of fiscal 2014 revenue, making the company reliant on this single customer. The report also notes the significant impact of the Walgreens contract expiration, underscoring the potential volatility from losing major clients.
06—Continue