10-KPeriod: FY2018

CARDINAL HEALTH INC Annual Report, Year Ended Jun 30, 2018

Filed August 22, 2018For Securities:CAH

Summary

Cardinal Health Inc. reported significant financial shifts in fiscal year 2018, marked by a substantial decrease in reported GAAP operating earnings due to a $1.4 billion goodwill impairment charge in its Medical segment, along with increased acquisition-related costs and litigation charges. Despite these GAAP impacts, the company highlighted a more modest 7% decline in non-GAAP operating earnings, driven by performance in its Pharmaceutical segment and acquisition contributions. Revenue saw a 5% increase, reaching $136.8 billion, largely attributed to growth in pharmaceutical distribution and specialty pharmaceutical customers, further bolstered by the acquisition of the Patient Recovery Business. However, the company also announced expected decreases in fiscal 2019 Pharmaceutical segment profit due to customer contract renewals and the loss of a major customer. Efforts to control costs and integrate acquisitions are key focus areas for the coming year.

Financial Highlights

49 data points
Beta

Revenue

$136.81B

5.2% Gross Margin

Net Income

$256.00M

0.2% Net Margin

EPS (Diluted)

$0.81

Total Assets

$39.95B

Cash & Equivalents

$1.76B

Free Cash Flow

$2.38B

Financial Statements
Beta
Revenue$136.81B
Cost of Revenue$129.63B
Gross Profit$7.18B
SG&A Expenses$4.60B
Operating Income$126.00M
Interest Expense$329.00M
Net Income$256.00M
EPS (Basic)$0.82
EPS (Diluted)$0.81
Shares Outstanding (Basic)313.00M
Shares Outstanding (Diluted)315.00M

Key Highlights

  • 1Total revenue increased by 5% to $136.8 billion in fiscal year 2018, driven by pharmaceutical distribution and specialty pharmaceutical customer growth, as well as the Patient Recovery Business acquisition.
  • 2GAAP operating earnings decreased by 94% to $126 million, primarily due to a $1.4 billion goodwill impairment charge in the Medical segment and increased acquisition-related costs.
  • 3Non-GAAP operating earnings decreased by 7% to $2.6 billion, reflecting challenges in the Pharmaceutical segment and branded product performance, partially offset by acquisition contributions.
  • 4GAAP diluted EPS fell by 80% to $0.81, while non-GAAP diluted EPS decreased by 7% to $5.00.
  • 5The company completed the divestiture of its China distribution business for $861 million and signed an agreement to sell its ownership interest in naviHealth for $736 million, with the latter closing in August 2018.
  • 6Cash and equivalents decreased significantly from $6.9 billion to $1.8 billion, largely due to $6.1 billion spent on acquisitions.
  • 7The company expects fiscal 2019 Pharmaceutical segment profit to be lower than fiscal 2018 due to customer contract renewals and the loss of a large customer.

Frequently Asked Questions

The primary driver for the substantial 94% decrease in GAAP operating earnings was a non-cash goodwill impairment charge of $1.4 billion recognized in the Medical segment. Other contributing factors included increased amortization of acquisition-related intangible assets, contract termination costs, litigation charges related to IVC filter product liability claims, and adverse impacts from pharmaceutical customer contract renewals.

The acquisition of the Patient Recovery Business, completed in July 2017 for $6.1 billion, contributed to a 5% increase in overall revenue and an increase in Medical segment profit. However, it also led to higher amortization and acquisition-related costs, which negatively impacted earnings.

Cardinal Health anticipates a decrease in Pharmaceutical segment profit for fiscal year 2019 compared to fiscal year 2018. This is due to the adverse impact of customer contract renewals, performance within its generics program, and the previously announced loss of a large pharmaceutical distribution customer.

The Tax Cuts and Jobs Act, enacted in December 2017, led to a significant favorable impact on Cardinal Health's tax provision in fiscal year 2018. This was primarily due to the reduction in the U.S. federal corporate tax rate from 35% to 21%, which resulted in a provisional net transitional tax benefit of $936 million from the remeasurement of deferred tax assets and liabilities.