01—Abstract
Summary
Summary of the 10-K filed August 22, 2018. Cited figures are marked; the original filing is the authoritative source.
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 billiona 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 billionb, 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.
02—Key points
Key Highlights
- Total 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.
- GAAP 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.
- Non-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.
- GAAP diluted EPS fell by 80% to $0.81, while non-GAAP diluted EPS decreased by 7% to $5.00.
- The 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.
- Cash and equivalents decreased significantly from $6.9 billion to $1.8 billion, largely due to $6.1 billion spent on acquisitions.
- The 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.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Cardinal Health Inc kept $0.00.
- Revenue$136.81B100.0%
- Cost of revenue−$129.63B94.8%
- Gross profit$7.18B5.2%
- Operating costs−$7.05B5.2%
- Operating income$126.0M0.1%
- Interest, other & tax$130.0M0.1%
- Net income$256.0M0.2%
Where FY2018 revenue went
$136.81B- Cost of revenue: $129.63B, 95% of revenue
- Operating income: $126.0M, 0.1% of revenue
- SG&A: $4.60B, 3.4% of revenue
- Other operating costs: $2.46B, 1.8% of revenue
Kept 0.1% as operating incomeOperating income $126.0M · 0.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed August 22, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $136.81B$129.98B | +5.3% |
| Cost of Revenue | $129.63B$123.43B | +5.0% |
| Gross Profit | $7.18B$6.54B | +9.7% |
| SG&A Expenses | $4.60B$3.77B | +21.7% |
| Operating Income | $126.00M$2.12B | −94.1% |
| Interest Expense | $329.00M$201.00M | +63.7% |
| Net Income | $256.00M$1.29B | −80.1% |
| EPS (Basic) | $0.82$4.06 | −79.8% |
| EPS (Diluted) | $0.81$4.03 | −79.9% |
| Shares Outstanding (Basic) | 313.00M317.00M | −1.3% |
| Shares Outstanding (Diluted) | 315.00M320.00M | −1.6% |
05—Questions
Frequently Asked Questions
What was the main driver behind the significant drop in GAAP operating earnings?
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.
How did the Medtronic Patient Recovery Business acquisition impact the company's performance?
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.
What is the outlook for the Pharmaceutical segment in fiscal year 2019?
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.
How did the Tax Cuts and Jobs Act affect the company's financial results?
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.
06—Continue