10-QPeriod: Q1 FY2013

CARDINAL HEALTH INC Quarterly Report for Q1 Ended Sep 30, 2012

Filed November 9, 2012For Securities:CAH

Summary

Cardinal Health Inc. reported a 3% decrease in revenue for the three months ended September 30, 2012, totaling $25.9 billion, primarily due to brand-to-generic pharmaceutical conversions. Despite the revenue dip, gross margin saw a healthy 7% increase to $1.2 billion, and operating earnings rose 11% to $457 million. This improvement was driven by strong performance in the Pharmaceutical segment's generic programs and a $22 million income from antitrust litigation settlements. Net earnings from continuing operations increased by 15% to $272 million, with diluted EPS at $0.79. The company's liquidity remains strong, with cash and equivalents increasing to $2.4 billion, supported by robust operating cash flow. Looking ahead, management anticipates continued revenue decrease in fiscal 2013 within the Pharmaceutical segment due to ongoing generic conversions and the expiration of a major distribution contract with Express Scripts. The company continues to focus on balanced capital deployment, including dividends and share repurchases, demonstrating a commitment to shareholder value despite revenue headwinds in specific segments. The company is also actively managing legal and tax contingencies, including ongoing IRS audits.

Financial Highlights

48 data points
Beta

Revenue

$25.89B

4.5% Gross Margin

Net Income

$271.00M

1.0% Net Margin

EPS (Diluted)

$0.79

Total Assets

$24.82B

Cash & Equivalents

$2.44B

Free Cash Flow

$542.00M

Financial Statements
Beta
Revenue$25.89B
Cost of Revenue$24.73B
Gross Profit$1.16B
SG&A Expenses$690.00M
Operating Income$457.00M
Interest Expense$26.00M
Net Income$271.00M
EPS (Basic)$0.80
EPS (Diluted)$0.79
Shares Outstanding (Basic)341.00M
Shares Outstanding (Diluted)344.00M

Key Highlights

  • 1Revenue for the quarter decreased by 3% to $25.9 billion, mainly due to brand-to-generic pharmaceutical conversions.
  • 2Gross margin increased by 7% to $1.2 billion, and operating earnings grew by 11% to $457 million.
  • 3Net earnings from continuing operations rose 15% to $272 million, with diluted EPS at $0.79.
  • 4Cash and equivalents increased to $2.4 billion at the end of the quarter, driven by strong operating cash flow.
  • 5The company recognized $22 million in income from settlements of class action antitrust claims.
  • 6Management anticipates a continued revenue decrease in the Pharmaceutical segment for fiscal year 2013 due to generic conversions and contract expirations.
  • 7The company repurchased $200 million of its Common Shares during the quarter and increased its quarterly dividend.

Frequently Asked Questions

The primary reason for the 3% decrease in revenue to $25.9 billion for the quarter ended September 30, 2012, was the impact of brand-to-generic pharmaceutical conversions. This trend is expected to continue impacting revenues in the Pharmaceutical segment.

Operating earnings increased by 11% to $457 million due to strong performance in the Pharmaceutical segment's generic programs and improved gross margins. Additionally, the company recognized $22 million in income from settlements of class action antitrust claims, which positively impacted operating earnings.

Cardinal Health maintained a strong liquidity position, with cash and equivalents increasing to $2.4 billion at September 30, 2012. This was primarily driven by $568 million in net cash provided by operating activities during the quarter, which more than offset cash used for share repurchases, acquisitions, and dividends.

The company is involved in several legal matters, including a DEA investigation and related matters, a lawsuit from the State of West Virginia concerning controlled substance distribution, and a DOJ civil investigative demand. Additionally, the IRS is conducting audits for fiscal years 2003-2010, with proposed additional taxes of $849 million related to transfer pricing. The company is contesting these adjustments and has established provisions for unrecognized tax benefits.