10-QPeriod: Q1 FY2014

CARDINAL HEALTH INC Quarterly Report for Q1 Ended Sep 30, 2013

Filed November 7, 2013For Securities:CAH

Summary

Cardinal Health Inc. reported financial results for the three months ended September 30, 2013, showcasing a 5% decrease in total revenue to $24.5 billion, primarily driven by the expiration of key pharmaceutical distribution contracts with Walgreens and Express Scripts. Despite the revenue decline, the company demonstrated resilience with a 9% increase in gross margin to $1.3 billion and a 3% rise in operating earnings to $471 million. This performance was bolstered by strong generic pharmaceutical programs and the impact of recent acquisitions, alongside a significant positive impact from the settlement of federal and state tax controversies which boosted earnings from continuing operations by 25% to $340 million. The company's balance sheet shows a strengthened cash position, with cash and equivalents increasing to $2.8 billion from $1.9 billion at the prior quarter's end. This increase was largely attributable to improved operating cash flow, driven by working capital adjustments related to the aforementioned contract expirations. Management indicated confidence in current capital resources to fund ongoing operations, expenditures, and shareholder returns, while also acknowledging the potential need for additional capital for significant future acquisitions.

Financial Highlights

48 data points
Beta

Revenue

$24.52B

5.2% Gross Margin

Net Income

$339.00M

1.4% Net Margin

EPS (Diluted)

$0.99

Total Assets

$23.82B

Cash & Equivalents

$2.75B

Free Cash Flow

$925.00M

Financial Statements
Beta
Revenue$24.52B
Cost of Revenue$23.26B
Gross Profit$1.26B
SG&A Expenses$732.00M
Operating Income$471.00M
Interest Expense$33.00M
Net Income$339.00M
EPS (Basic)$1.00
EPS (Diluted)$0.99
Shares Outstanding (Basic)340.00M
Shares Outstanding (Diluted)344.00M

Key Highlights

  • 1Total revenue decreased by 5% to $24.5 billion, largely due to the expiration of pharmaceutical distribution contracts with Walgreens and Express Scripts.
  • 2Gross margin increased by 9% to $1.3 billion, driven by strong generic pharmaceutical programs and acquisitions, which helped offset pricing pressures.
  • 3Operating earnings saw a 3% increase to $471 million, supported by improved segment profits in both Pharmaceutical and Medical divisions.
  • 4Earnings from continuing operations surged by 25% to $340 million, significantly benefiting from a $63 million favorable tax settlement.
  • 5Cash and equivalents increased substantially to $2.8 billion, reflecting strong operating cash flow generation primarily from working capital improvements post-contract expirations.
  • 6The company repurchased $50 million of common stock during the quarter, and authorized an additional $1.0 billion share repurchase program.
  • 7The Medical segment revenue grew by 13% to $2.7 billion, driven by acquisitions and increased net volume from existing customers.

Frequently Asked Questions

The primary reason for the decrease in Cardinal Health's revenue is the expiration of its pharmaceutical distribution contracts with Walgreen Co. (Walgreens) on August 31, 2013, and Express Scripts, Inc. on September 30, 2012. These expirations resulted in a significant reduction in revenue for the Pharmaceutical segment.

Cardinal Health increased its gross margin due to strong performance in its generic pharmaceutical programs and the positive impact of acquisitions. Additionally, favorable pricing from branded pharmaceutical distribution agreements and effective sourcing programs helped to offset negative pricing changes and rebates.

The acquisition of AssuraMed, Inc. in March 2013 contributed to revenue growth and operating earnings in the Medical segment for the three months ended September 30, 2013. It also led to an increase in amortization and other acquisition-related costs, primarily due to the amortization of intangible assets from this acquisition.

The company's cash and equivalents increased significantly to $2.8 billion from $1.9 billion in the previous quarter. This improvement was primarily driven by strong net cash provided by operating activities ($951 million), which was largely a result of working capital adjustments, particularly a decrease in net working capital associated with the expiration of the Walgreens contract. This involved reduced accounts receivable and inventories, partially offset by lower accounts payable.