10-QPeriod: Q1 FY2015

CARDINAL HEALTH INC Quarterly Report for Q1 Ended Sep 30, 2014

Filed November 5, 2014For Securities:CAH

Summary

Cardinal Health Inc. reported its third-quarter results for the period ending September 29, 2014. Revenue for the quarter saw a slight decrease of 2% to $24.1 billion, primarily due to the expiration of a significant pharmaceutical distribution contract with Walgreen Co. in the prior year. Despite the revenue dip, gross margin improved by 6% to $1.3 billion, driven by growth from other customers and strong performance in generic programs. Operating earnings declined by 1% to $466 million, largely impacted by litigation charges, particularly related to a U.S. Drug Enforcement Administration investigation for which the company accrued $27 million. Net earnings from continuing operations decreased by 22% to $266 million, mainly due to a favorable tax settlement in the prior year that did not recur. The company demonstrated a commitment to shareholder returns by repurchasing $360 million in common stock and paying $119 million in dividends during the quarter. Overall, while facing headwinds from contract expirations and legal matters, the company's core operations showed resilience with improved gross margins.

Financial Highlights

48 data points
Beta

Revenue

$24.07B

5.6% Gross Margin

Net Income

$266.00M

1.1% Net Margin

EPS (Diluted)

$0.78

Total Assets

$25.71B

Cash & Equivalents

$2.47B

Free Cash Flow

$25.00M

Financial Statements
Beta
Revenue$24.07B
Cost of Revenue$22.73B
Gross Profit$1.34B
SG&A Expenses$775.00M
Operating Income$466.00M
Interest Expense$34.00M
Net Income$266.00M
EPS (Basic)$0.79
EPS (Diluted)$0.78
Shares Outstanding (Basic)336.00M
Shares Outstanding (Diluted)340.00M

Key Highlights

  • 1Total revenue for the quarter decreased by 2% to $24.1 billion, primarily due to the expiration of the Walgreens distribution contract.
  • 2Gross margin increased by 6% to $1.3 billion, reflecting growth from other customers and strong generic program performance.
  • 3Operating earnings decreased by 1% to $466 million, significantly impacted by $28 million in net litigation charges, including a $27 million accrual for the DEA investigation.
  • 4Earnings from continuing operations declined 22% to $266 million, influenced by the absence of a significant tax settlement benefit from the prior year.
  • 5The company returned $479 million to shareholders through share repurchases ($360 million) and dividends ($119 million) in the quarter.
  • 6The company established a 50/50 joint venture, Red Oak Sourcing, with CVS Health Corporation in July 2014 for generic pharmaceutical sourcing.
  • 7Cash and equivalents decreased to $2.5 billion from $2.9 billion, mainly due to cash deployed for share repurchases and dividends.

Frequently Asked Questions

The primary reason for the 2% decrease in revenue to $24.1 billion was the expiration of Cardinal Health's pharmaceutical distribution contract with Walgreen Co. on August 31, 2013. While this impacted overall revenue, growth from other existing and new customers partially offset this decline.

The company recorded $28 million in litigation charges during the quarter, a significant increase from $1 million in the prior year. This was largely due to a $27 million accrual related to the U.S. Drug Enforcement Administration (DEA) investigation and related matters concerning controlled substance diversion controls at their Lakeland, Florida distribution center.

Cardinal Health's cash and equivalents decreased to $2.5 billion from $2.9 billion. This decrease was primarily driven by substantial cash outflows for share repurchases totaling $360 million and dividend payments of $119 million, partially offset by $61 million in cash provided by operating activities.

In July 2014, Cardinal Health formed a 50/50 joint venture with CVS Health Corporation called Red Oak Sourcing. This venture focuses on sourcing generic pharmaceuticals through negotiated supply contracts, aiming to leverage combined expertise in supply chain and procurement for cost efficiencies.