10-QPeriod: Q1 FY2016

CARDINAL HEALTH INC Quarterly Report for Q1 Ended Sep 30, 2015

Filed November 3, 2015For Securities:CAH

Summary

Cardinal Health Inc. (CAH) reported its first quarter fiscal year 2016 results, showcasing strong revenue growth driven by its Pharmaceutical segment. The company's total revenue increased by 17% year-over-year to $28.1 billion, primarily due to increased sales from existing and new pharmaceutical distribution customers. GAAP operating earnings saw a significant 33% rise to $620 million, with GAAP diluted EPS up 47% to $1.15. This performance was bolstered by strategic acquisitions, including Harvard Drug and naviHealth, which closed during the quarter, and the subsequent acquisition of Cordis shortly after the period end, aimed at expanding the company's offerings in the pharmaceutical and medical segments. While the overall financial picture is positive with robust revenue and earnings growth, investors should note the impact of recent and pending acquisitions on expenses, particularly amortization and acquisition-related costs. The company's cash position decreased due to significant acquisition spending, but it maintained adequate liquidity through its credit facilities. The Medical segment experienced a slight profit decline, partly due to specific prior-year benefits in its Canada operations. Cardinal Health continues to focus on integrating new businesses and managing costs while pursuing strategic growth opportunities.

Financial Highlights

49 data points
Beta

Revenue

$28.05B

5.6% Gross Margin

Net Income

$383.00M

1.4% Net Margin

EPS (Diluted)

$1.15

Total Assets

$31.22B

Cash & Equivalents

$2.97B

Free Cash Flow

-$135.00M

Financial Statements
Beta
Revenue$28.05B
Cost of Revenue$26.48B
Gross Profit$1.58B
SG&A Expenses$842.00M
Operating Income$620.00M
Interest Expense$44.00M
Net Income$383.00M
EPS (Basic)$1.17
EPS (Diluted)$1.15
Shares Outstanding (Basic)328.00M
Shares Outstanding (Diluted)331.00M

Key Highlights

  • 1Total revenue for the first quarter of fiscal 2016 increased by 17% to $28.1 billion, driven by the Pharmaceutical segment.
  • 2GAAP operating earnings grew by 33% to $620 million, and GAAP diluted EPS increased by 47% to $1.15 compared to the prior-year period.
  • 3The company completed two significant acquisitions during the quarter: Harvard Drug for $1.1 billion and naviHealth for $238 million.
  • 4Subsequent to the quarter end, Cardinal Health acquired the Cordis business for $1.9 billion, further expanding its Medical segment.
  • 5Pharmaceutical segment profit increased by 46% to $657 million, benefiting from sales growth and strong generics program performance.
  • 6Medical segment profit decreased by 11% to $101 million, impacted by the Canada business and prior-year one-time benefits.
  • 7Cash and equivalents decreased to $3.0 billion from $4.6 billion due to $1.4 billion deployed for acquisitions and $131 million in dividends.

Frequently Asked Questions

The primary driver of Cardinal Health's revenue growth was the Pharmaceutical segment, which saw a 19% increase in revenue. This growth was largely attributed to increased sales from existing and new pharmaceutical distribution customers, along with the impact of branded pharmaceutical price inflation and contributions from recent acquisitions.

The acquisitions of Harvard Drug and naviHealth significantly contributed to revenue growth, particularly within the Pharmaceutical and Medical segments, respectively. Harvard Drug enhanced the Pharmaceutical segment's generic distribution capabilities, while naviHealth expanded the Medical segment's post-acute care management solutions. These acquisitions also led to increased goodwill and intangible assets on the balance sheet and contributed to higher amortization and acquisition-related costs, impacting GAAP operating earnings.

The acquisition of Cordis, completed shortly after the fiscal quarter ended, is expected to have a significant negative impact on GAAP operating earnings and earnings before income taxes throughout the remainder of fiscal 2016. This is primarily due to expected increases in amortization and other acquisition-related costs, as well as the impact of inventory fair value step-ups.

Cardinal Health's cash and equivalents decreased due to significant spending on acquisitions ($1.4 billion) and dividends ($131 million). However, the company maintained adequate liquidity through its revolving credit facility and commercial paper program, under which no balances were outstanding at the end of the quarter, excluding standby letters of credit. They also indicated sufficient capital resources for ongoing operations, capital expenditures, and debt service.