10-QPeriod: Q3 FY2016

CARDINAL HEALTH INC Quarterly Report for Q3 Ended Mar 31, 2016

Filed May 3, 2016For Securities:CAH

Summary

Cardinal Health Inc. reported strong revenue growth of 21% and 20% for the three and nine months ended March 31, 2016, respectively, driven primarily by its Pharmaceutical segment and strategic acquisitions. The company demonstrated significant increases in both GAAP (11% and 15%) and non-GAAP (20% and 21%) operating earnings for the respective periods, signaling effective operational execution and integration of acquired businesses. Diluted EPS also saw substantial year-over-year growth, with non-GAAP diluted EPS reaching $1.43 for the quarter and $4.10 for the nine-month period, reflecting improved profitability. However, the company's cash and equivalents decreased due to significant investments in acquisitions ($3.4 billion), dividends, and share repurchases, indicating a strategic deployment of capital for growth and shareholder returns. The company highlighted the successful completion of three major acquisitions during the nine-month period: Cordis (medical devices), naviHealth (post-acute care management), and Harvard Drug (generic pharmaceuticals). These acquisitions are expected to expand its Medical and Pharmaceutical segments' portfolios and geographic reach. Despite substantial capital deployment, Cardinal Health maintains adequate liquidity through its existing credit facilities and operating cash flow, and remains compliant with its financial covenants, suggesting a stable financial position to support ongoing operations and future growth initiatives.

Financial Highlights

49 data points
Beta

Revenue

$30.66B

5.5% Gross Margin

Net Income

$386.00M

1.3% Net Margin

EPS (Diluted)

$1.17

Total Assets

$34.05B

Cash & Equivalents

$2.60B

Free Cash Flow

$810.00M

Financial Statements
Beta
Revenue$30.66B
Cost of Revenue$28.97B
Gross Profit$1.69B
SG&A Expenses$914.00M
Operating Income$656.00M
Interest Expense$44.00M
Net Income$386.00M
EPS (Basic)$1.18
EPS (Diluted)$1.17
Shares Outstanding (Basic)328.00M
Shares Outstanding (Diluted)331.00M

Key Highlights

  • 1Revenue increased significantly by 21% (three months) and 20% (nine months) to $30.7 billion and $90.2 billion, respectively, driven by pharmaceutical distribution and acquisitions.
  • 2GAAP operating earnings grew by 11% and 15% for the three and nine months, respectively, while non-GAAP operating earnings showed even stronger growth of 20% and 21%.
  • 3Diluted EPS increased by 7% (GAAP) and 20% (non-GAAP) for the three-month period, and by 20% (GAAP) and 21% (non-GAAP) for the nine-month period, indicating improved profitability.
  • 4The company completed three major acquisitions during the period: Cordis ($1.9B), naviHealth ($238M), and Harvard Drug ($1.1B), totaling over $3.2 billion, significantly impacting cash reserves.
  • 5Cash and equivalents decreased by approximately $2 billion to $2.6 billion, largely due to $3.4 billion deployed for acquisitions.
  • 6The Pharmaceutical segment remains the largest revenue driver, increasing by 22% year-over-year for both the three and nine-month periods.
  • 7The Medical segment also showed robust growth, up 13% and 8% for the respective periods, boosted by acquisitions like Cordis.

Frequently Asked Questions

Revenue growth was primarily driven by strong sales from existing and new pharmaceutical distribution customers, as well as the contributions from recent strategic acquisitions, notably Harvard Drug, Cordis, and naviHealth.

The acquisitions of Cordis, naviHealth, and Harvard Drug significantly contributed to revenue growth in both the Pharmaceutical and Medical segments. While they led to a substantial deployment of cash for acquisitions, they are expected to expand the company's market reach and product portfolios, contributing positively to future earnings.

The company uses non-GAAP financial measures to provide a clearer view of its core business operations by excluding items such as LIFO charges, restructuring costs, and acquisition-related expenses. For this period, non-GAAP operating earnings and EPS showed stronger growth than GAAP, indicating that the core operational performance was robust, with significant impacts from acquisition-related costs and other non-recurring items on the GAAP figures.

Despite the decrease in cash and equivalents due to acquisition spending, Cardinal Health believes it has adequate capital resources to fund its operations and obligations. The company has access to credit facilities and commercial paper programs, and it remains compliant with its financial covenants, indicating a stable liquidity position.