10-QPeriod: Q1 FY2018

CARDINAL HEALTH INC Quarterly Report for Q1 Ended Sep 30, 2017

Filed November 7, 2017For Securities:CAH

Summary

Cardinal Health Inc. (CAH) reported its first quarter fiscal year 2018 results, showcasing a 2% increase in total revenue to $32.6 billion, primarily driven by growth in specialty and pharmaceutical distribution customers, and contributions from Medical segment acquisitions. However, GAAP operating earnings saw a significant 51% decrease to $262 million, largely due to restructuring costs associated with the Medical segment's surgeon glove distribution, increased amortization from the recent Patient Recovery Business acquisition, and litigation charges. Non-GAAP operating earnings also declined by 9% to $610 million, reflecting some of these headwinds. The company completed a major acquisition of Medtronic's Patient Recovery Business for $6.1 billion in July 2017. This significantly impacted cash flow, with cash and equivalents dropping from $6.9 billion to $1.2 billion due to acquisition funding, debt redemption, and share repurchases, alongside operating cash flow generation. Despite the operational challenges impacting near-term profitability, management believes it has adequate capital resources for its ongoing needs, but may require additional financing for future acquisitions.

Financial Highlights

46 data points
Beta

Revenue

$32.64B

5.1% Gross Margin

Net Income

$115.00M

0.4% Net Margin

Total Assets

$41.94B

Cash & Equivalents

$1.18B

Free Cash Flow

$1.11B

Financial Statements
Beta
Revenue$32.64B
Cost of Revenue$30.97B
Gross Profit$1.67B
SG&A Expenses$1.06B
Operating Income$262.00M
Interest Expense$81.00M
Net Income$115.00M
Shares Outstanding (Basic)316.00M
Shares Outstanding (Diluted)318.00M

Key Highlights

  • 1Total revenue increased by 2% to $32.6 billion, driven by pharmaceutical distribution and Medical segment acquisitions, partially offset by a major contract expiration.
  • 2GAAP operating earnings decreased significantly by 51% to $262 million, heavily impacted by $132 million in restructuring and employee severance costs and $183 million in amortization and acquisition-related costs.
  • 3Non-GAAP operating earnings decreased by 9% to $610 million, indicating pressure on ongoing operations beyond one-time charges.
  • 4The company completed the $6.1 billion acquisition of Medtronic's Patient Recovery Business in July 2017, which is expected to expand the Medical segment's product portfolio.
  • 5Cash and equivalents decreased substantially from $6.9 billion to $1.2 billion, primarily due to the funding of the aforementioned acquisition.
  • 6The Pharmaceutical segment profit declined by 13% due to generic program performance and pricing changes, while the Medical segment profit saw a modest 1% increase.
  • 7The company is exploring strategic alternatives for its China products and services distribution business.

Frequently Asked Questions

Revenue increased by 2% to $32.6 billion, primarily due to sales growth from specialty and pharmaceutical distribution customers. Additionally, acquisitions within the Medical segment, including the recently acquired Patient Recovery Business, contributed to the revenue growth.

The 51% decrease in GAAP operating earnings to $262 million was primarily driven by several factors: restructuring costs of $132 million related to transitioning the distribution of Medical segment's surgeon gloves, increased amortization of $183 million from acquisition-related intangible assets (largely from the Patient Recovery Business acquisition), and litigation charges.

The acquisition, completed in July 2017 for $6.1 billion, significantly impacted the balance sheet and cash flow. It contributed to Medical segment revenue and gross margin but also increased amortization and acquisition-related costs, as well as interest expense due to new debt financing. The substantial cash outlay led to a decrease in cash and equivalents from $6.9 billion to $1.2 billion.

Cardinal Health expects fiscal 2018 Pharmaceutical segment profit to be lower than fiscal 2017, primarily due to changes in generic pharmaceutical customer pricing. The company acknowledges the ongoing uncertainty regarding the magnitude and timing of these pricing changes.