10-QPeriod: Q2 FY2019

CARDINAL HEALTH INC Quarterly Report for Q2 Ended Dec 31, 2018

Filed February 7, 2019For Securities:CAH

Summary

Cardinal Health Inc. reported its second-quarter fiscal year 2019 results, demonstrating revenue growth driven by its pharmaceutical distribution and specialty pharmaceutical businesses. While overall revenue saw a positive uptick of 7% year-over-year, the company's profitability faced headwinds, particularly a decline in non-GAAP operating earnings and diluted EPS. This was attributed to challenges in the pharmaceutical segment's generics program, increased costs for Cardinal Health Brand products, and adverse pharmaceutical customer contract renewals. The company also recognized a significant gain from the divestiture of its naviHealth business, which bolstered GAAP earnings. Despite these profitability pressures, Cardinal Health maintained a strong liquidity position, with an increase in cash and equivalents and ample credit facilities, alongside continued capital deployment through dividends and share repurchases.

Financial Highlights

45 data points
Beta

Revenue

$37.74B

4.6% Gross Margin

Net Income

$280.00M

0.7% Net Margin

Total Assets

$40.46B

Cash & Equivalents

$2.18B

Free Cash Flow

$313.00M

Financial Statements
Beta
Revenue$37.74B
Cost of Revenue$36.01B
Gross Profit$1.73B
SG&A Expenses$1.06B
Operating Income$504.00M
Interest Expense$76.00M
Net Income$280.00M
Shares Outstanding (Basic)299.00M
Shares Outstanding (Diluted)300.00M

Key Highlights

  • 1Total revenue increased by 7% to $37.7 billion for the three months ended December 31, 2018, and by 8% to $73.0 billion for the six months ended December 31, 2018, primarily driven by pharmaceutical distribution and specialty pharmaceutical customers.
  • 2GAAP operating earnings saw a significant increase of 26% for the quarter and 100% for the six months, largely due to a $508 million gain from the divestiture of the naviHealth business and favorable litigation adjustments.
  • 3Non-GAAP operating earnings decreased by 13% for the quarter and 12% for the six months, impacted by the pharmaceutical segment's generics program performance, increased costs for branded products, and adverse customer contract renewals.
  • 4GAAP diluted EPS declined significantly by 72% for the quarter and 22% for the six months, primarily due to the prior year's transitional tax benefits from the Tax Cuts and Jobs Act.
  • 5Non-GAAP diluted EPS decreased by 15% for the quarter and 1% for the six months, reflecting the challenges in operating earnings.
  • 6The company divested its naviHealth business, realizing a pre-tax gain of $508 million and retaining a 44% equity interest.
  • 7Cash and equivalents increased to $2.2 billion at December 31, 2018, from $1.8 billion at June 30, 2018, supported by operating activities and the naviHealth divestiture proceeds.

Frequently Asked Questions

Cardinal Health experienced revenue growth primarily driven by increased sales from its pharmaceutical distribution and specialty pharmaceutical customers. This growth was partially offset by the divestiture of its China distribution business in February 2018.

The decrease in non-GAAP operating earnings and EPS was mainly due to challenges within the Pharmaceutical segment. These included underperformance in the generics program, higher costs associated with Cardinal Health Brand products, and the impact of unfavorable pharmaceutical customer contract renewals. These factors outweighed growth in other areas.

The divestiture of naviHealth in August 2018 resulted in a significant pre-tax gain of $508 million for the six months ended December 31, 2018. This gain positively impacted GAAP operating earnings and net earnings but was excluded from non-GAAP measures. Cardinal Health also retained a 44% equity interest in the business.

Cardinal Health reported an increase in cash and equivalents to $2.2 billion. The company has access to a $2.0 billion commercial paper program backed by a revolving credit facility and a $1.0 billion receivables sales facility, all of which had no outstanding amounts at the end of the period. They are also actively returning capital to shareholders through dividends and share repurchases.