10-QPeriod: Q1 FY2021

CARDINAL HEALTH INC Quarterly Report for Q1 Ended Sep 30, 2020

Filed November 5, 2020For Securities:CAH

Summary

Cardinal Health Inc. (CAH) reported its first quarter fiscal year 2021 results, with total revenue reaching $39.1 billion, a 5% increase year-over-year, primarily driven by growth in pharmaceutical distribution and specialty pharmaceutical customers. While revenue showed a healthy increase, the company reported a GAAP operating loss of $624 million, significantly improved from the prior year's loss of $5.3 billion. This improvement is largely attributable to a substantial reduction in litigation charges related to opioid lawsuits, which decreased from $5.63 billion in the prior year to $1.02 billion in the current quarter. Excluding these significant litigation charges and other one-time items, the company's non-GAAP operating earnings rose by 7% to $618 million, and non-GAAP diluted EPS increased by 19% to $1.51. The company continues to navigate the ongoing opioid litigation, with negotiations for a global settlement framework in progress, and has accrued $6.59 billion for potential settlement payments. Operationally, the Pharmaceutical segment saw a 5% revenue increase, while the Medical segment experienced a 1% revenue increase. Both segments contributed positively to segment profit, with Medical segment profit showing a notable 36% increase due to cost savings. The company maintained a stable cash and equivalents balance of $2.7 billion, generating $270 million in operating cash flow during the quarter, which was used to fund dividends and capital expenditures. Cardinal Health appears to be managing its liquidity effectively and is focused on operational improvements, although the ongoing opioid litigation and the broader economic impact of COVID-19 remain key areas of watch.

Financial Highlights

47 data points
Beta

Revenue

$39.06B

4.4% Gross Margin

Net Income

-$253.00M

-0.6% Net Margin

EPS (Diluted)

$-0.86

Total Assets

$41.73B

Cash & Equivalents

$2.75B

Free Cash Flow

$192.00M

Financial Statements
Beta
Revenue$39.06B
Cost of Revenue$37.35B
Gross Profit$1.72B
SG&A Expenses$1.14B
Operating Income-$624.00M
Interest Expense$45.00M
Net Income-$253.00M
EPS (Basic)$-0.86
EPS (Diluted)$-0.86
Shares Outstanding (Basic)293.00M
Shares Outstanding (Diluted)293.00M

Key Highlights

  • 1Total revenue increased 5% to $39.1 billion, driven by pharmaceutical and specialty pharmaceutical sales.
  • 2GAAP operating loss significantly narrowed to $624 million from $5.3 billion in the prior year, primarily due to lower opioid litigation charges.
  • 3Non-GAAP operating earnings grew 7% to $618 million, indicating underlying operational improvement.
  • 4Non-GAAP diluted EPS increased 19% to $1.51, demonstrating improved profitability on an adjusted basis.
  • 5Medical segment profit saw a substantial 36% increase, driven by cost savings and operational efficiencies.
  • 6Generated $270 million in operating cash flow, with cash and equivalents remaining stable at $2.7 billion.
  • 7Continued to accrue for potential opioid litigation settlements, with $6.59 billion accrued as of September 30, 2020.

Frequently Asked Questions

The primary driver for the GAAP operating loss has been significant charges related to the opioid litigation. In the three months ended September 30, 2020, the company recorded $1.02 billion in litigation charges. This is a substantial improvement from the $5.63 billion in charges recorded in the same period last year, leading to a significantly narrowed GAAP operating loss of $624 million in the current quarter compared to $5.3 billion in the prior year.

Excluding significant items such as litigation charges, restructuring costs, and other acquisition-related expenses, Cardinal Health's non-GAAP operating earnings increased by 7% to $618 million. Similarly, non-GAAP diluted EPS grew by 19% to $1.51 per share. These figures suggest that the core business operations are performing well, with notable improvements in profitability.

Cardinal Health has agreed in principle to a global settlement framework with a group of state attorneys general to resolve opioid lawsuits brought by states and political subdivisions. Negotiations for definitive terms are ongoing. The company has accrued $6.59 billion as of September 30, 2020, to cover potential settlement payments. While the timing and exact amount are still being negotiated, it is expected that the majority of payments, if a settlement is reached, would be spread over 18 years.

The impact of COVID-19 was mixed across segments. The Pharmaceutical segment profit was negatively impacted by volume declines in its generics program and Nuclear and Precision Health Solutions. The Medical segment profit, however, saw a minimal net impact, as reduced elective procedures were offset by cost reductions and higher volumes in the laboratory business. Higher costs for certain personal protective equipment were largely mitigated by price increases.