10-QPeriod: Q1 FY2022

CARDINAL HEALTH INC Quarterly Report for Q1 Ended Sep 30, 2021

Filed November 9, 2021For Securities:CAH

Summary

Cardinal Health reported a significant revenue increase of 13% to $44.0 billion for the first quarter of fiscal year 2022, driven primarily by strong performance in its pharmaceutical distribution and specialty pharmaceutical segments. Despite the revenue growth, non-GAAP operating earnings saw a decrease of 15% to $527 million, primarily due to increased supply chain costs, including commodities, transportation, and labor, within the Medical segment. The company also saw a shift from a GAAP operating loss in the prior year ($624 million) to GAAP operating earnings of $415 million, largely due to the absence of a substantial opioid litigation charge that impacted the prior year's results. The company has made progress on its proposed opioid litigation settlement, with a significant portion of its first annual payment placed into escrow. However, this settlement remains contingent on sufficient participation from states and political subdivisions. Cardinal Health also completed the divestiture of its Cordis business, which impacted Medical segment revenue and profit, and initiated an accelerated share repurchase program during the quarter. Management believes it has adequate capital resources to meet its obligations, including potential opioid settlement payments, though future acquisitions might necessitate additional financing.

Financial Highlights

47 data points
Beta

Revenue

$43.97B

3.7% Gross Margin

Net Income

$271.00M

0.6% Net Margin

EPS (Diluted)

$0.94

Total Assets

$42.99B

Cash & Equivalents

$2.46B

Free Cash Flow

-$713.00M

Financial Statements
Beta
Revenue$43.97B
Cost of Revenue$42.33B
Gross Profit$1.64B
SG&A Expenses$1.11B
Operating Income$415.00M
Interest Expense$40.00M
Net Income$271.00M
EPS (Basic)$0.94
EPS (Diluted)$0.94
Shares Outstanding (Basic)287.00M
Shares Outstanding (Diluted)289.00M

Key Highlights

  • 1Revenue increased by 13% to $44.0 billion in Q1 FY2022, driven by pharmaceutical distribution and specialty pharmaceutical sales.
  • 2Non-GAAP operating earnings decreased by 15% to $527 million, primarily impacted by higher supply chain costs (commodities, transportation, labor) in the Medical segment.
  • 3GAAP operating earnings improved to $415 million from a loss of $624 million in the prior year, largely due to the absence of a significant opioid litigation charge.
  • 4The company accrued $6.68 billion for opioid litigation settlements as of September 30, 2021, and made its first annual payment into escrow, though the settlement is contingent on further participation.
  • 5The divestiture of the Cordis business was completed in August 2021, generating $927 million in proceeds and impacting Medical segment performance.
  • 6Cardinal Health repurchased $500 million of its common shares under an accelerated share repurchase program during the quarter.
  • 7Cash and equivalents decreased to $2.5 billion from $3.4 billion, primarily due to working capital needs, the escrowed opioid payment, debt repayment, and share repurchases, partially offset by proceeds from the Cordis sale.

Frequently Asked Questions

The opioid litigation significantly impacted the prior year's results with a $1.02 billion pre-tax charge, leading to a GAAP operating loss. For the current quarter, while a proposed settlement framework is in place, a substantial portion of the first annual payment ($6.37 billion total potential payment over 18 years) was placed into escrow. The company has accrued $6.68 billion as of September 30, 2021. The final settlement is contingent on sufficient participation from states and subdivisions.

Increased supply chain costs, particularly for commodities, transportation, and labor, negatively impacted the Medical segment's profit. Cardinal Health expects these higher costs to persist throughout fiscal year 2022 and is implementing cost-saving measures and price increases to mitigate the effect. While the Pharmaceutical segment also experienced some transportation and labor cost increases, the impact was not considered meaningful to its profit for fiscal year 2022.

Cardinal Health divested its Cordis business in August 2021 for $927 million in proceeds. This divestiture negatively impacted the Medical segment's revenue and profit in the current quarter and is expected to reduce Medical segment revenue by approximately $700 million and profit by approximately $70 million in fiscal year 2022. The divestiture also resulted in lower amortization of acquisition-related intangible assets.

Cardinal Health believes it has adequate capital resources to fund its needs, including working capital, capital expenditures, debt service, dividends, share repurchases, and potential opioid settlement payments. However, significant acquisitions may require additional financing. The company's cash and equivalents decreased due to operational needs and strategic capital deployment, but it maintains access to credit facilities and a commercial paper program.