10-QPeriod: Q1 FY2023

CARDINAL HEALTH INC Quarterly Report for Q1 Ended Sep 30, 2022

Filed November 4, 2022For Securities:CAH

Summary

Cardinal Health Inc. (CAH) reported its Q1 Fiscal Year 2023 results, with total revenue increasing by 13% to $49.6 billion, driven by strong performance in pharmaceutical distribution and specialty pharmaceutical customers. However, GAAP operating earnings saw a significant decline of 67% to $137 million, primarily impacted by a $154 million non-cash goodwill impairment charge in the Medical Segment and a general profit decrease in that segment due to inflationary pressures and lower Personal Protective Equipment (PPE) pricing and volumes. Non-GAAP operating earnings decreased by 20% to $423 million, also largely attributed to the challenges in the Medical segment. Despite these headwinds, the Pharmaceutical segment showed a 6% increase in profit. The company also made a $372 million annual payment related to the opioid litigation settlement and repurchased $1.0 billion of its common shares. Management believes the company has adequate capital resources to meet its obligations, but acknowledges potential impacts from inflationary pressures, supply chain disruptions, and ongoing litigation. Key financial takeaways include a substantial goodwill impairment, reduced operating earnings despite revenue growth, and continued investment in share buybacks. Investors should monitor the Medical segment's performance, the ongoing impact of inflation, and the resolution of significant legal matters, particularly the opioid litigation, which continues to represent a substantial financial commitment.

Financial Highlights

47 data points
Beta

Revenue

$49.59B

3.2% Gross Margin

Net Income

$98.00M

0.2% Net Margin

EPS (Diluted)

$0.36

Total Assets

$43.39B

Cash & Equivalents

$3.49B

Free Cash Flow

-$47.00M

Financial Statements
Beta
Revenue$49.59B
Cost of Revenue$48.00B
Gross Profit$1.60B
SG&A Expenses$1.20B
Operating Income$123.00M
Interest Expense$24.00M
Net Income$98.00M
EPS (Basic)$0.36
EPS (Diluted)$0.36
Shares Outstanding (Basic)271.00M
Shares Outstanding (Diluted)273.00M

Key Highlights

  • 1Revenue increased by 13% to $49.6 billion, driven by the Pharmaceutical segment's growth in distribution and specialty pharmaceutical sales.
  • 2GAAP operating earnings decreased by 67% to $137 million, largely due to a $154 million goodwill impairment charge in the Medical Segment.
  • 3Non-GAAP operating earnings decreased by 20% to $423 million, reflecting challenges in the Medical segment, including inflationary impacts and lower PPE pricing/volumes.
  • 4The Medical segment's profit declined significantly, impacted by inflation, decreased PPE demand and pricing, and inventory charges.
  • 5The Pharmaceutical segment demonstrated resilience with a 6% increase in profit, supported by generics and branded pharmaceutical sales.
  • 6The company made its second annual opioid litigation settlement payment of $372 million and repurchased $1.0 billion of its common stock.
  • 7Cash and equivalents decreased to $3.5 billion from $4.7 billion, reflecting operating cash flow of $23 million and significant share repurchases.

Frequently Asked Questions

The primary driver for the 67% decrease in GAAP operating earnings was a $154 million pre-tax non-cash goodwill impairment charge related to the Medical Segment. Additionally, a decline in Medical segment profit due to net inflationary impacts and adverse effects from personal protective equipment (PPE) pricing and volumes contributed to the decrease.

The Medical segment experienced a significant profit decline and a revenue decrease. Key challenges include net inflationary impacts (transportation, commodities, labor), lower pricing and volumes for PPE, and inventory charges related to the company's simplification strategy. Management expects these inflationary impacts to continue adversely affecting the Medical segment's profit.

Cardinal Health made its second annual payment of $372 million towards the opioid litigation settlement in Q1 FY2023. The company has $6.03 billion accrued for this settlement as of September 30, 2022, with the majority expected to be paid over 18 years. While these settlements resolve the majority of claims from states and subdivisions, ongoing resolution discussions and private plaintiff claims remain.

Cardinal Health is implementing price increases and evolving its commercial contracting processes to gain greater pricing flexibility to mitigate inflationary impacts, particularly in the Medical and Pharmaceutical segments. However, the company notes that these costs are difficult to predict and may continue to adversely impact results.