Why did GAAP EPS decline while non-GAAP EPS grew 20%?

GAAP operating earnings fell 36% to $367 million because of a $90 million pre-tax, non-cash goodwill impairment in GMPD, along with higher restructuring ($53 million), litigation charges ($81 million) and other items. Non-GAAP results exclude these items, along with amortization of acquisition-related intangibles, which is why non-GAAP operating earnings rose 10% to $666 million. Non-GAAP EPS also benefited from a lower share count.

Did the company change its fiscal 2024 earnings outlook?

Yes, modestly. Non-GAAP diluted EPS guidance was raised and narrowed to $7.30 to $7.40, from $7.20 to $7.35. The PSS segment profit growth outlook increased to 8.5% to 9.5%, from 7% to 9%, and the non-GAAP effective tax rate was lowered to 22% to 23%, from 23% to 24%. The company does not provide GAAP EPS guidance.

What does the preliminary fiscal 2025 guidance imply?

Management expects non-GAAP diluted EPS of at least $7.50 in fiscal 2025, with PSS segment profit growth of at least 1%, GMPD segment profit of about $175 million, and Other segment profit growth of about 10%. Assumptions include interest and other expense of $160 million to $190 million, a 23% to 24% non-GAAP tax rate, 244 million to 245 million diluted shares, and $500 million of baseline share repurchases. The guidance is preliminary and is not a GAAP projection.

Why was free cash flow so weak in the quarter?

Q3 operating cash flow was negative $49 million, compared with $1.36 billion a year earlier. The main drivers were a $2.17 billion decrease in accounts payable and a shift in inventory and receivables timing. Year-to-date, operating cash flow was $1.69 billion versus $1.98 billion, and non-GAAP adjusted free cash flow was $2.13 billion versus $2.09 billion. Investors should watch whether working capital normalizes in the fourth quarter.

What is the status of the GMPD business and goodwill impairments?

GMPD segment profit turned positive at $20 million in Q3, up $66 million year over year, and revenue grew 4% to $3.1 billion. However, the company recorded a $90 million goodwill impairment in the quarter, and $671 million year-to-date, after reallocating goodwill under its updated reporting structure. The impairments are non-cash, but they reduce GAAP earnings and reflect the segment's weaker prior performance.

CAH 8-K: Earnings & Results & Regulation FD

01—Abstract

Summary

Summary of the 8-K filed May 2, 2024. Cited figures are marked; the original filing is the authoritative source.

Cardinal Health reported fiscal Q3 2024 (quarter ended March 31, 2024) revenue of $54.9 billion^a, up 9% year over year, driven by Pharmaceutical and Specialty Solutions (PSS) growth.

Non-GAAP operating earnings rose 10% to $666 million^b and non-GAAP diluted EPS rose 20% to $2.08, helped by growth in PSS and Global Medical Products and Distribution (GMPD) profit and a lower share count. On a GAAP basis, results were weaker: operating earnings fell 36% to $367 million and diluted EPS fell 22% to $1.05, mainly because of a $90 million non-cash goodwill impairment in GMPD tied to a reporting-structure change. Year-to-date impairments total $671 million for GMPD.

Management raised and narrowed fiscal 2024 non-GAAP EPS guidance to $7.30 to $7.40^c, from $7.20 to $7.35, and lifted the PSS segment profit growth outlook to 8.5% to 9.5%. It also gave preliminary fiscal 2025 non-GAAP EPS guidance of at least $7.50, with PSS segment profit growth of at least 1% and GMPD segment profit of about $175 million. Cash generation is a watch item.

Q3 operating cash flow was negative $49 million^d and non-GAAP adjusted free cash flow was only $85 million, versus $1.3 billion a year earlier. Year-to-date operating cash flow was $1.7 billion, down from $2.0 billion, and the company funded a $1.19 billion acquisition (Specialty Networks) with new debt and cash. Overall, the filing shows solid non-GAAP earnings momentum and a raised outlook, with the GMPD turnaround still early and quarterly cash flow lumpy.

Investors will likely focus on whether GMPD profit improvement continues, whether working capital and free cash flow recover in the fourth quarter, and how the FY25 guidance holds up. The company does not provide GAAP guidance, so the gap between GAAP and non-GAAP results (driven by impairments, restructuring, acquisition costs and litigation) remains important to track.

02—Key points

Key Highlights

Revenue rose 9% to $54.9 billion, with PSS revenue up 9% to $50.7 billion on brand and specialty pharmaceutical growth from existing customers.
Non-GAAP diluted EPS increased 20% to $2.08, while GAAP diluted EPS fell 22% to $1.05 after a $90 million non-cash GMPD goodwill impairment.
GMPD segment profit improved to $20 million from a $46 million loss a year earlier, driven by better net inflationary impacts and mitigation initiatives.
FY24 non-GAAP EPS guidance raised and narrowed to $7.30 to $7.40 from $7.20 to $7.35; PSS segment profit growth outlook raised to 8.5% to 9.5%; non-GAAP tax rate lowered to 22% to 23%.
Preliminary FY25 guidance calls for non-GAAP EPS of at least $7.50, PSS segment profit growth of at least 1%, GMPD segment profit of about $175 million, and $500 million in baseline share repurchases.
Q3 operating cash flow was negative $49 million and non-GAAP adjusted free cash flow was $85 million, down sharply from $1.3 billion a year earlier, reflecting working capital and inventory timing.
The company completed the Specialty Networks acquisition (about $1.19 billion of cash paid in the quarter) and issued $1.14 billion of long-term debt; shareholder deficit widened to $3.26 billion.

03—Questions

Frequently Asked Questions

Why did GAAP EPS decline while non-GAAP EPS grew 20%?
GAAP operating earnings fell 36% to $367 million because of a $90 million pre-tax, non-cash goodwill impairment in GMPD, along with higher restructuring ($53 million), litigation charges ($81 million) and other items. Non-GAAP results exclude these items, along with amortization of acquisition-related intangibles, which is why non-GAAP operating earnings rose 10% to $666 million. Non-GAAP EPS also benefited from a lower share count.
Did the company change its fiscal 2024 earnings outlook?
Yes, modestly. Non-GAAP diluted EPS guidance was raised and narrowed to $7.30 to $7.40, from $7.20 to $7.35. The PSS segment profit growth outlook increased to 8.5% to 9.5%, from 7% to 9%, and the non-GAAP effective tax rate was lowered to 22% to 23%, from 23% to 24%. The company does not provide GAAP EPS guidance.
What does the preliminary fiscal 2025 guidance imply?
Management expects non-GAAP diluted EPS of at least $7.50 in fiscal 2025, with PSS segment profit growth of at least 1%, GMPD segment profit of about $175 million, and Other segment profit growth of about 10%. Assumptions include interest and other expense of $160 million to $190 million, a 23% to 24% non-GAAP tax rate, 244 million to 245 million diluted shares, and $500 million of baseline share repurchases. The guidance is preliminary and is not a GAAP projection.
Why was free cash flow so weak in the quarter?
Q3 operating cash flow was negative $49 million, compared with $1.36 billion a year earlier. The main drivers were a $2.17 billion decrease in accounts payable and a shift in inventory and receivables timing. Year-to-date, operating cash flow was $1.69 billion versus $1.98 billion, and non-GAAP adjusted free cash flow was $2.13 billion versus $2.09 billion. Investors should watch whether working capital normalizes in the fourth quarter.
What is the status of the GMPD business and goodwill impairments?
GMPD segment profit turned positive at $20 million in Q3, up $66 million year over year, and revenue grew 4% to $3.1 billion. However, the company recorded a $90 million goodwill impairment in the quarter, and $671 million year-to-date, after reallocating goodwill under its updated reporting structure. The impairments are non-cash, but they reduce GAAP earnings and reflect the segment's weaker prior performance.

04—Continue

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