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Earnings Per Share Up 46 Percent, Revenue And Cash Flow Remain Strong During Cardinal Health’s Second Quarter

DUBLIN, Ohio, Jan. 26, 2006 — Cardinal Health, Inc., the leading provider of products and services supporting the health-care industry, announced today that earnings per share strengthened during its second quarter, rising 46 percent from the prior year, as the company continued to make operational improvements and invest for future growth.

Revenue for the quarter-ended Dec. 31 rose 7 percent to $19.9 billion from $18.5 billion in the prior year and operating earnings grew 48 percent to $484 million from $326 million.  Diluted earnings per share from continuing operations grew 46 percent to $0.70 from $0.48. 


Q2 FY06
Q2 FY05
Earnings ($MM)
Diluted EPS from Continuing Operations
Earnings ($MM)
Diluted EPS from Continuing Operations
GAAP Consolidated
Special Items
Non-Recurring and Other Items
Equity Compensation

“We remain focused on improving key fundamentals of our business and making operational improvements that resulted in a solid quarter across the company,” said Robert D. Walter, chairman and chief executive officer of Cardinal Health.
Selling, general and administrative (SG&A) expenses increased 14 percent during the quarter, 8 percentage points of which related to equity compensation.  Commenting on the SG&A increase, Walter said, “Reflected in these financials are expenditures we are making to streamline operations, build scale and develop new capabilities, which will ultimately lower costs across the business.  Fiscal 2006 remains a building year as we make these investments and take the necessary steps to integrate our businesses for future growth.”
Special items of $21 million for the quarter include a $10 million reserve related to
Cardinal Health’s ongoing settlement discussions with the Securities and Exchange Commission (SEC), raising its total reserve for the matter to $35 million.  As previously disclosed, the company continues to engage in settlement discussions with the staff of the SEC and has now reached an agreement-in-principle on the basic terms of a potential settlement involving the company that the SEC staff has indicated it is prepared to recommend to the Commission.  The proposed settlement is subject to the completion of definitive documentation as well as acceptance and authorization by the Commission and would, among other things, require Cardinal Health to pay a $35 million penalty.  There can be no assurance that efforts to resolve the SEC’s investigation with respect to the company will be successful, or that the amount reserved will be sufficient, and Cardinal Health cannot predict the timing or the final terms of any settlement. 
Cash flow from operations remained strong during the quarter, reaching $661 million.  As part of its goal to return up to 50 percent of operating cash flow to shareholders, the company began to repurchase shares under a $1 billion buy-back program announced in June 2005.  Through this authorization, Cardinal Health has spent $586 million to purchase nearly 8.8 million shares to date in January, and expects to complete the program by the end of the fiscal year.  Return on equity increased to 13.8 percent from 10 percent in the prior year.  Excluding special items and equity compensation, return on equity increased 280 basis points to 16.2 percent compared to the second quarter last year. 

Year-to-Date Results
Revenues for the first half of the year climbed 8 percent to $39.3 billion and operating earnings improved 24 percent to $857 million.  Earnings from continuing operations rose 25 percent to $539 million, or $570 million excluding special items.  Diluted earnings per share from continuing operations were $1.25, or $1.32 excluding special items compared to $0.99 or $1.20 excluding special items for the prior period. 

FY06 Year-to-Date
FY05 Year-to-Date
Earnings ($MM)
Diluted EPS from Continuing Operations
Earnings ($MM)
Diluted EPS from Continuing Operations
GAAP Consolidated
Special Items
Non-Recurring and Other Items
Equity Compensation

Second-Quarter Highlights
Consolidated highlights of the second quarter include:
  • Continuing momentum within the Clinical Technologies and Services segment, which reported double-digit revenue and earnings increases for both the Alaris and Pyxis product lines.  Demand for Alaris products has reached a record level from expansion within existing accounts and new customers.

  • Launching the first phase of an integrated sales organization dedicated to serving Cardinal Health’s largest hospital customers.  As part of its integrated provider solutions strategy, this organization will represent Cardinal Health’s portfolio of health-care solutions in medication management, supply management, procedure optimization and patient throughput to this $500 billion market.

  • Reaching key milestones with the company’s One Cardinal Health initiative, including the opening of a new customer care center in Radcliff, Ky., just following the close of the quarter.  This facility is one of two centers that will consolidate more than 25 smaller locations in the United States. 

  • Initiating more than 100 operational excellence projects, bringing the total number of ongoing projects to 200.  The company is on-track to train nearly 300 “black belts” during 2006 to manage company-wide lean six-sigma initiatives within manufacturing, distribution, administration, sales and marketing.
Segment Results
Customer demand continued to be strong across all four operating segments with year-over-year revenue increases in each.  A focus on margin expansion has led to a company-wide increase in operating margin, with margins in each segment increasing or remaining stable from the first quarter.
(See attached tables or the Investors page on for specific segment results, definitions of the non-GAAP measures used in this release, a reconciliation of non-GAAP measures to their comparable GAAP measures, and a schedule of notable items.)
Pharmaceutical Distribution and Provider Services
Revenue for the Pharmaceutical Distribution and Provider Services segment grew 8 percent during the quarter to $16.2 billion, including $7.1 billion in bulk sales compared to $5.8 billion last year.  Operating earnings rose 16 percent to $240 million.  Distribution service agreements with branded manufacturers reduced buy-margin volatility from the prior year, and combined with ongoing expense controls, were the primary contributor to earnings growth.  In addition, a LIFO accounting credit lowered the cost of goods sold by $13 million for the period.
Cardinal Health continued to develop differentiated customer offerings during the quarter, including the launch of unit-dose barcode packaging for hospitals and Medicare Part D education programs for retail pharmacies.  The company’s National Logistics Center, which provides a value-added service for pharmaceutical manufacturers, remains ahead of company utilization projections.
Medical Products and Services
Medical Products and Services revenue increased 7 percent during the quarter to $2.6 billion on strong distribution sales and growth in Cardinal Health manufactured gloves and respiratory products.  Operating earnings declined 1 percent from the prior year to $153 million, and were negatively affected by approximately 7 percentage points due to the allocation of increased corporate spending to the segment.
New business from the company’s recently awarded contract with the Department of Veteran Affairs and strength in laboratory sales contributed to a strong quarter for the medical distribution business.  Cardinal Health also acquired the remaining interest in Canadian distributor Source Medical, which contributed to continued growth in markets outside the United States.
Pharmaceutical Technologies and Services
Revenue for the Pharmaceutical Technologies and Services segment reached $760 million, an increase of 1 percent from the prior year.  Operating earnings declined 5 percent from the prior year to $79 million, and were negatively affected by nearly 7 percentage points due to the allocation of increased corporate spending to the segment.
Sequentially, operating earnings improved 75 percent from the first quarter, due to significant progress made to address operational issues within sterile manufacturing and a strong quarter for oral technologies.  This increase also includes a lump-sum payment from an ongoing customer for commitments through the current period and for the cancellation of a future commitment.
An upgrade of the company’s Albuquerque sterile-manufacturing facility that was completed last quarter resulted in a doubling of production at the site.  Segment revenue and earnings growth were partially dampened by margin pressure and slower market growth in the company’s nuclear pharmacy services business and ongoing industry changes within the health care marketing services business.
Clinical Technologies and Services
Results for the Clinical Technologies and Services segment continued to exceed Cardinal Health’s goals, with revenue during the quarter rising 10 percent to $603 million and operating earnings growing 34 percent to $94 million. 
Combined, revenue for Alaris and Pyxis products increased 14 percent during the quarter, and revenue from Cardinal Health’s hospital consulting business grew 8 percent.  With strong demand for both Alaris and Pyxis products and continued operating improvements in the segment, efficiency increased sharply from the first quarter resulting in an operating-margin improvement of nearly 200 basis points. Ongoing integration synergies from the Alaris acquisition and formation of the segment also contributed to this increase.  Committed contracts again exceeded internal projections for both Alaris and Pyxis products, with the Pyxis backlog ending the quarter at $242 million.
Cardinal Health reiterated its fiscal 2006 earnings-per-share outlook of $3.30 to $3.55, excluding special items, non-recurring and other items and the impact of equity compensation expenses.  The company expects full-year equity compensation expenses  to be approximately $0.32 to $0.34 per share. 
During the third and fourth quarters, Cardinal Health expects ongoing operational excellence programs to further expand margins sequentially and improve its cost structure while the company continues to build capabilities and invests in key integration projects.
Over the long term, earnings per share excluding special items and non-recurring items are expected to grow 12 percent to 15 percent annually with an annual goal of returning up to 50 percent of operating cash flow to shareholders through share buy-backs and dividends.  Return on equity excluding special items and the impact of equity compensation expenses is expected to be in the range of 15 percent to 20 percent.  It is also the company’s goal to increase dividends to up to 20 percent of earnings per share during the next several years.
Conference Call
Cardinal Health will host a conference call and webcast at 11 a.m. Eastern Standard Time (EST) to discuss its second-quarter results.  To access the discussion, go to the Investors page at or dial 706-634-5100, conference, passcode 3959367. An audio replay will be available until 11 p.m. on Jan. 30 at 706-645-9291, passcode 3959367. A transcript and audio replay will also be available at
About Cardinal Health
Headquartered in Dublin, Ohio, Cardinal Health, Inc. (NYSE: CAH) is a $75 billion, global company serving the health-care industry with a broad portfolio of products and services.  Through its diverse offerings, Cardinal Health delivers integrated health-care solutions that help customers reduce their costs, improve efficiency and deliver better care to patients.  The company manufactures, packages and distributes pharmaceuticals and medical supplies, offers a range of clinical services and develops automation products that improve the management and delivery of supplies and medication for hospitals, physician offices and pharmacies.  Ranked No. 16 on the Fortune 500, Cardinal Health employs more than 55,000 people on six continents.  More information about the company may be found at

Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these uncertainties are described in Cardinal Health's Form 10-K, Form 8-K and Form 10-Q reports (including all amendments to those reports) and exhibits to those reports, and include (but are not limited to) the following: the costs, difficulties, and uncertainties related to the implementation of organizational changes and the integration of acquired businesses; the loss of one or more key customer or supplier relationships or changes to the terms of those relationships; changes in the distribution patterns or reimbursement rates for health-care products and/or services; the results, consequences, effects or timing of any inquiry or investigation by or settlement discussions with any regulatory authority or any legal and administrative proceedings; the impact of previously announced restatements; difficulties or delays or increased costs in implementing its global restructuring program, including facility rationalizations; difficulties in opening new facilities or fully utilizing existing capacity; difficulties and uncertainties associated with business model transitions; with respect to future dividends, the decision by the board of directors to declare such dividends, which is expected to consider Cardinal Health’s surplus, earnings, cash flows, financial condition and prospects at the time any such action is considered; with respect to future share repurchases, the approval of the board of directors, which is expected to consider Cardinal Health’s then-current stock price, earnings, cash flows, financial condition and prospects as well as alternatives available to Cardinal Health at the time any such action is considered; and general economic and market conditions. Cardinal Health undertakes no obligation to update or revise any forward-looking statement.
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