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Cardinal Health Reports First Quarter Results
10/29/2008
  • Revenue increases 11 percent to $24 billion
  • GAAP diluted earnings per share from continuing operations decline 16 percent to $0.69 and 14 percent to $0.74 on a non-GAAP basis
  • Spin-off planning remains on target
  • Full-year guidance remains unchanged

DUBLIN, Ohio, Oct. 29, 2008 — Cardinal Health, a global provider of products and services that improve the safety and productivity of health care, today reported an 11 percent increase in revenue to $24 billion, driven by strong sales in the Healthcare Supply Chain Services segment and continued growth within Clinical and Medical Products.

For the quarter ended Sept. 30, the Healthcare Supply Chain Services segment achieved double-digit revenue growth, which helped partially offset the expected year-over-year profit decline from previously disclosed contract re-pricings and anti-diversion efforts for controlled substances.

First quarter GAAP earnings per share (EPS) declined 16 percent from the prior year period to $0.69. Special items primarily related to the restructuring announced on July 8 and impairments resulted in a $0.05 dilutive impact, bringing non-GAAP EPS from continuing operations1 to $0.74.

In early October, Cardinal Health entered into an agreement with the U.S. Drug Enforcement Administration (DEA) to resume shipments of controlled substances from three of the company’s distribution centers, which is anticipated to contribute to growth in the second half of the fiscal year. The company expects these facilities to fully resume shipment of controlled substances by the end of November.

“The company performed as expected with double-digit revenue and profit performance from Clinical and Medical Products, and I am encouraged by continued signs of early progress in the pharmaceutical supply chain business,” said R. Kerry Clark, chairman and CEO of Cardinal Health. “We remain focused on driving growth for both segments, while working diligently toward completing the spin-off of our clinical and medical products businesses by the middle of calendar 2009.”

The company announced on Sept. 29 that its board of directors had approved plans for a tax-free spin-off of most of its clinical and medical products businesses as a separate, publicly traded company. Completion of the spin-off is subject to final approval by the company’s board of directors, confirmation of the tax-free nature of the transaction and the effectiveness of a Form 10 registration statement to be filed with the U.S. Securities and Exchange Commission.

Q1 FY09 Summary

 

 

Q1 FY09

Q1 FY08

Y/Y

Revenue

$24.3 billion

$22 billion

11%

       

GAAP Operating Earnings

$426 million

$490 million

(13)%

Non-GAAP Operating Earnings2

$482 million

$512 million

(6)%

       

GAAP Earnings from Continuing Operations

$250 million

$303 million

(18)%

Non-GAAP Earnings from Continuing Operations3

$268 million

$318 million

(16)%

       

GAAP Diluted EPS from Continuing Operations

$0.69

$0.82

(16)%

Non-GAAP Diluted EPS from Continuing Operations

$0.74

$0.86

(14)%

First quarter segment results

Healthcare Supply Chain Services

 

Q1 FY09

Q1 FY08

Y/Y

Revenue

$23.4 billion

$21.1 billion

11%

Segment Profit

$292 million

$347 million

(16)%

Healthcare Supply Chain Services increased revenue by 11 percent to $23.4 billion, from sales to both pharmaceutical and medical supply chain customers. Sales to bulk customers4 increased 20 percent to $10.7 billion and sales to non-bulk customers5 increased 4 percent to $10.6 billion. Segment profit declined 16 percent to $292 million, primarily driven by previously disclosed pharmaceutical contract re-pricings, continued disruption from anti-diversion efforts for pharmaceutical supply chain customers and lower branded price inflation compared to the prior year period.

“In the pharmaceutical supply chain business, we made significant progress towards our key priorities, including rebuilding sales momentum, particularly in the direct store business, growth in our Source Generics program and a resolution with the DEA related to the distribution of controlled drugs,” said George Barrett, Cardinal Health vice chairman and CEO of Healthcare Supply Chain Services. “While the positive financial impact of this progress will not be felt immediately, each represents an important milestone in turning the business in a positive direction. Other highlights from the segment include our lab and ambulatory businesses within the medical products supply chain. They performed particularly well for the quarter, and we expect to continue this momentum for the remainder of the fiscal year.”

Clinical and Medical Products

 

 

Q1 FY09

Q1 FY08

Y/Y

Revenue

$1.2 billion

$1 billion

12%

Segment Profit

$167 million

$145 million

15%

Revenue for Clinical and Medical Products increased 12 percent to $1.2 billion, driven by continued strength in dispensing, the Enturia acquisition and international sales. Segment profit increased 15 percent to $167 million, driven by the increase in revenue and growth in infection prevention products, including Enturia. Segment profit was partially dampened by a rise in raw material costs.

“Our core infusion and dispensing systems performed well, and our ChloraPrep® products from the Enturia acquisition outperformed for the quarter,” said David Schlotterbeck, Cardinal Health vice chairman and CEO of Clinical and Medical Products. “As we continue to make progress with our quality system enhancements, we have essentially completed remediation efforts for the Alaris® SE pump recall and expect to complete the Alaris® System Pump Module recall by the end of the calendar year. In addition, the VIASYS acquisition remains on schedule to meet our synergy targets for fiscal 2010.”

Additional first quarter and recent highlights:

  • Reached agreements with the DEA and seven U.S. Attorneys' Offices that resulted in reinstated licenses to distribute controlled substances from the company's Auburn, Wash., Lakeland, Fla. and Swedesboro, N.J. distribution centers.
  • Completed the sale of the company’s MedSystems and Tecomet businesses, which were non-strategic assets from the VIASYS acquisition.
  • Hosted approximately 400 health care industry leaders at the inaugural Chasing Zero Summit to encourage a zero-tolerance approach to health care associated infections (HAIs).
  • Signed 50 new customers for MedMined™ services, the market leader in electronic infection surveillance.
  • The Cardinal Health Foundation launched the second annual $1 million Patient Safety Grant to help U.S. hospitals, health systems and community health clinics improve patient safety and health care quality.
  • Launched myPharmacyTrainer, a proprietary online training site that helps independent pharmacies coach their employees to deliver better patient care, improve customer loyalty and increase sales.

Outlook

Cardinal Health’s guidance range for the full year remains unchanged at $3.80 to $3.95 for non-GAAP diluted EPS from continuing operations. Clark said, “It is clear that we are operating in an unprecedented economic environment, yet Cardinal Health remains well positioned with a strong balance sheet that enables ongoing access to capital. While we have not seen any definitive customer credit issues that would change our full-year outlook at this time, we are seeing hospitals delay some purchase decisions that will have some impact to our Clinical and Medical Products segment for the December quarter. We are monitoring this very closely and will continue to take steps to mitigate as much impact as possible.”

The company’s guidance does not reflect any incremental costs it will incur associated with the spin-off and separation of the two companies. The company expects a significant portion of these costs will be classified as special items in accordance with company practices.

Conference Call

Cardinal Health will host a conference call and webcast today at 8:30 a.m. EDT to discuss first quarter results. To access the call and corresponding slide presentation, visit the Investor page at www.cardinalhealth.com or dial 617.213.4845, passcode 12574826. Presentation slides, an audio replay and a transcript will be archived on the website after the conclusion of the meeting. The audio replay will also be available until 11 p.m. EDT on Oct. 31 by dialing 617.801.6888, passcode 49513300.

Upcoming Events

The 2008 annual meeting of shareholders will be held Nov. 5 at 2 p.m. EST at Cardinal Health headquarters, 7000 Cardinal Place, Dublin, Ohio. Shareholders are cordially invited to attend in person, or they can access the live webcast of the meeting and corresponding slide presentation from the Investors page at cardinalhealth.com. A replay and transcript also will be available on the Investors page until 11 p.m. EST on Nov. 19.

Cardinal Health Chief Financial Officer Jeff Henderson will address investors at the Annual Credit Suisse Healthcare Conference in Phoenix on Nov. 12 at 4:30 p.m. EST. Henderson will discuss Cardinal Health’s diverse products and services, company performance and strategies for continued growth. To access the live webcast of his remarks or a transcript, go to the Investors page at cardinalhealth.com.

About Cardinal Health
Headquartered in Dublin, Ohio, Cardinal Health, Inc. (NYSE: CAH) is a $91 billion, global company serving the health care industry with products and services that help hospitals, physician offices and pharmacies reduce costs, improve safety, productivity and profitability, and deliver better care to patients. With a focus on making supply chains more efficient, reducing hospital-acquired infections and breaking the cycle of harmful medication errors, Cardinal Health develops market-leading technologies, including Alaris® IV pumps, Pyxis® automated dispensing systems, MedMined™ electronic infection surveillance service, VIASYS® respiratory care products and the CareFusion™ patient identification system. The company also manufactures medical and surgical products and is one of the largest distributors of pharmaceuticals and medical supplies worldwide. Ranked No. 19 on the Fortune 500, Cardinal Health employs more than 40,000 people on five continents. More information about the company may be found at cardinalhealth.com.

# # #

1 Non-GAAP diluted EPS from continuing operations: Non-GAAP earnings from continuing operations divided by diluted weighted average shares outstanding.

2 Non-GAAP operating earnings: Operating earnings excluding special items and impairments, (gain)/loss on sale of assets and other, net.

3 Non-GAAP earnings from continuing operations: Earnings from continuing operations excluding special items and impairments, (gain)/loss on sale of assets and other, net, both net of tax.

4 Bulk customers consist of Healthcare Supply Chain Services customers to which the segment distributes pharmaceutical, radiopharmaceutical and over-the-counter health care products to the customers’ centralized warehouse operations and mail order businesses.

5 Non-bulk customers consist of all Healthcare Supply Chain Services customers to which the segment distributes pharmaceutical, radiopharmaceutical and over-the-counter health care products other than bulk customers.

A reconciliation of the differences between these non-GAAP financial measures and their most directly comparable GAAP financial measures is provided in the attached tables and at cardinalhealth.com.

Cardinal Health uses its website as a channel of distribution for material company information. Important information, including news releases, analyst presentations and financial information regarding Cardinal Health is routinely posted and accessible on the Investors page at cardinalhealth.com.

This news release contains forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments.  These matters 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 10-Q and Form 8-K reports (including all amendments to those reports) and exhibits to those reports, and include (but are not limited to) the following: uncertainties regarding the planned spin-off of the clinical and medical products businesses as a new stand-alone entity, including the timing and terms of any such spin-off and whether such spin-off will be completed, and uncertainties regarding the impact of the planned spin-off on Cardinal Health, the new clinical and medical products company and the potential market for their respective securities; competitive pressures in Cardinal Health's various lines of business; the loss of one or more key customer or supplier relationships or changes to the terms of those relationships; uncertainties relating to timing of generic and branded pharmaceutical introductions and the frequency or rate of branded pharmaceutical price appreciation or generic pharmaceutical price deflation; 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 any regulatory authority or any legal or administrative proceedings; future actions of regulatory bodies or government authorities relating to Cardinal Health's manufacturing or sale of products and other costs or claims that could arise from its manufacturing, compounding or repackaging operations or from its other services; the costs, difficulties and uncertainties related to the integration of acquired businesses; uncertainties related to the recent disruptions in the financial markets, including uncertainties related to the availability and/or cost of credit and the impact of the financial market disruptions on Cardinal Health’s customers and vendors; and conditions in the pharmaceutical market and general economic and market conditions.  This news release reflects management's views as of Oct. 29, 2008.  Except to the extent required by applicable law, Cardinal Health undertakes no obligation to update or revise any forward-looking statement.

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