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Cardinal Health Reports Third Quarter Results
04/30/2009
  • Cardinal Health reports solid revenue growth for its fiscal third quarter and an expected decline in earnings
  • Revenue increases 9 percent to $24.9 billion
  • GAAP earnings from continuing operations decline 14 percent to $314 million and decrease 10 percent to $350 million on a non-GAAP basis
  • GAAP diluted earnings per share from continuing operations decline 15 percent to $0.87 and decrease 10 percent to $0.97 on a non-GAAP basis

DUBLIN, Ohio, April 30, 2009 — Cardinal Health, a global provider of products and services that improve the safety and productivity of health care, today reported solid revenue growth for its fiscal third quarter and an expected decline in earnings, primarily due to a previously disclosed deferral in hospital capital spending.

Revenue for the quarter ended March 31, rose 9 percent to $24.9 billion, driven by sales growth from the Healthcare Supply Chain Services segment. Non-GAAP earnings from continuing operations1 declined 10 percent to $350 million, and non-GAAP diluted earnings per share from continuing operations2 decreased 10 percent to $0.97 from the prior year period. Including the $36 million after tax or $0.10 per share impact of special items, impairments and other costs associated with the planned spinoff of CareFusion Corporation, GAAP earnings from continuing operations were $314 million or $0.87 per share.

The year-over-year earnings decline was primarily driven by a deferral in hospital capital spending affecting the company’s Clinical and Medical Products segment, an additional reserve associated with the costs to remediate certain models of the company’s Alaris® infusion pump products, the negative impact on sales from a hold on shipping certain Alaris® products and the negative effect of foreign exchange rates. The earnings decline was partially offset by a lower tax rate, due to a tax refund claim filed during the quarter.

“The revenue and profit growth from the Healthcare Supply Chain Services segment in this economic downturn is encouraging,” said R. Kerry Clark, Cardinal Health chairman and chief executive officer. “We knew we were going to have a difficult quarter in our Clinical and Medical Products segment, but we remain in a strong, long-term competitive position and made progress during the quarter against some of our short-term challenges, which gives us confidence as we move towards completing the planned spinoff.”

Q3 FY09 SUMMARY

 

Q3 FY09

Q3 FY08

Y/Y

Revenue

$24.9 billion

$22.9 billion

9%

 

 

 

 

 

GAAP Operating Earnings

 

$496 million

 

$577 million

 

(14)%

Non-GAAP Operating Earnings3

 

$553 million

 

$613 million

 

(10)%

 

 

 

 

GAAP Earnings from Continuing Operations

 

$314 million

 

$366 million

 

(14)%

Non-GAAP Earnings from Continuing Operations

 

$350 million

 

$390 million

 

(10)%

 

 

 

 

GAAP Diluted EPS from Continuing Operations

 

$0.87

 

$1.02

 

(15)%

Non-GAAP Diluted EPS from Continuing Operations

 

$0.97

 

$1.08

 

(10)%

 

Third quarter segment results

Healthcare Supply Chain Services

Healthcare Supply Chain Services increased revenue by 9 percent to $24 billion, driven by higher sales to existing pharmaceutical supply chain customers. Sales to bulk pharmaceutical customers4 increased 19 percent to $10.8 billion and sales to non-bulk pharmaceutical customers5 increased 3 percent to $11.1 billion. Segment profit increased 2 percent to $384 million due to the total segment sales growth, strong performance in nuclear pharmacy services and disciplined management of operating expenses. Segment profit growth was partially offset by the impact of customer mix and higher bad debt expense.

“With solid revenue growth from our pharmaceutical distribution business and profit growth from nuclear pharmacy services and medical product distribution, the Healthcare Supply Chain Services segment held up well in the fiscal third quarter in the face of a very challenging environment,” said George Barrett, Cardinal Health vice chairman and chief executive officer of Healthcare Supply Chain Services. “The segment remains focused on revitalizing our core businesses and providing the tools that allow our customers to thrive in this dynamic health care environment.”

Healthcare Supply Chain Services

Q3 FY09

Q3 FY08

Y/Y

Revenue

$24.0 billion

$21.9 billion

9%

Segment Profit

$384 million

$377 million

2%

 

Clinical and Medical Products

Revenue for Clinical and Medical Products decreased 6 percent to $1.1 billion, driven by sales declines from the previously disclosed deferral in hospital capital spending, the ship-hold on certain Alaris® products and the impact of foreign exchange rates. The decline in segment revenue was partially offset by revenue growth in the infection prevention businesses, primarily from the Enturia acquisition. Segment profit declined 22 percent to $148 million, driven by the revenue decline, a reserve associated with remediation efforts for IV pumps, the ship-hold on certain Alaris® products and the impact of foreign exchange rates. The infusion remediation reserve included a $6 million charge announced on March 12 associated with the Alaris® PCA module recall and an additional $12 million associated with a corrective action plan submitted to the Food and Drug Administration (FDA) on April 24, bringing the total fiscal third quarter remediation reserve to $18 million. Foreign exchange rates negatively affected segment profit by 8 percentage points. The negative factors affecting segment profit were partially offset by growth from the infection prevention business, including the Enturia acquisition that favorably affected segment profit by 9 percentage points, and growth from infusion and respiratory disposable products.

“The overall trends in our Clinical and Medical Products segment remain fundamentally the same, with our capital equipment businesses being affected by the deferral in capital spending and our businesses related to disposables continuing to perform well,” said David Schlotterbeck, Cardinal Health vice chairman and chief executive officer of Clinical and Medical Products. “The complicating factor in the quarter was our recall and ship-hold on some of our infusion products, but we are making progress against our obligations under the amended consent decree with the FDA. In addition, we had another strong quarter from the Enturia acquisition, which continues to perform very well.”

Clinical and Medical Products

Q3 FY09

Q3 FY08

Y/Y

Revenue

$1.1 billion

$1.2 billion

(6)%

Segment Profit

$148 million

$190 million

(22)%

 

Additional third quarter and recent highlights:

  • CareFusion Corporation filed a Form 10 registration statement with the Securities and Exchange Commission, marking a major milestone on the road to launch CareFusion as a standalone, public company.
  • Submitted a corrective action plan to the FDA outlining the company’s planned remediation for its infusion pumps as part of its obligations under the amended consent decree that was signed in February.
  • Selected by Novation, a leading health care contracting services company, to provide Cardinal Health’s Source™ generics program to hospitals within the Novation network.
  • Signed a large, sole-source contract for Pyxis® products at Community Health Systems (CHS), which has more than 120 facilities in 29 states and approximately 18,000 beds.
  • Launched nine products targeted to improve safety and efficiency within operating rooms, including high-performance surgical scrubs, a high-tech mobile fluid management system, advances in automated medical supply dispensing and new surgical instruments.
  • Expanded the nation’s largest radiopharmaceutical manufacturing network by opening a new facility in Omaha, Neb., giving local physicians advanced tools that aid in the early diagnosis and treatment of disease.

Outlook

Clark said, “Even with the additional impact from the infusion remediation reserve and the ship-hold, we are maintaining our full-year non-GAAP EPS outlook within, but at the low end of, our guidance range of $3.50 to $3.60 per share.”

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

Conference Call

Cardinal Health will host a conference call and webcast today at 8:30 a.m. EDT to discuss third quarter results. To access the call and corresponding slide presentation, visit the investor page at cardinalhealth.com or dial 617.213.4852, passcode 62189581. Presentation slides, an audio replay and a transcript will be archived on the Web site after the conclusion of the meeting. The audio replay will also be available until 5 p.m. EDT on May 4 by dialing 617-801-6888, passcode 77373130.

Upcoming events

On June 2, Cardinal Health will be hosting its annual analyst and investor day. This year’s format will feature two separate sessions, one dedicated to Cardinal Health and the second covering the businesses included in the planned spinoff of CareFusion. More information, including webcast details, will be posted on the investor page at cardinalhealth.com.

In addition, Cardinal Health or CareFusion will be participating in the following upcoming events:

  • Cardinal Health will present at the Bank of America and Merrill Lynch 2009 Health Care Conference on May 13 at 11:20 a.m. EDT.
  • CareFusion will present at the Robert W. Baird & Co. Growth Stock Conference on May 14 at 9:20 a.m. EDT.
  • Cardinal Health and CareFusion will present at the Deutsche Bank Healthcare Conference on May 18 at 3:45 p.m. and 4:45 p.m. EDT respectively.
  • Cardinal Health and CareFusion will present at the Goldman Sachs Global Healthcare Conference on June 10 at separate times to be determined.

Company representatives will discuss Cardinal Health’s or CareFusion’s diverse products and services, company performance and strategies for growth at these upcoming events. For more details or to access the live webcasts or transcripts of remarks made at these events, 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 and patient identification systems, MedMined™ electronic infection surveillance service and VIASYS® respiratory care products. The company also manufactures medical and surgical products and is one of the largest distributors of pharmaceuticals and medical supplies worldwide. Ranked No. 18 on the Fortune 500, Cardinal Health employs more than 40,000 people on five continents. More information about the company may be found at www.cardinalhealth.com .



1 Non-GAAP earnings from continuing operations: Earnings from continuing operations excluding (1) special items, (2) impairments, (gain)/loss on sale of assets and other, net and (3) spinoff costs not included in special items or impairments, (gain)/loss on sale of assets and other, net, each net of tax.

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

3 Non-GAAP operating earnings: Operating earnings excluding (1) special items, (2) impairments, (gain)/loss on sale of assets and other, net and (3) spinoff costs not included in special items or impairments, (gain)/loss on sale of assets and other, net.

4 Bulk pharmaceutical 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 pharmaceutical 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 pharmaceutical 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 www.cardinalhealth.com.

Cardinal Health uses its Web site 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 investor page at www.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 and CareFusion’s Form 10 registration statement (including all amendments to those reports and registration statement) and exhibits to those reports and registration statement, and include (but are not limited to) the following: uncertainties related to the deferral in hospital capital spending affecting Cardinal Health’s Clinical and Medical Products segment and difficulties in forecasting the exact duration and potential long-term changes in hospital spending patterns; uncertainties regarding the planned spinoff of CareFusion as a new standalone entity, including the timing and terms of any such spinoff and whether such spinoff will be completed as it is subject to a number of conditions, and uncertainties regarding the impact of the planned spinoff on Cardinal Health, CareFusion 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, including uncertainties and costs relating to complying with the amended consent decree entered into with the FDA and implementing the corrective action plan submitted to the FDA pursuant to the amended consent decree; the effects, timing or success of restructuring programs or plans; 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; uncertainties regarding the ultimate features of government health care reform initiatives and their enactment and implementation; and conditions in the pharmaceutical market and general economic and market conditions. This news release reflects management’s views as of April 30, 2009. 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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