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Cardinal Health reports second quarter results
02/05/2009
  • Revenue increases 8 percent to $25 billion
  • GAAP earnings from continuing operations decline 2 percent to $319 million and increase 2 percent to $335 million on a non-GAAP basis
  • GAAP diluted earnings per share from continuing operations decline 1 percent to $0.88 and increase 3 percent to $0.93 on a non-GAAP basis

DUBLIN, Ohio, Feb. 5, 2009 — Cardinal Health, a global provider of products and services that improve the safety and productivity of health care, today reported solid fiscal second quarter results driven by top- and bottom-line growth from its supply chain and medical product segments.

For the quarter ended Dec. 31, 2008, revenue grew 8 percent to $25 billion, and non-GAAP earnings from continuing operations1 increased 2 percent to $335 million. GAAP diluted earnings per share (EPS) from continuing operations declined 1 percent to $0.88. The impact of special items, impairments and other costs associated with the proposed spinoff of Clinical and Medical Products (CMP) totaled $16 million after tax or $0.05 per share, bringing non-GAAP diluted EPS from continuing operations2 to $0.93, a 3 percent increase over the prior-year period.

“Despite a very challenging economic climate, we had solid growth from both of our primary operating segments,” said R. Kerry Clark, chairman and chief executive officer of Cardinal Health. “HSCS returned to year over year segment profit growth in the second quarter, and we expect to remain on track with positive growth for the second half of the fiscal year. CMP continued its track record of double-digit segment profit growth, though we continue to see the deferral in hospital spending affecting its performance for the remainder of the fiscal year. We are reaffirming our full-year guidance, adjusted on Jan. 8, of non-GAAP EPS of $3.50 to $3.60. In addition, we remain on track to spin off the CMP businesses later this year and intend to file the Form 10 registration statement with the Securities and Exchange Commission during our fiscal third quarter.”

Q2 FY09 Summary

 

Q2 FY09

Q2 FY08

Y/Y

Revenue

$25.1 billion

$23.3 billion

8%

       

GAAP Operating Earnings

$538 million

$519 million

4%

Non-GAAP Operating Earnings3

$565 million

$526 million

7%

       

GAAP Earnings from Continuing Operations

$319 million

$325 million

(2)%

Non-GAAP Earnings from Continuing Operations

$335 million

$329 million

2%

       

GAAP Diluted EPS from Continuing Operations

$0.88

$0.89

(1)%

Non-GAAP Diluted EPS from Continuing Operations

$0.93

$0.90

3%

Second Quarter Segment Results

Healthcare Supply Chain Services

Healthcare Supply Chain Services increased revenue by 8 percent to $24.1 billion, driven by higher sales to existing pharmaceutical and medical supply chain customers. Sales to bulk pharmaceutical customers4 increased 15 percent to $11 billion and sales to non-bulk pharmaceutical customers5 increased 2 percent to $11 billion. Segment profit grew 6 percent to $333 million, primarily from an increased contribution from generic sales, inflation from branded pharmaceuticals, the increase in total segment sales volume and growth from nuclear pharmacy services. Segment profit growth was partially dampened by previously reported pharmaceutical contract re-pricings and continued disruption from anti-diversion efforts for pharmaceutical supply chain customers. During the quarter, the company resumed shipments of controlled substances from all distribution centers.

“We built upon the momentum from the first quarter and returned the segment to growth during the quarter, with solid contributions from both the pharmaceutical and medical supply chain businesses,” said George Barrett, Cardinal Health vice chairman and chief executive officer of Healthcare Supply Chain Services. “In addition to the pharmaceutical distribution business, our nuclear pharmacy services and hospital supply businesses performed very well in the quarter with strong profit growth. We remain on track to achieve our goals for fiscal 2009.”

Healthcare Supply Chain Services

Q2 FY09

Q2 FY08

Y/Y

Revenue

$24.1 billion

$22.3 billion

8%

Segment Profit

$333 million

$315 million

6%

Clinical and Medical Products

Revenue for Clinical and Medical Products increased 7 percent to $1.2 billion, primarily driven by organic growth from the dispensing, infusion and infection prevention businesses and the Enturia acquisition. Segment revenue was dampened by 3 percentage points due to foreign exchange rates during the quarter. Segment profit increased 16 percent to $198 million, driven by revenue growth, the Enturia acquisition and disciplined expense control. Segment profit was significantly dampened by foreign exchange rates and increased raw material costs.

“We continue to see remarkable growth from the Enturia acquisition, and continued top- and bottom-line growth in infusion and dispensing during the quarter,” said David Schlotterbeck, Cardinal Health vice chairman and chief executive officer of Clinical and Medical Products. “Despite a strong second quarter, we continue to expect full-year segment profit to be flat or better because of the delay in hospital capital spending that is expected to impact the second half of our fiscal year.”

Clinical and Medical Products

Q2 FY09

Q2 FY08

Y/Y

Revenue

$1.2 billion

$1.1 billion

7%

Segment Profit

$198 million

$171 million

16%

Additional Second Quarter and Recent Highlights:

  • Nuclear Pharmacy Services signed new, long-term supply agreements with Lantheus Medical Imaging and GE Healthcare to ensure continued and broadened access to their portfolio of products including Cardiolite®, Myoview™ and other proprietary products.
  • Announced a five-year supply and co-marketing agreement with SRI Surgical® to offer surgical kits that include disposable health care products from Cardinal Health and reusable health care products from SRI Surgical®.
  • Awarded one of the largest infusion contracts in company history that will provide 8,000 IV channels to Sutter Health, a leading not-for-profit network of community-based health care providers in Northern California.
  • Launched the Pyxis® MedStation® 4000 automated medication dispensing system that offers new features to help hospitals increase the security of high-alert medications and reduce medication errors.
  • Introduced an industry-first Performance Analytics Service that provides hospitals with customized, actionable recommendations to help improve medication safety.

Conference Call

Cardinal Health will host a conference call and webcast today at 8:30 a.m. EST to discuss second quarter results. To access the call and corresponding slide presentation, visit the investor page at cardinalhealth.com or dial 617.213.4845, passcode 86908096. 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 11 p.m. EST on Feb. 7 by dialing 617.801.6888, passcode 38752008.

Upcoming Events

George Barrett, Cardinal Health vice chairman and chief executive officer of Healthcare Supply Chain Services, will address investors at the UBS Global Healthcare Services Conference in New York on Feb. 9 at 10 a.m. EST. Barrett will also address investors at the Barclays Capital Global Healthcare Conference in Miami on March 11. He will discuss Cardinal Health’s diverse products and services, company performance and strategies for growth at both conferences. For more details or to access the live webcasts or transcripts of his remarks, go to the investors page at cardinalhealth.com.

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 proposed spinoff of Clinical and Medical Products. More information, including webcast details, will be posted on the investor 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 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) spin-off 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) spin-off 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 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 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 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 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 the clinical and medical products businesses as a new stand-alone entity, including the timing and terms of any such spinoff and whether such spinoff will be completed, and uncertainties regarding the impact of the planned spinoff 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 for Cardinal Health; the potential impact on Cardinal Health’s customers and vendors of declining economic conditions, which could impact Cardinal Health’s earnings and cash flow; and conditions in the pharmaceutical market and general economic and market conditions.  This news release reflects management's views as of Feb. 5, 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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