Cardinal Health Inc
) posted fiscal 2013-fourth quarter earnings per share of 79
cents (excluding one-time charges and gains), up 8% year over
year from 73 cents in the year-ago quarter. Earnings per share
edged past the Zacks Consensus Estimate of 77 cents by 2.6%.
On a reported basis, Cardinal incurred net loss of $586 million
(or $1.72 per share) in the reported quarter, a considerable
slide from net earnings of $236 million (68 cents) in the
prior-year quarter. The downfall was attributed to goodwill
impairment charge within the company's nuclear franchise.
Adjusted earnings per share in fiscal 2013 rose 16% to $3.73 from
$3.21 a year ago, reflecting a beat of 5.7% over the Zacks
Consensus Estimate of $3.53.
Revenues in the fourth quarter went down 5% to $25,420 million,
due to lower revenues from the Pharmaceutical segment.
Nonetheless, the top line beat the Zacks Consensus Estimate of
Revenues in the fiscal year declined 6% to $101,093 million.
However, it sailed past the Zacks Consensus Estimate of $100,237
Cardinal's mainstay Pharmaceutical segment witnessed a 6% decline
in revenues to $22,783 million in the quarter, owing to
non-renewal of the contract with
Express Scripts Holding Company
). The decline was partly mitigated by expanded customer
Revenues from the smaller Medical segment improved 11% to $2,697
million in the quarter, on the back of the AssuraMed buyout and
robust contributions from the preferred products portfolio. The
increase was partially offset by sustained volume pressure for
Gross profit climbed 10% from the year-ago quarter to $1,247
million. As a result, gross margin expanded 70 basis points (bps)
to 4.9%. Adjusted operating earnings increased 11% to $472
million in the quarter. Consequently, adjusted operating margin
expanded 30 bps to 1.9%.
Pharmaceutical segment profit rose 11% to $395 million on the
heels of the generic wave and robust contributions from the
branded manufacturer agreements. Segment profit margin improved
to 1.73% from 1.46% a year ago.
Profit from the Medical segment shot up 31% to $104 million, led
by good performance of preferred offerings and the takeover of
AssuraMed. Segment profit margin was 3.86% in the quarter, up
from 3.27% in the prior-year quarter.
Balance Sheet and Cash Flow
Cardinal exited fiscal 2013 with cash and equivalents of about
$1,901 million, down 16.4% from $2,274 million as of Jun 30,
2012. Total borrowings at the end of the fiscal year stood at
$3,854 million up 33.2% from $2,418 million as of Jun 30, 2012.
Net cash provided by operating activities was $300 million in the
reported quarter. Net capital expenditure was $92 million in the
quarter compared with $101 million a year ago.
Cardinal exhausted its $250 million share repurchase program in
the fourth quarter. The company's consistent share buyback
activity led to a 1.4% reduction in share count, thereby
leveraging earnings. Moreover, the company declared a 10% hike in
its quarterly dividend to 30.25 cents per share.
For fiscal 2014, Cardinal forecast adjusted earnings per share
from continuing operations in the band of $3.45 to $3.60.
According to the company, the guidance takes into account the
impact from the non-renewal of the
) contract. The current Zacks Consensus Estimate of $3.54 for the
year lies within the outlook band.
Cardinal exited fiscal 2013 on a positive note with healthy
quarterly results. Despite lower revenues, the company's lower
share count, margin improvement and favorable business mix led to
Although the company continued to struggle on the sales front,
the top line in the fourth quarter as well as fiscal 2013 beat
the Zacks Consensus Estimate by a significant margin. The
company's strategy of tuck-in acquisitions is yielding positive
results as AssuraMed acquisition is paying off for the Medical
We are also encouraged by the consistent margin improvement as
Cardinal continues to benefit from the introduction of generic
drugs in the pharmaceutical industry. The company's generic
program continues to catalyze profitability. Although margins are
thin in its bulk pharmaceutical business, the evolving business
mix in favor of the higher-margin medical business should lend
further upside to company-wide margins.
While Cardinal continues to ride the generic wave, we are wary
that it might come to naught following the loss of lucrative
contracts. Walgreens was largely a purchaser of generics from
Cardinal. The existing contract between the companies is set to
expire in Aug 2013 as Walgreens replaced its current
pharmaceutical distributor Cardinal with a decade-long deal with
Despite several growth drivers, Cardinal's sluggish top-line,
client concentration and loss of contract might hurt its
performance going forward. The stock currently carries a Zacks
Rank #3 (Hold).
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