Cardinal Health Inc.
) posted adjusted earnings per share 90 cents for the second
quarter of fiscal 2014, which surpassed the Zacks Consensus
Estimate by 7 cents but fell short of the year-ago level of 93
cents by 3.2% due to lower revenues.
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Net adjusted earnings slid 1.3% to $313 million from $317 million
reported in the second quarter of fiscal 2013. On a reported
basis, net earnings decreased to $275 million or 79 cents per
share in the quarter from $303 million or 88 cents per share in
the year-ago quarter.
Revenues in the quarter went down about 12% to $22,240 million,
due to lower revenues from the Pharmaceutical segment.
Nevertheless, the top line beat the Zacks Consensus Estimate of
Adjusted operating earnings improved 10.3% to $579 million from
$525 million in the year-ago quarter. Consequently, adjusted
operating margin rose 50 basis points (bps) to 2.6% from 2.1% a
Revenues from Cardinal Health's mainstay
segment ebbed 14.5% to $19,443 million, owing to the expiration
of the contract with
), partially offset by higher sales from new and existing
However, segment earnings rose 9.3% to $482 million and segment
profit margin improved 60 bps to 2.5% from 1.9% a year ago on the
back of strong performance of both generic programs and branded
agreements, including the impact of price inflation, partially
offset by the loss of the Walgreens contract.
Revenues from the smaller
segment grew 12.5% to $2,799 million in the quarter, due to the
home health platform, reflecting the acquisition of AssuraMed,
and growth from strategic hospital network accounts. Segment
earnings surged 39.4% to $131 million and segment profit margin
improved 90 bps to 4.7% from 3.8% in the year-ago quarter on the
back of home health.
CAH exited the fiscal second quarter with cash and cash
equivalents of about $2,741 million, up 44.2% from $1,901 million
as of Jun 30, 2013. Total debt stood at $3,934 million as of Dec
31, 2013, up 2.1% from $3,854 million as of Jun 30, 2013.
However, debt-to-capitalization ratio fell 180 bps to 37.4% as of
Dec 31, 2013 from 39.2% as of Jun 30, 2013 due to increase in
In the first half of fiscal 2014, operating net cash flow more
than doubled to $988 million from $438 million in the prior-year
period due to increases in net earnings and depreciation and
amortization, and decreases in trade receivables and inventories.
Capital expenditure increased 45.2% to $90 million from $62
million in the first half of fiscal 2013.
EPS Guidance Raised
For fiscal 2014, CAH raised its forecast for adjusted earnings
per share to the band of $3.75 to $3.85 from the earlier guidance
of $3.62 to $3.72. Management cited the company's efficient
operating performance as the reason behind the upgraded guidance.
The current Zacks Consensus Estimate of $3.70 for the year lies
below the guided range.
We are highly impressed with Cardinal's top-line and bottom-line
results, which comfortably beat the Zacks Consensus Estimate
despite being lower than the year-ago level. Cardinal Health's
strategy of tuck-in acquisitions is yielding positive results as
the AssuraMed acquisition is paying off for the Medical segment.
We are also encouraged by the consistent margin improvement as
CAH continues to benefit from the introduction of generic drugs
in the pharmaceutical industry. The company's generic program
continues to catalyze profitability.
Cardinal Health currently has a Zacks Rank #2 (Buy). Other stocks
from the Medical/Dental Supplies industry include
Align Technology Inc.
) with a Zacks Rank #1 (Strong Buy) and
) with a Zacks Rank #2 (Buy).