Cardinal Health Tops Earnings Ests, Down Y/Y - Analyst Blog


Cardinal Health Inc. ( CAH ) 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.

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 $20,782 million.

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 year ago.

Segment Results

Revenues from Cardinal Health's mainstay Pharmaceutical segment ebbed 14.5% to $19,443 million, owing to the expiration of the contract with Walgreens Co. ( WAG ), partially offset by higher sales from new and existing customers.

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 Medical 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.

Financial Status

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 shareholder's equity.

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.

Our Take

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. ( ALGN ) with a Zacks Rank #1 (Strong Buy) and Uroplasty, Inc. ( UPI ) with a Zacks Rank #2 (Buy).

ALIGN TECH INC (ALGN): Free Stock Analysis Report

CARDINAL HEALTH (CAH): Free Stock Analysis Report

UROPLASTY INC (UPI): Free Stock Analysis Report

WALGREEN CO (WAG): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ALGN , CAH , UPI , WAG

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