Cardinal Health's Fiscal Q4 Earnings Rise and Beat Estimates - Analyst Blog


Cardinal Health Inc. ( CAH ) posted adjusted earnings per share of 83 cents for the fourth quarter of fiscal 2014 that rose 5.1% from 79 cents in the comparable quarter of fiscal 2013 and edged past the Zacks Consensus Estimate by a couple of cents. Adjusted net earnings upped 3.6% to $284 million from $274 million in the fourth quarter of fiscal 2013.

For the fiscal year, adjusted earnings rose 2.9% to $3.84 per share from $3.73 in fiscal 2013 and inched past the Zacks Consensus Estimate by 2 cents. The rise in earnings despite lower revenues in both the periods is attributable to lower operating expenses in both the quarter (48.5%) and fiscal year (16.5%).

Cardinal Health, Inc - Earnings Surprise | FindTheBest


Revenues in the quarter fell 9.9% to $22,894 million, but surpassed the Zacks Consensus Estimate of $21,779 million. Revenues for the year dipped 9.9% to $91,084 million, but beat the Zacks Consensus Estimate of $89,949 million. The fall in revenues in both the periods is attributable to lower revenues generated from the Pharmaceutical segment.

Operating Expenses and Earnings

Adjusted operating earnings in the quarter slid 2.3% to $461 million from $472 million in the year-ago quarter. However, adjusted operating margin upped 10 basis points (bps) to 2.0% from 1.9% in the year-ago quarter.

Adjusted operating earnings in the fiscal year rose 4.3% to $2,133 million from $2,046 million. Consequently, adjusted operating margin went up 30 bps to 2.3% from 2.0% a year-ago.

Segment Results

Revenues from Cardinal Health's mainstay Pharmaceutical segment ebbed 11.8% to $20,092 million while segment earnings fell 4.6% to $377 million in the quarter. The decline in revenues and earnings is attributable to the expiration of the contract with Walgreens Co. ( WAG ).

Excluding the impact of Walgreens contract expiration, Pharmaceutical revenues for the quarter grew 13%, driven by organic sales growth and improvements in the company's Specialty Solutions division and China. The negative impact of the Walgreens contract expiration was partially offset by strong performance under generic programs.   

For the full year, revenues from the Pharmaceutical segment dipped 12.1% to $80,110 million. However, segment earnings rose marginally by 0.6% to $1,745 million.

Revenues from the smaller Medical segment grew 3.6% to $2,794 million in the quarter, due to strength from existing customers, including strong growth in hospital network accounts and acquisitions. However, segment earnings fell 7.7% to $96 million, driven by year-over-year rise in enterprise incentive compensation and market pressures in Canada.

For the full year, Medical segment revenues rose 9.0% to $10,962 million. Segment earnings increased 19.4% to $444 million.

Financial Condition

Cardinal Health exited the fiscal year with cash and cash equivalents of about $2,865 million, up significantly by 50.7% from $1,901 million as of Jun 30, 2013. Total debt stood at $3,972 million as of Jun 30, 2014, up 3.1% from $3,854 million as of Jun 30, 2013. However, debt-to-capitalization ratio fell 90 bps to 38.3% as of Jun 30, 2014 from 39.2% as of Jun 30, 2013 due to increase in shareholder's equity.

In fiscal 2014, net operating cash flow rose 46.1% to $2,524 million from $1,727 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 27.7% to $249 million from $195 million in fiscal 2013.

EPS Guidance

For fiscal 2015, Cardinal Health predicted adjusted earnings per share in the band of $4.10 to $4.30, reflecting an estimated rise of 6.8 to 12.0% over fiscal 2013. The current Zacks Consensus Estimate of $4.25 for the year lies within the guided range.

Our Take

We are impressed with Cardinal Health's top line and bottom line beats for both the quarter and the year. Although the company's major Pharmaceutical segment continues to deliver poor performance, we appreciate the company's cost control measures.

Cardinal Health currently has a Zacks Rank #3 (Hold). Some better-ranked stocks from the Medical/Dental Supplies industry include Align Technology Inc. ( ALGN ) and McKesson Corporation ( MCK ). Both of them also carry a Zacks Rank #2 (Buy).

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

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

Referenced Stocks: CAH , ALGN , MCK , WAG

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