Cardinal Health, Inc. (CAH)

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Cardinal Health, Inc. (CAH)

F2Q09 (Qtr End 12/31/08) Earnings Call

January 5, 2009 8:30 am ET


Sally Curley - Sr. VP of IR

Kerry Clark - Chairman and CEO

Jeff Henderson - CFO

George Barrett - Vice Chairman and CEO, Healthcare Supply Chain Services

Dave Schlotterbeck - Vice Chairman, Cardinal Health and CEO, Clinical and Medical Products


Lisa Gill - JPMorgan

Jim Suva - Citigroup

Randall Stanicky - Goldman Sachs

Ricky Goldwasser - UBS

Ross Muken - Deutsche Bank

John Kreger - William Blair

Charles Rhyee - Oppenheimer

Larry Marsh - Barclays Capital

Leo Carpio - Caris & Company



Welcome to the second quarter fiscal 2009 Cardinal Health Earnings Call. My name is Becky and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.

I would now like to turn the presentation over to your host for today's call, Ms. Sally Curley, Senior Vice President of Investor Relations. Please proceed.

Sally Curley

Thank you, Becky and welcome everyone to Cardinal Health call today. Today, we will be making forward-looking statements. The matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to our SEC filings in the forward-looking statements filed at the beginning of our presentation found on the investor page of our website for descriptions of the risks and uncertainties.

In addition, we will reference non-GAAP financial measures. Information about these measures is included at the end of the slides and a transcript of today's call is also posted on our investor web page at

Before, I could turn the call over to Kerry, I'd like to mention a few upcoming events. First, we will be representing next week at the UBS Healthcare conference on February 9th. On March 11th, we'll be presenting at the Barclays Healthcare conference and on June 2nd, I'm pleased to announce, we will be hosting an Analyst and Investor Day focused on new Cardinal Health in the morning and SpinCo or the Clinical and Medical products area in the afternoon.

Details of all of these events will be posted over time on the investor relations section of our website, so please make sure to visit that often for updated information.

Now, I'd like to turn the call over to Cardinal Health's Chairman and CEO, Mr. Kerry Clark.

Kerry Clark

Thanks Sally. Good morning everybody and welcome. I'm pleased to say our second quarter was solid with 8% revenue growth overall. Healthcare Supply Chain Services also grew revenue 8%. And despite the deferral hospital capital equipment purchases and some foreign exchange headwins, Clinical and Medical products posted solid revenue growth of 7%.

Overall, non-GAAP operating earnings for Cardinal Health grew approximately 7% leading to non-GAAP EPS of $0.93. And I'm happy to report that HSCS as a whole returned to profit growth this quarter for the first time in over a year.

Well, we are continuing to progress towards spinning off our Clinical and Medical products businesses, we are still very focused on delivering our financial and operational goals this year. Excellence in execution is the key, and that is what is reflected in our results this quarter.

For Healthcare Supply Chain Services, that means continuing to focus on the right programs, right channels and right profitability levels, while still making important investments for the future. While we are by no means declaring victory on the HSCS, we do feel good about the progress we've made so far.

For Clinical and Medical products, our focus is on delivering clinically differentiated products with a particular emphasis on safety. Despite the slowdown in hospital capital spending, the core business for CMP remains resilient with about 40% of that business coming from disposables.

For both businesses, we're taking the appropriate steps to deal with the current economic environment by making tough choices in spending, while ensuring we still invest in key programs for the future.

Turning to our plan to spinoff Clinical and Medical products, I would simply say that the strategic fundamentals behind the spinoff remain sound, and our execution is on track. We filed the private letter ruling request on the tax-free nature of the transaction with the IRS in last November. And we are on track to file the Form 10 registration statement with the SEC this quarter. We still anticipate an effective date for the spinoff around the middle of this calendar year.

As a reminder, the Form 10 will include the spinoff company's financials. Cardinal Health's pro forma historical financials, reflecting the spinoff will be available separately closer to the effective date of the spin.

Finally, we continue to monitor the financial markets carefully and we remain confident that we'll be able to complete the spinoff. Of course, conditions may change, but based on what we are seeing today, we continue to be optimistic. We are also continuing to monitor our separation costs very carefully and we believe they are reasonable and in line with benchmarks for similar transactions in other companies.

Now I'll turn it over to Jeff to provide you with an overview of our Q2 fiscal performance and more commentary around the credit markets. Jeff?

Jeff Henderson

Thanks, Kerry. Good morning, everyone and thanks for joining us. I'm happy to report a quarter of solid consolidated results, despite the unprecedented economic environment we're in. Although about one month ago, we did adjust our outlook for the remainder of the year, due to the impact of hospital deferrals on capital spending at CMP, the rest of the business remains on track and we continue to make progress in our priorities despite this economic climate.

Dave and George will discuss this in more detail in a few moments. I'm going to take you through the quarterly results including an update on our liquidity position and our outlook for the remainder of the year.

Now let's turn to the consolidated results for the second quarter. Please note that my comments will reflect the financial results from continuing operations on a non-GAAP basis. Consolidated revenues were up 8% to $25.1 billion. Operating earnings were up 7%, to $565 million, which reflects solid operating results across both primary reporting segments. Earnings from continuing operations were up 2% to $335 million, driven by the solid operating results.

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