Cardinal Health, Inc. (CAH)

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Cardinal Health, Inc. (CAH)

F1Q10 Earnings Call

November 5, 2009 8:30 am ET


Sally Curley – Senior Vice President Investor Relations

George Barrett – Chairman and CEO

Jeff Henderson – Chief Financial Officer


Atif Rahim – JP Morgan

Randall Stanicky – Goldman Sachs

John Kreger – William Blair

Eric Coldwell – Robert W. Baird

Larry Marsh – Barclays Capital

Ross Muken – Deutsche Bank

Colleen Lang – Lazard Capital

Steven Valiquette – UBS

Chris Smith – Sanford Bernstein

Blake Goodner - Bridger Capital

[Jaron] – Citi

Dana Hambly – Jefferies & Co.



(Operator Instructions) Welcome to the First Quarter Fiscal 2010 Cardinal Health Conference Call. Now I would now like to turn the conference over to your host for today, Ms. Sally Curley, Senior Vice President of Investor Relations.

Sally Curley

Welcome to Cardinal Health first quarter fiscal 2010 conference call. 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 and the forward looking statement slide at the beginning of our presentation which is found on the investor page of our website for a description of those risks and uncertainties. In addition, we will reference non-GAAP financial measures; information about non-GAAP financial measures is included at the end of the slides. A transcript of today’s call is also posted on our investor web page.

Before I turn the call over to our Chairman and CEO, George Barrett, I’d like to remind you of a few upcoming investor conferences in which we will be participating this month. Notably, the Credit Suisse Healthcare Conference on November 12, and the Lazard Capital Markets Healthcare Conference on November 17. The details of these events are or will be posted on the IR section of our website at so please make sure to visit that site often for updated information.

Now I’d like to turn the call over to Mr. George Barrett.

George Barrett

I’m very pleased with our progress in this first fiscal quarter as the new Cardinal Health. We posted a 6% increase in revenues and reported a non-GAAP EPS number of $0.54 for the quarter up 15% over last year’s quarter. Our overall operating performance was better then we originally anticipated with both of our segments performing well. Our Medical segment showed strong earnings growth and our Pharma segment performed somewhat better then expected.

Our Q1 numbers were boosted by the positive impact of few noteworthy items; these included an accelerated revenue recognition item in our Medical segment related to the spin-off and some early then expected price increased from a few brand manufacturers. The impact from restructuring, impairments and other costs associated with the spin-off of CareFusion did bring GAAP earnings from continuing operations to a loss of $62 million net of tax for the quarter with the main driver being $172 million tax charge for the anticipated repatriation of cash. Jeff will cover this in more detail later.

I continue to be encouraged by our progress and the renewed energy I seem among our employees. We remain focused on our priorities to sustain improved performance and we’re tracking well against the work we need to get done. We came into this transition year knowing what we needed to tackle and while I’m proud of what we’ve accomplished to date we recognize that there is still much to do.

As I walk you through our performance I’ll touch on many of the key initiatives we talked about in August. There are also three broad themes that you’ll hear throughout my comments this morning:

Building a customer centric organization

Driving performance management

Positioning the company for the future.

Our work to improve the customer experience in both our Medical and Pharmaceutical segments continues. We’re making investments and adapting our organization to better serve the customers and to reinforce a mindset that everything we do begins and ends with our customers. Having said this, we are taking a disciplined approach to customer profitability analysis, even though it resulted in a couple of lost customers in the quarter. The loss of these customers will dampen our revenue growth for the remainder of the year, although the impact on profitability is much less significant.

Our Pharma segment continued its progress in Q1. Sales increased by 5% versus prior year with profits down 2%, better then we had expected. As you know, we had anticipated a steeper year over year decline in the first quarter based on a number of factors the largest of which was the decline in generic launch value versus prior year. Our organization has done a good job of compensating for the headwind and we had the benefit of some earlier then expected brand price increases that cumulatively had a positive impact.

Our Pharma mix was again roughly 50/50 bulk to non-bulk. We did however see a more balance growth with bulk and non-bulk both growing at approximately 5% to 6%. I would point out that the rate of growth in our non-bulk business as well as growth in our non-bulk margins are encouraging signs of progress in our underlying business, particularly given the decline in generic launch value and generic deflation relative to last year’s Q1.

We have devoted considerable organizational resources to improving our generics business. While the particularly robust generic launch activity in Q1 of last year did create a difficult year over year comparison it does track with our expectations for the year and I’m pleased with the progress we are making here. Despite considerable generic deflation on certain key products launched last year our Q1 generic fills were up nearly 2% and in our retail independent business we saw sequential quarter growth in dollars and in generic compliance to our source program.

On the generic sourcing side we also decreased our number of generic supplier significantly from approximately 120 down to roughly 30 and we’re confident that our enhanced relationships with generic drug manufacturers will provide incremental value to our customers, to Cardinal Health, and to our generic partners. These sourcing changes will roll out through the course of the year as we conclude existing agreements and work with our customers to avoid any disruption downstream.

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