Cardinal Health, Inc. (CAH)

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Cardinal Health, Inc. (CAH)

F2Q10 (Qtr End 12/31/09) Earnings Call

January 28, 2010 8:30 am ET

Executives

Sally Curley - Senior VP of IR

Jeff Henderson - CFO

George Barrett - Chairman and CEO

Analysts

Charles Boorady - Citigroup

Charles Rhyee - Oppenheimer

Tom Gallucci - Lazard Capital

Lisa Gill - JPMorgan

Randal Stanicky - Goldman Sachs

John Kreger - William Blair

Richard Close - Jefferies

Larry Marsh - Barclays Capital

Ricky Goldwasser - Morgan Stanley

Steven Valiquette - UBS

Blake Goodner - Bridger Capital

Presentation

Operator

Good day ladies and gentlemen and welcome to the Second Quarter 2010 Cardinal Health Earnings Conference Call. My name is Anne and I will be your coordinator for today's call.

(Operator Instructions). As a reminder, this conference is being recorded for replay purposes. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session following the presentation.

I would now like to turn the presentation over Sally Curley, Senior Vice President of Investor Relations. Please proceed.

Sally Curley

Thank you very much and welcome to Cardinal Health second 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 can be 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 and the 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 page at CardinalHealth.com.

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. Notably the UBS Healthcare Services Conference in New York on Monday February 8, the Raymond James Annual Institutional Investors conference in Orlando Florida on Tuesday, March 9 and the Barclays Capital Global Healthcare Conference in Miami on Tuesday, March 23. The details of these events are or will be posted on our IR section of our website at cardinalhealth.com so please make sure to visit that often for updated information.

Finally I would like to ask you to please limit your questions to one with one follow up in order to allow for others to ask questions. Now I would like to turn the call over to George Barrett. George?

George Barrett

Thanks, Sally. Good morning everyone and thanks for joining us on our second quarter call. For those of you following along with the presentation materials, my comments today will largely connect with Slides 4 through 6 and Jeff will cover the others in his remarks.

Let me start by saying I am really pleased with our performance during the second quarter and throughout the first half of fiscal 2010. Our businesses across the enterprise, are executing well against our key initiatives and our people continue to demonstrate their commitment to doing the things necessary to drive long-term and sustainable value for our customers and our shareholders.

As a company, we reported a 3% increase in revenues for Q2 and a non-GAAP EPS number of $0.57 up 12% over the prior year period. Our overall operating performance was better than we originally expected, with the number of our key initiatives already taking hold and with Q2 numbers receiving some benefit from external factors that were more pronounced than we had anticipated.

Our medical segment has had particularly strong year-over-year performance, to date, and our pharmaceutical segment has continued its momentum, performing considerably better than we expected in the second quarter.

Having said this, we all recognize that this is a marathon not a sprint. And we have both opportunities and challenges in front of us. I do believe that we are clear about our course and we are making the progress I would hope to see. Customer focus remains the order of the day. As you have heard me say before we continue to work on further improving the customer experience and we are seeing these efforts show up in our customer loyalty scores with notable gains with the past four quarters in retail independent pharmacy and hospital supplies.

Before I talk about each segment specifically let me comment briefly on our overall results. Our results reflect strong performance, in our base business. And that was driven by a number of things including early positive results from our generic initiative, solid performance under our branded manufacturing agreement, expansion of our retail independent book of business, exceptional performance in nuclear, despite on going supply shortages, continued strong performance in lab and inventory in Canada.

More effective selling strategies across the enterprise and disciplined expense control. I should mention here that we did receive some significant benefit from external factors, which I will touch on in my segment discussion and that Jeff will cover in more detail during his remarks.

Now let me comment on each segment separately starting with pharmaceutical. Our Pharma segment continued its momentum in Q2. Sales increased by 3% versus prior year with segment profit down 1%. This decline was less than we expected. The segment profit decline was driven primarily by the impact of the medicine shop franchise model transition the drop in generic launch value versus the prior year period and the effect of contracted pricings.

These items were partially offset by the benefits we were seeing from our generic sourcing and selling initiatives, some earlier than expected brand price increases and excellent expense management.

Our Pharma segment sales mix in the quarter was 49% to bulk customers and 51% to non-bulk customers. We saw an up tick in sales growth to no-bulk customers at 7% versus the prior year period and a decline of 1% in sales to bulk customers. Within our bulk customer group we have renewed a multi-year contract with Express Scripts during the quarter to supply pharmaceuticals through mid 2012.

As you know, we have a large and very important business supplying national retail chain, and I am very pleased with the strength of those relationships. But if also indicated our desire to grow retail independent direct store business, this is an important group of customers for us and we have seen both sequential and year-over-year sales growth.

Read the rest of this transcript for free on seekingalpha.com