Cardinal Health (CAH)
Q1 2011 Earnings Call
October 28, 2010 8:30 am ET
Company Speaker -
Jeffrey Henderson - Chief Financial Officer
George Barrett - Chairman, Chief Executive Officer and Chairman of Executive Committee
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Thank you, Janeda, and welcome to Cardinal Health's First Quarter Fiscal 2011 Conference Call. Sally couldn't be with us today due to a death in her family, which is why I'm providing the introduction to today's call.
Today, we will be looking at 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 the SEC filings and the Forward-Looking Statement slide at the beginning of our presentation 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.
Before I turn the call over to Chairman and CEO, George Barrett, I would like to remind you of a few upcoming investment conferences and events in which we will be participating and webcasting. Notably, the annual meeting of Cardinal Health shareholders on November 3 at the Cardinal Health headquarters in Dublin, Ohio; 2010 Credit Suisse Healthcare Conference on November 10 at the Arizona Biltmore in Phoenix; Lazzard Healthcare Conference on November 16 at the St. Regis Hotel in New York; Cardinal Health Investor Day and Analyst Day on December 7 at the Hudson Theatre in New York. The details of these events are or will be posted on the Investor Relations Events section of our website at www.cardinalhealth.com. So please make sure to visit the site often for updated information. We look forward to seeing you at the upcoming events.
Now I'd like to turn the call over to George. George?
Thanks, John, and our thoughts go out to Sally and her family during this difficult time.
Good morning, everyone, and thank you for joining us on our first quarter's call. Our fiscal 2011, or Q1 fiscal 2011, is up to a very good start. We reported revenues for the first quarter of $24.4 billion and a non-GAAP EPS number of $0.64, up 19% over the prior year period.
And while we had a slight decline in overall revenues on a year-over-year basis, we generated a healthy expansion in gross margins and held SG&A essentially flat to the prior year. Our strong operating performance in the quarter was driven by excellent results in our Pharmaceutical segment, offsetting an expected difficult year-over-year comparison in our Medical segment.
Overall, we continued our momentum coming out of fiscal 2010, strengthening the core of our business so we have a strong foundation from which to grow, with particular emphasis on margin expansion, disciplined management of working capital, growing generics at an accelerated rate and enhancing the customer experience.
Our customer work is beginning to produce results as we look at our record of contract wins and renewals in the Medical segment and a continued strength with our retail independent customer base. We have a very strong balance sheet and continue to manage it carefully. And during the quarter, we demonstrated our commitment to a balanced capital deployment strategy. We increased our quarterly dividend payment. We completed the acquisition of Healthcare Solutions, and we repurchased $250 million in shares. Our operating initiatives are on track, and we continue our progress in positioning our company to deliver sustained growth.
Now let me provide some additional color on each segment separately.
Performance in our Pharmaceutical segment, and in particular, our Pharma Distribution business, really drove the company's overall operating performance in the quarter. Segment sales were down 1% versus the prior year period due to a drop in sales to existing bulk customers and the impact from the previously disclosed loss of two large-revenue customers last year. We will begin to lap those losses in the second half of fiscal 2011. Despite the slight decline in revenue, segment profit was outstanding, up 42% versus the first quarter of last year. And our segment profit rate increased by a robust 41 basis points.
Our improved profitability was driven primarily by outstanding performance in our Generics business, various initiatives focused on improving margins and solid performance in our branded manufacturer agreements. We continue to build our capabilities and services to support our branded pharma partners. And as a result, these relationships are strong.
As I mentioned, we had an excellent performance across our generic activities, both on the sales and sourcing side. Let me take a moment to provide a little more color on our progress in these areas.
Our generic penetration continues to be a focus, and the team is executing exceptionally well in our source program across our retail independent customers and with our retail buying groups. The SOURCE program is our most comprehensive generics offering and includes nearly 4,000 generic drugs that make up, esentially, all of the retail pharmacies' product needs.
SOURCE revenues was up a robust 34% in the quarter versus the first quarter of last year. We have improved our execution on generic launches and have continued to enlist customers in our First Script auto shipment program. Success with these generic programs is resulting in value for our customers, for our suppliers and for us.