Cardinal Health (CAH)
Q2 2011 Earnings Call
February 03, 2011 8:30 am ET
Jeffrey Henderson - Chief Financial Officer
George Barrett - Chairman, Chief Executive Officer and Chairman of Executive Committee
Sally Curley - VP IR
George Hill - Leerink Swann
Ricky Goldwasser - Morgan Stanley
Robert Jones - UBS
Ross Muken - Deutsche Bank AG
Steven Valiquette - UBS Investment Bank
Albert Rice - Susquehanna Financial Group, LLLP
Lawrence Marsh - Barclays Capital
Glen Santangelo - Crédit Suisse AG
Colleen Lang - Merrill Lynch
Previous Statements by CAH
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Thank you, Shaquana, and welcome to Cardinal Health's Second Quarter Fiscal 2011 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 the SEC filings and the forward-looking statement slide at the beginning of the presentation which is found on the Investor page of our website for a description of risks and uncertainties. In addition, we will reference non-GAAP financial measures, information about these measures is included at the end of the slide.
Before I turn the call over to Chairman and CEO George Barrett, I'd like to review remind you of a few upcoming investor conferences and events in which we will be webcasting. Notably, the UBS Annual Healthcare Conference on February 7 at 11:30 a.m. at the Grand Hyatt in New York. The Citigroup Global Healthcare Conference on March 1 at 8:30 a.m. at this New York Hilton. And the Barclays Capital Global Healthcare Conference on March 16 at 9:00 a.m. at the Loews Hotel in Miami. The details of these events are or will be posted on the IR section of our website at 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 Barrett. George?
Thanks, Sally. Good morning, everyone, and thank you for joining us on our second quarter call. I'm really pleased with our operating performance during the second quarter and throughout the first half of fiscal 2011. We reported revenues for the second quarter of $25.4 billion up 2% over the prior-year period, and a non-GAAP EPS number of $0.69 up 21%. Our operating performance in the quarter was driven by excellent results in our Pharmaceutical segment and we continued our disciplined management of expenses and working capital. We also continue to strengthen our core businesses and position our company to deliver sustained growth. Based on our performance in the first half of fiscal 2011, execution on our recent acquisitions and our best assessment of the current environment, we are increasing our full year fiscal 2011 guidance, and now expect our non-GAAP earnings to be in the range of $254 million to $260 million. Jeff will walk you through our core assumptions during his remarks.
Now let me provide some color on each segment separately. Our Pharma segment continued its momentum in the second quarter. Revenue increased by 2% versus prior year, primarily driven by a 6% growth in sales to non-bulk customers. Segment profit increased 11% on strong generic growth as well as excellent performance within our Specialty Solutions business. And we continue to solidify our relationships with our national retail chain customers highlighted by the early renewal of our contract with Walgreens that now extends through our fiscal 2013.
Since our last quarterly earnings call, we also completed two acquisitions which we expect will contribute to earnings in the second half of our fiscal year, and both of which will have important strategic implications. Kinray, which increases our retail independent pharmacy base by 40%, adding balance to our customer mix and better positioning us for the emerging opportunities in generic drugs. And Yong Yu, which gives us a well-established and growing distribution player in China and provides us with a platform in one of the world's largest and fastest-growing healthcare markets.
The acquisition of Kinray gives us a strong position in New York and the surrounding states, and adds more than 2,000 retail independent customers. We have continued to serve them using the high-touch service model they have come to expect. We have kept Kinray's New York distribution facility and have supported these customers with the same sales and customer service teams with which they are familiar. I can report that these new customers have been supportive and that we have retained all primarily Kinray customers to date.
The Yong Yu transition has gone equally well. Our teams are engaged and we are learning quickly from each other. We see the opportunity for growth driven by powerful and healthy organic forces, population size, per capita income growth, industry consolidation and a national policy which supports and is investing in access to healthcare for all citizens. Aspects of the distribution model, very similar from our U.S. system, but we share critical value drivers, logistics expertise, management of working capital and operational excellence, all fundamental for us.
Further, we are encouraged by the dialogues we are having with our upstream branded pharmaceutical supplier partners as well as medical device companies about their commitment to China and the opportunities to work together. Both Yong Yu and Kinray represent strategic investments that help position us well for today and for tomorrow. We are excited about the potential and we have now turned our attention to the execution of our plan to integrate these moves and to create value for our customers, our supplier partners and our shareholders.