Cardinal Health (CAH) FY 2025 Conference September 04, 2025 11:00 AM ET Company ParticipantsMatt Sims - VP - IRJason Hollar - Director & CEOConference Call ParticipantsStephen Baxter - Senior Equity Research AnalystStephen BaxterOkay, great. Well, morning. Steve Baxter, the healthcare services analyst here at Wells Fargo. We're very pleased to have Cardinal help with us today. So Cardinal is one of the largest drug distributors in The U.S. And operates a handful of other businesses we're going to touch on t ...

Core Viewpoint - Cardinal Health (CAH) has experienced a downtrend with a 9.1% decline over the past four weeks, but it is now in oversold territory, suggesting a potential turnaround due to analysts' positive earnings outlook [1] Group 1: Technical Indicators - The Relative Strength Index (RSI) is a momentum oscillator that indicates whether a stock is oversold, with readings below 30 typically signaling this condition [2] - CAH's current RSI reading is 27.62, indicating that heavy selling may be exhausting itself, which could lead to a price rebound [5] Group 2: Fundamental Analysis - Analysts have shown strong agreement in raising earnings estimates for CAH, with a 0.7% increase in the consensus EPS estimate over the last 30 days, which often correlates with price appreciation [7] - CAH holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimate revisions and EPS surprises, further supporting the potential for a near-term turnaround [8]

Core Insights - Cardinal Health, Inc. reported fourth-quarter fiscal 2025 adjusted earnings per share (EPS) of $2.08, exceeding the Zacks Consensus Estimate of $2.03 by 2.5% and reflecting a 13% year-over-year improvement [1] - The company raised its fiscal 2026 earnings guidance, anticipating adjusted EPS between $9.30 and $9.50, up from a previous outlook of $9.10-$9.30 [9] Revenue Details - Total sales for the quarter were flat year-over-year at $60.2 billion, missing the Zacks Consensus Estimate by 0.8% [2] Segmental Analysis - **Pharmaceutical and Specialty Solutions**: Revenues were nearly flat at $55.4 billion year-over-year, but excluding the impact of a customer contract expiration, sales increased by 22% [3] - **Pharmaceutical Profit**: Totaled $535 million, an 11% increase from the previous year, driven by growth in brand and specialty products [4] - **Global Medical Products and Distribution**: Revenues reached $3.2 billion, up 3% year-over-year, with profits increasing from $47 million to $70 million [4] - **Other Segment**: Sales grew by 37% year-over-year to $1.6 billion, with profits rising 44% to $160 million [5] Margin Analysis - Gross profit increased by 17% year-over-year to $2.2 billion, with a gross margin of 3.7%, expanding approximately 50 basis points [6] Financial Update - The company ended the quarter with cash and cash equivalents of $3.33 billion, down from $3.81 billion in the previous quarter, while net cash provided by operating activities was $2.91 billion compared to a net cash usage of $27 million in the prior year [8] 2026 Outlook - The company expects revenues from the Pharmaceutical segment to grow by 11-13% year-over-year, with segmental profit also anticipated to increase by 11-13% [9] - Medical segment revenues are estimated to grow by 2-4%, while the Other segment is projected to see revenue growth of 26-28% [10] Conclusion - Cardinal Health's fourth-quarter results showed mixed performance, with earnings exceeding estimates but revenues falling short. Profit growth was observed across all segments, particularly in Pharmaceutical and Specialty Solutions, Global Medical Products, and the Other segment [11]

Financial Data and Key Metrics Changes - The company reported a 19% increase in operating earnings for Q4 and a 15% increase for the year [10] - EPS grew by 13% in Q4 and over 9% for the year [10] - Adjusted free cash flow for the year was $2.5 billion, exceeding expectations by $500 million [11] - Total company revenue was relatively flat at $60.2 billion, but increased by 21% when adjusting for contract expiration [12] - Gross profit grew 17% to $2.2 billion, with a gross margin improvement of approximately 50 basis points [12] Business Line Data and Key Metrics Changes - Pharmaceutical segment revenue was flat at $55.4 billion, but increased by 22% excluding customer contract expiration [16] - The Pharma segment profit increased by 11% to $535 million, driven by brand and specialty pharmaceutical sales [16] - GMPD revenue grew 3% to $3.2 billion, with segment profit reaching $70 million, its highest quarter [18] - Other growth businesses reported a 37% revenue increase to $1.6 billion and a 44% profit increase to $160 million [19] Market Data and Key Metrics Changes - The company saw strong pharmaceutical demand across all business areas, including brand, specialty, generics, and consumer health [16] - The At Home Solutions segment, including the ADS acquisition, experienced significant growth, contributing to overall revenue increases [20] - The nuclear and precision health solutions segment outpaced the market, with revenue growth over 30% [44] Company Strategy and Development Direction - The company is focused on driving simplification and operational efficiencies while making strategic investments for growth [6] - The acquisition of Solaris Health is expected to enhance the company's position in the specialty market, particularly in urology [7][38] - The company aims to expand its distribution capabilities and modernize its technology platforms to enhance customer service [35] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for fiscal year 2026, expecting EPS growth of 13% to 15% [23] - The company anticipates continued strong demand across its business segments, with a focus on customer experience as a key differentiator [34] - Management remains confident in the company's resilient business model amid regulatory changes and market dynamics [49] Other Important Information - The company completed four strategic acquisitions during the year, including Green Specialty and ADS [11] - The effective tax rate for the fourth quarter was 26.3%, slightly higher than the previous year [13] - The company plans to maintain a baseline of annual share repurchases at $750 million [32] Q&A Session Summary Question: Can you discuss the updated guidance for the Pharmaceutical and Specialty Solutions division? - Management confirmed that the guidance was raised by $0.20, with half attributed to liability classification and the other half to higher expectations for Pharma and other businesses [54] Question: What are the drivers behind the increase in SG&A? - Management indicated that the majority of the SG&A increase is tied to recent acquisitions, with ongoing efforts to simplify and optimize operating costs [58] Question: Can you elaborate on the gross profit performance and margin expansion? - Management noted that the emphasis on specialty distribution and additional revenue streams from MSO acquisitions contributed positively to the overall gross profit profile [68] Question: What are the utilization trends in the GMPD segment? - Management stated that utilization remains consistent, with ongoing efforts to increase penetration of Cardinal Health branded products [73] Question: Can you provide insights on the Solaris acquisition and its impact? - Management highlighted that Solaris Health adds significant capabilities and revenue streams, enhancing the company's position in the urology market [81][84]

Financial Data and Key Metrics Changes - The company reported a 19% increase in operating earnings for Q4 and a 15% increase for the year [9] - EPS grew by 13% in Q4 and over 9% for the year [9] - Adjusted free cash flow for the year was $2.5 billion, exceeding expectations by $500 million [10] - Total company revenue was $60.2 billion, relatively flat on a reported basis, but increased by 21% when adjusting for contract expiration [10][11] - Gross profit grew 17% to $2.2 billion, with a gross margin improvement of approximately 50 basis points [11] Business Line Data and Key Metrics Changes - Pharmaceutical segment revenue was flat at $55.4 billion, but increased by 22% excluding customer contract expiration, driven by brand and specialty pharmaceutical sales [14] - The GMPD segment saw a 3% revenue increase to $3.2 billion, with segment profit reaching $70 million, its highest profit quarter [16] - Other growth businesses reported a 37% revenue increase to $1.6 billion, with segment profit increasing 44% to $160 million [17] Market Data and Key Metrics Changes - The company experienced strong pharmaceutical demand across all business areas, including brand, specialty, generics, and consumer health [14] - The At Home Solutions segment, including the ADS acquisition, saw significant growth, contributing to the overall revenue increase [18] Company Strategy and Development Direction - The company is focused on driving simplification and operational efficiencies while making strategic investments for growth [5] - The acquisition of Solaris Health is expected to enhance the company's position in the specialty market, particularly in urology [6][35] - The company aims to expand its distribution capabilities and modernize its technology platforms to support long-term growth [33] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for fiscal year 2026, expecting EPS growth of 13% to 15% [21] - The company remains confident in its resilient business model and ability to navigate regulatory changes [46] - Management highlighted strong demand across the business and a positive outlook for the upcoming fiscal year [62] Other Important Information - The company completed four strategic acquisitions during the year, including Green Specialty and At Home Solutions [10] - The ending cash balance for fiscal year 2025 was $3.9 billion, reflecting strong cash flow generation [20] Q&A Session Summary Question: Can you discuss the updated guidance for the Pharmaceutical and Specialty Solutions division? - Management confirmed that the guidance was raised by $0.20, with half attributed to liability classification and the other half to higher expectations for Pharma and other businesses [50] Question: What are the drivers of the SG&A increase quarter over quarter? - Management indicated that the increase in SG&A was primarily due to recent acquisitions, with ongoing efforts to simplify and optimize operating costs [55] Question: Can you elaborate on the gross profit performance in the quarter? - Management noted that the margin expansion was driven by a favorable mix, particularly from specialty distribution and MSO acquisitions [66] Question: What are the utilization trends across the GMPD segment? - Management stated that utilization remains consistent, with ongoing efforts to increase penetration of Cardinal Health branded products [72] Question: What capabilities does Solaris Health bring to the company? - Management highlighted that Solaris Health adds over 750 providers and diverse revenue streams, enhancing the company's MSO structure [81]

Financial Performance - Q4 FY25 - Revenue remained flat at $60.159 billion[9] - Gross margin increased by 17% to $2.202 billion[9] - Operating earnings increased by 7% to $428 million on a GAAP basis and 19% to $719 million on a non-GAAP basis[9] - Net earnings increased by 2% to $239 million on a GAAP basis and 11% to $501 million on a non-GAAP basis[9] - Diluted EPS increased by 4% to $1.00 on a GAAP basis and 13% to $2.08 on a non-GAAP basis[9] Segment Performance - Q4 FY25 - Pharmaceutical and Specialty Solutions revenue decreased by 0% to $55.372 billion, while segment profit increased by 11% to $535 million[11] - Global Medical Products and Distribution revenue increased by 3% to $3.199 billion, and segment profit increased significantly by 49% to $70 million[15] - Other (NPHS, at-Home Solutions, and OptiFreight) revenue increased by 37% to $1.609 billion, with segment profit increasing by 44% to $160 million[20] Financial Performance - FY25 - Revenue decreased by 2% to $222.578 billion[28] - Gross margin increased by 10% to $8.168 billion[28] - Operating earnings increased significantly by 83% to $2.275 billion on a GAAP basis and 15% to $2.786 billion on a non-GAAP basis[28] - Net earnings increased significantly by 83% to $1.561 billion on a GAAP basis and 7% to $1.995 billion on a non-GAAP basis[28] - Diluted EPS increased significantly by 87% to $6.45 on a GAAP basis and 9% to $8.24 on a non-GAAP basis[28] Segment Performance - FY25 - Pharmaceutical and Specialty Solutions revenue decreased by 3% to $204.644 billion, but segment profit increased by 12% to $2.258 billion[30] - Global Medical Products and Distribution revenue increased by 2% to $12.636 billion, with segment profit increasing significantly by 47% to $135 million[35] - Other (NPHS, at-Home Solutions, and OptiFreight) revenue increased by 19% to $5.382 billion, and segment profit increased by 22% to $516 million[40] FY26 Outlook - Non-GAAP EPS is expected to be in the range of $9.30 - $9.50, revised from the previous outlook of $9.10 to $9.30[48] - Interest and Other expenses are projected to be approximately $275 million[48] - Non-GAAP adjusted free cash flow is expected to be between $2.75 billion and $3.25 billion[48]

Core Insights - Cardinal Health reported fourth quarter fiscal year 2025 revenues of $60.2 billion, which is relatively flat compared to the same period in fiscal year 2024. Excluding the impact of a customer contract expiration, revenue increased by 21% [1][12] - The company achieved GAAP operating earnings of $428 million and GAAP diluted earnings per share (EPS) of $1.00 for the fourth quarter. Non-GAAP operating earnings rose by 19% to $719 million, with non-GAAP diluted EPS increasing by 13% to $2.08 [1][12] - For the full fiscal year 2025, revenues totaled $222.6 billion, a 2% decrease from fiscal year 2024. However, revenue increased by 18% when excluding the impact of the customer contract expiration [2][12] - Cardinal Health's CEO highlighted the operational strength across all five operating segments, which experienced double-digit profit growth, indicating effective execution of the company's growth strategy [3][12] Financial Performance - Fourth quarter fiscal year 2025 summary: - Revenue: $60.2 billion (Q4 FY24: $59.9 billion) - GAAP operating earnings: $428 million (Q4 FY24: $401 million, 7% increase) - Non-GAAP operating earnings: $719 million (Q4 FY24: $605 million, 19% increase) - Non-GAAP diluted EPS: $2.08 (Q4 FY24: $1.84, 13% increase) [4][12] - Full year fiscal year 2025 summary: - Revenue: $222.6 billion (FY24: $226.8 billion, 2% decrease) - GAAP operating earnings: $2.3 billion (FY24: $1.2 billion, 83% increase) - Non-GAAP operating earnings: $2.8 billion (FY24: $2.4 billion, 15% increase) - Non-GAAP diluted EPS: $8.24 (FY24: $7.53, 9% increase) [2][4] Segment Performance - Pharmaceutical and Specialty Solutions segment: - Q4 FY25 revenue: $55.4 billion (Q4 FY24: $55.6 billion) - Segment profit increased by 11% to $535 million in Q4 FY25 [5][6] - Global Medical Products and Distribution segment: - Q4 FY25 revenue: $3.2 billion (Q4 FY24: $3.1 billion, 3% increase) - Segment profit increased by 49% to $70 million in Q4 FY25 [7][8] - Other segment: - Q4 FY25 revenue: $1.6 billion (Q4 FY24: $1.2 billion, 37% increase) - Segment profit increased by 44% to $160 million in Q4 FY25 [9][10] Future Outlook - Cardinal Health raised its fiscal year 2026 outlook for non-GAAP diluted EPS to a range of $9.30 to $9.50, reflecting a growth of 13% to 15% [10][12] - The company anticipates revenue growth of 11% to 13% in the Pharmaceutical and Specialty Solutions segment and 2% to 4% in the Global Medical Products and Distribution segment for fiscal year 2026 [11][12]

Group 1 - Cardinal Health, Inc. (NYSE: CAH) is a distributor of pharmaceuticals and medical/laboratory products [1] - The company is investing in its distribution capabilities for fast-growing segments including autoimmune, urology, and oncology [1] - There has been a turnaround in its Global Medical Products segment [1]

Financial Data and Key Metrics Changes - The company reported record consolidated revenues of $97.8 billion, an increase of 23% over the prior year [5][30] - Adjusted operating profit increased by 9% to $1.4 billion, with three segments delivering double-digit growth [6][34] - The full-year guidance was raised to a range of $37.1 to $37.9 from a previous range of $36.9 to $37.7 [6][44] Business Line Data and Key Metrics Changes - In the U.S. Pharmaceutical segment, revenues were $90 billion, an increase of 25%, driven by increased prescription volumes and growth in oncology and specialty products [37] - The Prescription Technology Solutions segment saw revenues increase by 16% to $1.4 billion, with operating profit up 21% to $269 million [39] - Medical Surgical Solutions revenues were $2.7 billion, an increase of 2%, with operating profit rising 22% to $244 million [39] Market Data and Key Metrics Changes - Revenues in the international segment were $3.7 billion, an increase of 1%, with higher pharmaceutical distribution volumes in Canada [40] - The company anticipates revenue growth of 11% to 15% for fiscal 2026, with operating profit growth of 9% to 13% [44][52] Company Strategy and Development Direction - The company focuses on two strategic growth pillars: oncology and biopharma services, with recent acquisitions aimed at expanding capabilities in these areas [11][12] - The company is committed to enhancing its distribution network and investing in automation technologies to improve operational efficiency [20][32] - A strategic decision was made to separate the Medical Surgical segment into an independent company to enhance operational focus [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate a dynamic market and policy environment while delivering strong results [24][25] - The company remains engaged with policymakers to evaluate potential impacts on business and customers [25][101] - Management highlighted the importance of community settings for healthcare delivery and the need to keep them vibrant and healthy [100] Other Important Information - The company completed the acquisition of a controlling interest in Core Ventures and Prism Vision, which are expected to contribute significantly to growth [12][46] - The company announced a definitive agreement to sell its retail and distribution businesses in Norway, marking the exit from European operations [23][27] Q&A Session All Questions and Answers Question: Insights on RxTS performance and guidance - Management noted the consistency of operating performance in the RxTS segment, driven by utilization and program success, while acknowledging the challenges in predicting future upside [56][57] Question: Impact of Rite Aid's bankruptcy on operations - Management indicated that the impact of Rite Aid's second bankruptcy on operations and profit growth is immaterial and does not expect it to affect fiscal 2026 [61][62] Question: Changes in pharmaceutical market dynamics - Management stated that brand pricing and generic pricing are in line with expectations, and there are no unusual impacts from tariffs at this time [73][75] Question: Discussion on biosimilar adoption and its impact - Management highlighted that while biosimilars are a steady contributor to earnings, they do not expect material gains in the short term [81][84] Question: Trajectory of operating expenses and automation initiatives - Management discussed ongoing efforts in automation and efficiency improvements, which are expected to positively impact operating expenses over time [87][89]

Financial Data and Key Metrics Changes - The company reported record consolidated revenues of $97.8 billion, an increase of 23% over the prior year [4] - Adjusted operating profit increased by 9% to $1.4 billion, with three segments delivering double-digit growth [5][27] - Gross profit was $3.3 billion, a 7% increase, driven by specialty distribution and provider growth [28] - Earnings per diluted share increased by 5% to $8.26, with a 14% increase when excluding gains from McKesson Ventures investments [33] Business Line Data and Key Metrics Changes - In the U.S. Pharmaceutical segment, revenues increased by 25% to $90 billion, driven by increased prescription volumes and growth in oncology and specialty products [35] - Prescription Technology Solutions segment revenues increased by 16% to $1.4 billion, with operating profit up 21% to $269 million [37] - Medical Surgical Solutions revenues were $2.7 billion, a 2% increase, with operating profit rising 22% to $244 million [38] - International segment revenues were $3.7 billion, a 1% increase, with operating profit down 3% to $99 million due to divestitures [38] Market Data and Key Metrics Changes - The company anticipates revenue growth of 11% to 15% and operating profit growth of 9% to 13% for fiscal 2026 [41] - The U.S. Pharmaceutical segment is expected to see revenue increases of 12% to 16% [42] - The Prescription Technology Solutions segment anticipates revenue growth of 8% to 12% [45] - The Medical Surgical Solutions segment expects revenue and operating profit growth of 2% to 6% [46] Company Strategy and Development Direction - The company is focused on oncology and biopharma services as strategic growth pillars, with recent acquisitions enhancing its capabilities [10][11] - A definitive agreement to sell the retail and distribution businesses in Norway marks the final phase of divesting European operations [21][25] - The company is investing in automation and technology to improve operational efficiency and productivity across its distribution network [30][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to sustain growth and deliver shareholder value despite market challenges [22][23] - The company remains engaged with policymakers to evaluate potential impacts on its business and customers [22] - Management highlighted the importance of community pharmacies and their role in the healthcare landscape [16][17] Other Important Information - The company plans to host an Investor Day on September 23 to provide updates on strategic priorities and business outlook [24] - The Board of Directors approved a 15% increase in the quarterly dividend, reflecting confidence in the company's strength [49] Q&A Session Summary Question: Impact of Norway sale on guidance - Management confirmed that the guidance increase is primarily tied to the sale of Norway and does not reflect changes in segment guidance for Medical or Rx Technology Solutions [108] Question: Core Pharma performance and Rite Aid impact - Management indicated that the impact of Rite Aid's bankruptcy on operations is immaterial and does not affect fiscal 2026 operations [58][59] Question: Biosimilar adoption and its impact - Management noted that recent biosimilar launches are contributing steadily to earnings, particularly in the Part B oncology channel [78][80] Question: Changes in pharmaceutical market dynamics - Management stated that brand pricing and generic pricing are in line with expectations, with no unusual impacts observed [72][73] Question: Operating expenses and automation initiatives - Management highlighted ongoing improvements in operating expense leverage due to automation and efficiency initiatives [84]