Earnings Call: Cardinal Health Raises EPS and Cash Flow Guidance
Global healthcare services and products company Cardinal Health Inc. (CAH) has made a solid start to its fiscal year 2025, with increased expectations for earnings per share (EPS) and adjusted free cash flow. Despite a decline in total revenue, the company’s operational performance, particularly in the Pharmaceutical and Specialty Solutions segments, led to an upward revision of EPS guidance to a range of $7.75-$7.90 and an improvement in cash flow forecasts.
Key Highlights
Cardinal Health reported a 16% increase in profits in the Pharmaceutical and Specialty Solutions segment. Operating income and EPS rose by 12% and 9%, respectively, reaching an EPS of $1.88. Total revenue decreased by 4% to $52 billion, but adjusted organic growth was 15% according to customer transitions. The company raised its EPS guidance to a range of $7.75-$7.90 and adjusted free cash flow expectations to a range of $1 billion-$1.5 billion. Plans for acquiring Integrated Oncology Network for $1.1 billion were announced. While a 2%-4% decline in pharmaceutical revenue is anticipated, growth for Cardinal Health Brand revenue in GMPD is expected. Full-year COVID-19 vaccine revenue growth estimates remain in the range of 18%-20%. Theranostic products and home care solutions in oncology saw revenue growth of over 20%.
Company Outlook
Cardinal Health remains optimistic about its long-term profit targets and is confident in its growth strategies and operational improvements. The acquisition of Integrated Oncology Network is expected to be completed by year-end. The company continues to focus on specialty and home care solutions and is exploring further merger and acquisition opportunities.
Concerns
GMPD segment profits fell to $8 million due to unexpected health and wellness costs. The company faces rising production costs due to upcoming tariffs on products sourced from China.
Positive Developments
Strong demand across various pharmaceutical categories, particularly GLP-1 drugs, contributed to revenue growth. Investments in distribution capacity and automation are delivering double-digit growth in home care solutions. The company’s disciplined capital allocation strategy and ongoing investments aim to enhance shareholder value.
Shortcomings
Total revenue declined primarily due to customer transitions. The GMPD segment experienced profit declines and faced challenges from recent hurricanes.
Q&A Highlights
Management discussed efforts to manage rising production costs without fully passing them onto customers. The company emphasized its diversified supply chain and is working to mitigate the impact of tariffs. Executives remain confident in recovery efforts for the GMPD segment and improvements in safety metrics.
Cardinal Health began the fiscal year 2025 with a strong note, delivering significant growth in the Pharmaceutical and Specialty Solutions segment that enhanced overall performance. Despite a slight decline in total revenue, the company's strategic initiatives, including the planned acquisition of Integrated Oncology Network, are poised to strengthen its position in the healthcare sector. The emphasis on operational excellence and the ability to navigate macroeconomic challenges such as tariffs and raw material shortages demonstrate its resilience and forward-looking approach. As the company continues investing in its business and exploring market opportunities, investors and stakeholders can expect Cardinal Health’s ongoing commitment to growth and value creation.
InvestingPro Insights
Cardinal Health's strong start to the fiscal year 2025 is reflected in several key metrics from InvestingPro. The company’s 10.66% revenue growth over the last twelve months aligns with a reported 15% adjusted organic growth according to customer transitions. This growth trajectory is supported by an InvestingPro Tip indicating that net income is expected to rise this year, reinforcing the company's positive outlook and upgraded EPS guidance.
The company’s solid financial position is underscored by its dividend history. An InvestingPro Tip reveals that Cardinal Health has increased its dividend for 36 consecutive years, showcasing its long-term commitment to shareholder returns. This is particularly noteworthy given the current dividend yield of 1.86% and the recent 1.0% dividend growth.
Despite challenges faced in the GMPD segment, Cardinal Health's overall financial health appears strong. The company’s 15.11% EBITDA growth over the past twelve months reflects its operational efficiency and aligns with the reported 12% growth in operating income. Additionally, an InvestingPro Tip suggests that the company’s valuation implies a strong free cash flow yield, consistent with Cardinal Health's improved adjusted free cash flow expectations for the fiscal year.
It is worth noting that Cardinal Health is trading near its 52-week high, with the current price at 96.12% of that high. This performance aligns with the company's positive outlook and strategic initiatives, including the planned Integrated Oncology Network acquisition.
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips on Cardinal Health, providing deeper insights into the company’s financial health and market performance.