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Cardinal Health (CAH) Beats on Q1 Earnings, FY18 View Intact

Cardinal Health Inc. CAH reported first-quarter fiscal 2018 adjusted earnings of $1.09 per share, which beat the Zacks Consensus Estimate of $1.01. However, earnings declined 12.1% on a year-over-year basis.

Revenues increased 1.9% on a year-over-year basis to almost $32.64 billion but missed the Zacks Consensus Estimate of $33.43 billion. The stock has a Zacks Rank #4 (Sell).

Segmental Analysis

Pharmaceutical Segment: Pharmaceutical revenues inched up 1% to $28.92 billion on a year-over-year basis. The segment witnessed strong growth in the Specialty business and also gained a huge number of Pharmaceutical Distribution customers.

The segment witnessed a 13% drop in profits, thanks to generic pharmaceutical pricing and the company's recent investments in its Pharmaceutical IT platform. However, solid performance by the Red Oak Sourcing platform has partially offset the negative effect.

Medical Segment: Revenues at the segment increased 14% to $3.72 billion primarily on higher contributions from new and existing customers.

Medical segment profits increased 1% to $129 million, courtesy of higher contributions from new and existing customers and acquisitions. However, lower contributions from the Veterans Affairs contract partially affected sales at the segment.

 

Cardinal Health, Inc. Price and Consensus

 

Cardinal Health, Inc. Price and Consensus | Cardinal Health, Inc. Quote

 

Major Highlights

In the reported quarter, Cardinal Health closed the acquisition of Medtronic's MDT Patient Recovery business for $6.1 billion in cash. Further, Cardinal Health launched ConnectSource, a new cloud-based patient engagement platform in the first quarter.

Cardinal Health entered into an agreement in the first quarter to distribute self-manufactured surgeon gloves directly in certain international markets.

The company also announced an agreement to make its Cordis subsidiary the exclusive distributor of Medinol coronary stents in the United States.

Margins

As a percentage of revenues, gross margin expanded 220 basis points (bps) to 5.1% of net revenues.

Distribution, selling, general and administrative (SG&A) expenses increased 15% on a year-over-year basis to $1062 million in the reported quarter.

Guidance

The company reaffirmed its fiscal 2018 guidance for adjusted earnings per share from continuing operations at $4.85-$5.10.

Our Take

Cardinal Health ended first-quarter fiscal 2017 on a solid note, courtesy of a solid performance by the Medical segment. An encouraging fiscal 2018 guidance instills our confidence in the stock. Meanwhile, the company is banking on strategic buyouts, joint ventures and supply agreements to drive growth. The deal with MedTech bigwig Medtronic is likely to boost the company’s growth trajectory. On the flipside, although the Pharmaceutical segment witnessed strong growth in the Specialty business and gained a huge number of Pharmaceutical Distribution customers, profits at the segment were hurt by generic pharmaceutical pricing. Increasing generic pricing pressure is a major headwind. Intensifying competition and customer concentration are other bottlenecks. A sluggish macroeconomic scenario and tough product pricing environment are likely to impede growth.

Peer Releases

Intuitive Surgical Inc. ISRG posted adjusted earnings of $2.77 per share in the third quarter of 2017, beating the Zacks Consensus Estimate of $1.97 on stellar revenue growth. The stock has a Zacks Rank #2 (Buy).

PetMed Express, Inc.’s PETS adjusted earnings per share of 43 cents for the second quarter of fiscal 2018 were up 79.2% from the year-ago quarter. Also, earnings surpassed the Zacks Consensus Estimate by 43.3%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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