DUBLIN, Ohio, Aug. 7 /PRNewswire-FirstCall/ -- Cardinal Health, a global provider of products and services that improve the safety and productivity of health care, today reported an increase in fiscal 2008 revenue of 5 percent to $91 billion and a 76 percent increase in GAAP earnings per share (EPS) to $3.64. On a non-GAAP basis, EPS grew 11 percent to $3.80(1) for the year.
As the company had forecasted, the medical supply chain segment improved profit in the second half of the year, driven by double-digit growth in its core U.S. medical distribution business. Significant steps were taken in the pharmaceutical distribution business during the year to accelerate a recovery, which the company expects in the second half of fiscal 2009.
Results during the quarter and year continued to highlight growth within the company's medical technology segments. Combined revenue for the Clinical Technologies and Services, and Medical Products and Technologies segments grew by 24 percent to $5.6 billion and profit increased 36 percent to nearly $800 million for the year.
Cardinal Health also announced that its board of directors has supported a management recommendation to actively explore a potential separation of the company's primary operating and reporting segments, which could involve a tax-free spin-off of the clinical and medical products businesses as a separate, publicly traded company. Cardinal Health plans to announce its decision within approximately 60 to 90 days.
"For two years, we have been taking steps to sharpen our focus on health care supply chain services and clinical and medical products, culminating with our announcement in July to operate these businesses in two distinct segments that reflect the unique characteristics and requirements of each," said R. Kerry Clark, chairman and chief executive officer of Cardinal Health. "As we now consider a spin-off of our clinical and medical products businesses, our goal is simple: to have two thriving businesses, delivering maximum value to customers and shareholders over the long term."
Fiscal 2008 Results
Consolidated revenue for fiscal 2008 grew 5 percent to $91 billion and GAAP earnings from continuing operations rose 58 percent to $1.3 billion. Diluted earnings per share from continuing operations grew 76 percent to $3.64, or 11 percent to $3.80 on a non-GAAP basis. Earnings in the prior year were negatively affected by a $600 million expense to resolve securities litigation.
During the fourth quarter, ended June 30, consolidated revenue increased 3 percent to $23 billion, and earnings from continuing operations increased 39 percent to $330 million. Earnings in the fourth quarter of the prior year were dampened by merger-related charges from the company's acquisition of VIASYS Healthcare. Excluding the impact of merger charges and other items, non-GAAP earnings from continuing operations increased 1 percent to $348 million(2), or 9 percent to $0.97 on a diluted per-share basis.
"Overall, fourth quarter results were in line with our expectations," Clark said. "We continued to demonstrate to customers the value of our clinically differentiated medical technologies, where we delivered a year of very strong growth on the top and bottom lines. We also made steady progress throughout the year in our medical supply chain segment and, in particular, are very pleased with the results in our hospital, lab and ambulatory care distribution business.
Fourth-quarter and full-year segment results
Revenue for the Healthcare Supply Chain Services - Pharmaceutical segment increased 1 percent to $19.8 billion for the quarter with sales to bulk customers increasing by 9 percent. Sales to non-bulk customers decreased by 5 percent, primarily due to the transfer of volume from non-bulk to bulk sales by a large customer and the loss of business associated with controlled substance anti-diversion efforts. As expected, segment profit declined 15 percent to $258 million, driven by previously disclosed customer re-pricings, and direct-store-door customer losses, including the impact of anti-diversion efforts. The profit decline was partially offset by branded pharmaceutical price increases and greater profit from distribution service agreement fees.
For the year, segment revenue reached $79.3 billion, an increase of 4 percent, and segment profit was $1.1 billion, declining 14 percent from last year.
Fourth-quarter revenue for the Healthcare Supply Chain Services - Medical segment increased 8 percent to $2.1 billion, driven by increased sales to existing hospital, laboratory and ambulatory customers. Segment profit for the quarter decreased 3 percent to $81 million, but included a previously disclosed corporate allocation adjustment that reduced profit by 6 percentage points. Strong, double-digit profit growth from the distribution of medical and surgical products in the U.S. partially offset the decline in segment profit from other factors. As the company had forecasted, segment profit grew in the second half of fiscal 2008 compared to the second half of fiscal 2007.
Full-year revenue for the segment increased 8 percent to $8.1 billion, and full-year profit declined 5 percent to $303 million.
The Medical Products and Technologies segment reported a 46 percent increase in fourth-quarter revenue to $727 million, primarily driven by the acquisitions of VIASYS Healthcare and Enturia, but also organic growth in the core infection prevention and respiratory businesses. Segment profit increased 63 percent to $95 million and included a favorable impact of 38 percentage points from acquisitions. During the quarter, the company discovered it had failed to recognize profit on a portion of intercompany sales from fiscal 2006 to 2008. As a result, approximately $16 million was recorded as income for the fourth quarter that pertained to prior periods. The VIASYS integration continues to be ahead of schedule to achieve planned synergy goals by 2010.
For the full year, segment revenue increased 47 percent to $2.7 billion and segment profit grew 52 percent to $300 million, including 39 percentage points from acquisitions.
Compared to a record quarter in the prior year, fourth-quarter revenue for the Clinical Technologies and Services segment increased 3 percent to $780 million, driven by continued strength in installations of medication dispensing products. Excluding Pharmacy Services, revenue increased 9 percent. Segment profit for the quarter exceeded company expectations, rising 8 percent to $156 million driven by favorable product mix and a positive impact from foreign exchange.
Full-year revenue for the segment increased 8 percent to $2.9 billion and segment profit increased 29 percent to $497 million.
Additional fourth-quarter and recent highlights include:
-- Reaching a definitive agreement to sell Tecomet, a maker of orthopedic implants, to Charlesbank Capital Partners and Tecomet management, with plans to close within 60 days;
-- Reaching a definitive agreement to acquire Borschow Medical and Hospital Supplies, Inc., the largest distributor of pharmaceutical products and medical supplies in Puerto Rico;
-- Completing the acquisition of assets of privately held Enturia, Inc., the manufacturer of infection prevention products sold under the ChloraPrep(R) brand name;
-- Introducing the Pyxis(R) DuoStation, a new system that leverages the company's industry-leading dispensing technologies to enable clinicians access to a patient's medications and medical supplies from one system;
-- Launching four new offerings for retail independent pharmacies at the company's 19th annual Retail Business Conference, including a private-label brand of durable medical equipment, front-of-store management system, automated calling technology and automated pill counting systems;
-- A three-year agreement to serve as primary supply chain partner for Prime Therapeutics, one of the nation's largest pharmacy benefit managers, which serves approximately 14.6 million members nationwide;
-- Contracts with Premier for Alaris(R) infusion systems, Presource(R) custom procedure packs, Convertors(R) surgical drapes and gowns, third-party instrument repair, respiratory equipment, Pyxis(R) medication and supply automation products, and ChloraPrep(R) brand chlorhexidine gluconate (CHG) skin prep products.
"In fiscal 2009, we plan to make incremental investments of up to $100 million to strengthen R&D in the clinical and medical products business and improve information technology in the supply chain services business," Clark said. "These investments will affect our earnings growth rates in fiscal 2009, but are important, foundational moves that we believe will accelerate future growth in both segments."
For fiscal 2009, the company expects revenue growth of 6 to 7 percent. Non-GAAP diluted EPS from continuing operations is expected to be in a range of $3.80 to $3.95 based on investments the company plans to make in new product development and information technology, and previously disclosed challenges in the pharmaceutical distribution business that are expected to continue through the first half of the fiscal year, coupled with a particularly unfavorable comparison in the first quarter due to strong branded price inflation in the prior year period.
As a result, non-GAAP EPS in the first quarter is expected to be around $0.70. The company forecasts EPS to return to more normal levels in the second quarter, with overall company results stronger in the second half of the year.
(Please reference the company's slide presentation for corporate and segment assumptions related to fiscal 2009 guidance, including that the potential separation of the clinical and medical products businesses does not occur during fiscal 2009. The presentation is posted on the Investor page at www.cardinalhealth.com).
The Healthcare Supply Chain Services segment is expected to return to profitable growth in the second half of the year. The first half of the year will continue to be affected by the company's ability to resolve license suspensions to distribute controlled substances from three of its pharmaceutical distribution centers, previously disclosed repricing of some major contracts and volatility in the Nuclear Pharmacy Services business leading to the launch of generic sestimibi.
The Clinical and Medical Products segment is expected to continue on a strong growth trajectory based on momentum in current product lines and approximately 50 new product introductions or enhancements planned during the next 18 months.
Cardinal Health will host a conference call and webcast at 8:30 a.m. EDT to discuss the results. To access the call and corresponding slide presentation, go to the Investor page at www.cardinalhealth.com. The conference call may also be accessed by calling 617-213-4850, conference passcode 97674427. An audio replay will be available until 11 p.m. EDT on Aug. 9 at 617-801-6888, passcode 28260453. A transcript and audio replay will also be available at www.cardinalhealth.com.
About Cardinal Health
Headquartered in Dublin, Ohio, Cardinal Health, Inc. is a $91 billion, global company serving the health care industry with products and services that help hospitals, physician offices and pharmacies reduce costs, improve safety, productivity and profitability, and deliver better care to patients. With a focus on making supply chains more efficient, reducing hospital-acquired infections and breaking the cycle of harmful medication errors, Cardinal Health develops market leading technologies, including Alaris(R) IV pumps, Pyxis(R) automated dispensing systems, MedMined(TM) infection surveillance services and the CareFusion(TM) patient identification system. The company also manufactures medical and surgical products and is one of the largest distributors of pharmaceuticals and medical supplies worldwide. Ranked No. 19 on the Fortune 500, Cardinal Health employs more than 40,000 people on five continents. More information about the company may be found at www.cardinalhealth.com.
A reconciliation of the differences between these non-GAAP financial measures and their most directly comparable GAAP financial measures is provided in the attached tables and at http://www.cardinalhealth.com.
This news release contains forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these uncertainties are described in Cardinal Health's Form 10-K, Form 10-Q and Form 8-K reports (including all amendments to those reports) and exhibits to those reports, and include (but are not limited to) the following: uncertainties regarding the decision to explore the separation of the company's clinical and medical products businesses and regarding the impacts of such decision if the separation is accomplished; competitive pressures in Cardinal Health's various lines of business; the loss of one or more key customer or supplier relationships or changes to the terms of those relationships; uncertainties relating to timing of generic and branded pharmaceutical introductions and the frequency or rate of branded pharmaceutical price appreciation or generic pharmaceutical price deflation; changes in the distribution patterns or reimbursement rates for health-care products and/or services; the results, consequences, effects or timing of any inquiry or investigation by any regulatory authority or any legal or administrative proceedings; future actions of regulatory bodies or government authorities relating to Cardinal Health's manufacturing or sale of products and other costs or claims that could arise from its manufacturing, compounding or repackaging operations or from its other services; difficulties, delays or additional costs in implementing the restructuring program announced on July 8, 2008; the costs, difficulties and uncertainties related to the integration of acquired businesses; and conditions in the pharmaceutical market and general economic and market conditions. This news release reflects management's views as of Aug. 7, 2008. Except to the extent required by applicable law, Cardinal Health undertakes no obligation to update or revise any forward-looking statement.
Debt to Total Capital: debt divided by (debt plus total shareholders' equity)
Diluted EPS from Continuing Operations: earnings from continuing operations divided by diluted weighted average shares outstanding
Effective Tax Rate from Continuing Operations: provision for income taxes divided by earnings before income taxes and discontinued operations
Operating Cash Flow: net cash provided by / (used in) operating activities from continuing operations
Segment Profit: segment revenue minus (segment cost of products sold and segment selling, general and administrative expenses)
Segment Profit Margin: segment profit divided by segment revenue
Segment Profit Mix: segment profit divided by total segment profit for all segments
Return on Equity: annualized net earnings divided by average shareholders' equity
Return on Invested Capital: annualized net earnings divided by (average total shareholders' equity plus debt plus unrecorded goodwill)
Revenue Mix: segment revenue divided by total segment revenue for all segments
Net Debt to Capital: net debt divided by (net debt plus total shareholders' equity)
Net Debt: debt minus (cash and equivalents and short-term investments available for sale)
Non-GAAP Diluted EPS from Continuing Operations: non-GAAP earnings from continuing operations divided by diluted weighted average shares outstanding
Non-GAAP Diluted EPS from Continuing Operations Growth Rate: (current period non-GAAP diluted EPS from continuing operations minus prior period non- GAAP diluted EPS from continuing operations) divided by prior period non-GAAP diluted EPS from continuing operations
Non-GAAP Earnings from Continuing Operations: earnings from continuing operations excluding special items and impairment charges and other, both net of tax
Non-GAAP Earnings from Continuing Operations Growth Rate: (current period non-GAAP earnings from continuing operations minus prior period non-GAAP earnings from continuing operations) divided by prior period non-GAAP earnings from continuing operations
Non-GAAP Effective Tax Rate from Continuing Operations: (provision for income taxes adjusted for special items) divided by (earnings before income taxes and discontinued operations adjusted for special items)
Non-GAAP Operating Earnings: operating earnings excluding special items and impairment charges and other
Non-GAAP Operating Earnings Growth Rate: (current period non-GAAP operating earnings minus prior period non-GAAP operating earnings) divided by prior period non-GAAP operating earnings
Non-GAAP Return on Equity: (annualized current period net earnings plus special items minus special items tax benefit) divided by average shareholders' equity (1)
Non-GAAP Return on Invested Capital: (annualized net earnings plus special items minus special items tax benefit plus interest expense and other) divided by (average total shareholders' equity plus debt plus unrecorded goodwill) (1)
CONTACT: Jim Mazzola, +1-614-757-3690, email@example.com, or
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both of Cardinal Health, Inc.
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