DUBLIN, Ohio, Jan. 25 /PRNewswire-FirstCall/ -- Cardinal Health, the leading provider of products and services supporting the health-care industry, today announced strong second-quarter results, highlighted by double-digit revenue and earnings growth, solid contributions from all four continuing business segments and a 17-percent increase in earnings per share.
For the second quarter ended Dec. 31, consolidated revenue increased 13 percent to $21.8 billion and earnings from continuing operations rose 10 percent to $316 million, or $0.77 per share. On a non-GAAP basis, earnings from continuing operations increased 15 percent to $341 million(1), or 20 percent to $0.83(2) on a diluted per-share basis.
The company also announced an agreement to acquire SpecialtyScripts Pharmacy to broaden its specialty pharmaceutical service offerings for pharmaceutical manufacturers. Terms were not disclosed.
"We performed well during the quarter with solid, top-line growth in each
business segment, while maintaining the discipline in our operations to also
deliver double-digit operating earnings growth in all four segments," said R.
Kerry Clark, president and chief executive officer of Cardinal Health. "We
feel very good about the momentum we have established through the first half
of the year."
Q2 FY07 Summary
Q2 FY07 Q2 FY06 Y/Y
Revenue $21.8 billion $19.3 billion 13%
Operating Earnings $512 million $457 million 12%
Non-GAAP Operating
Earnings(3) $544 million $469 million 16%
Earnings from Continuing
Operations $316 million $286 million 10%
Non-GAAP Earnings from
Continuing Operations $341 million $297 million 15%
Diluted EPS from Continuing
Operations $0.77 $0.66 17%
Non-GAAP Diluted EPS from
Continuing Operations $0.83 $0.69 20%
Second quarter segment results:
(Segment results include equity compensation previously held at the corporate level. Due to declining equity compensation levels, this had a favorable effect on segment earnings growth. Results for the Pharmaceutical Technologies and Services segment are included in discontinued operations for all periods presented).
* Revenue for the Healthcare Supply Chain Services-Pharmaceutical segment
grew 13 percent to $19.2 billion, with direct-store-door (DSD)
pharmaceutical sales growing 14 percent to $10.2 billion and bulk
customer sales growing 22 percent to $8.7 billion. Strong generic
sales combined with expense controls and synergies from the acquisition
of the F. Dohmen Company to drive a 19-percent increase in operating
earnings to $328 million. This growth was partially offset by lower
pricing in the renewal of several large customer agreements.
* Revenue for the Healthcare Supply Chain Services-Medical segment
increased 6 percent to nearly $1.9 billion and operating earnings grew
12 percent to $78 million. The primary growth drivers for the segment
included strong sales of laboratory and private brand products, and
continued momentum with surgery center customers and within the
segment's Canadian operations. Selling, general and administrative
(SG&A) expenses declined as a percent of sales primarily due to
disciplined expense control, reduced fuel costs and productivity gains
from facility and back-office consolidations.
* Revenue for the Clinical Technologies and Services segment increased 10
percent to $662 million, with strong demand for both the Alaris and
Pyxis product lines increasing committed contracts above the first
quarter. Operating earnings grew 16 percent from the prior year to $92
million, while the segment continued to make investments in new
products and customer service initiatives. An upgrade to the flagship
Pyxis MedStation was released during the quarter. In addition, the
company will demonstrate a fully integrated bedside medication
verification product in late February that integrates clinical data
flow across its Alaris, Pyxis and Care Fusion product lines and will
enhance the company's medication management and patient safety
offerings.
* Revenue for the Medical Products Manufacturing segment increased 15
percent to $455 million and operating earnings grew 21 percent to $51
million. Balanced results across the segment contributed to the strong
quarter, including revenue and earnings growth in infection prevention
products, medical specialties and from Canadian operations. Ongoing
facility restructuring and operational excellence initiatives continued
to deliver benefits during the quarter through improved manufacturing
efficiency.
Additional second-quarter and recent highlights include:
* Repurchase of $300 million of Cardinal Health shares during the quarter
and more than $900 million to date in the fiscal year.
* Announcement of plans to divest the Pharmaceutical Technologies and
Services (PTS) segment to focus resources on its four remaining
segments serving health-care provider customers, such as hospitals and
pharmacies. (A $425-million tax asset associated with the planned PTS
divestiture has been recorded in discontinued operations and will be
offset by the related tax expense on any gain over net book value in
the quarter that the transaction closes.)
* Signing the agreement to acquire SpecialtyScripts Pharmacy. With this
acquisition, Cardinal Health intends to develop services for
pharmaceutical manufacturers that complement and leverage the company's
existing portfolio of nuclear pharmacies, third-party logistics
offerings and distribution services for blood and plasma products. The
acquisition is expected to close in the third quarter.
* Completing the first full quarter with integrated sales teams focused
on hospital networks in the U.S. and Canada, representing Cardinal
Health's entire portfolio of products, services and integrated
solutions.
Outlook
Cardinal Health reiterated its fiscal 2007 guidance range of $3.25 to $3.40 for non-GAAP diluted EPS from continuing operations, which excludes the impact of proceeds from the planned sale of its PTS business.
Conference Call
Cardinal Health will host a conference call and webcast at 11 a.m. Eastern Standard Time (EST) 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 617-213-8067, conference passcode 22400322. An audio replay will be available until 1 p.m. EST on Feb. 1 at 617-801-6888, passcode 51497520. A transcript and audio replay will also be available at www.cardinalhealth.com.
About Cardinal Health
Headquartered in Dublin, Ohio, Cardinal Health, Inc. is an $81 billion, global company serving the health-care industry with a broad portfolio of products and services. Through its diverse offerings, Cardinal Health delivers health-care solutions that help customers reduce their costs, improve safety and productivity, and deliver better care to patients. The company manufactures, packages and distributes pharmaceuticals and medical supplies, offers a range of clinical services and develops automation products that improve the management and delivery of supplies and medication for hospitals, physician offices and pharmacies. Ranked No. 19 on the Fortune 500, Cardinal Health employs more than 55,000 people on six continents. More information about the company may be found at www.cardinalhealth.com.
(1) Non-GAAP earnings from continuing operations: Earnings from
continuing operations excluding special items and impairment charges
and other, both net of tax.
(2) Non-GAAP diluted EPS from continuing operations: Non-GAAP earnings
from continuing operations divided by diluted weighted average shares
outstanding.
(3) Non-GAAP operating earnings: Operating earnings excluding special
items and impairment charges and other.
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.
Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward- looking statements 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: competitive pressures in its various lines of business; the loss of one or more key customer or supplier relationships or changes to the terms of those relationships; 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 or settlement discussions with any regulatory authority or any legal and administrative proceedings, including shareholder litigation; uncertainties related to divesting the PTS segment, including uncertainties as to the amount of proceeds and timing; the costs, difficulties and uncertainties related the integration of acquired businesses; with respect to future share repurchases, the approval of the board of directors, which is expected to consider Cardinal Health's then-current stock price, earnings, cash flows, financial condition and prospects as well as alternatives available to Cardinal Health at the time any such action is considered; and general economic and market conditions. Except to the extent required by applicable law, Cardinal Health undertakes no obligation to update or revise any forward-looking statement.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Second Quarter
(in millions, except per
Common Share amounts) 2007 2006 % Change
Revenue $21,784.6 $19,346.9 13 %
Cost of products sold 20,484.7 18,181.2 13 %
Gross margin 1,299.9 1,165.7 12 %
Selling, general and administrative
expenses 755.6 696.9 8 %
Impairment charges and other 12.6 (2.6) N.M.
Special items:
Restructuring charges 10.0 9.3 N.M.
Merger charges 9.1 5.9 N.M.
Other 0.5 (0.9) N.M.
Operating earnings 512.1 457.1 12 %
Interest expense and other 32.4 26.6 22 %
Earnings before income taxes and
discontinued operations 479.7 430.5 11 %
Provision for income taxes 164.0 144.7 13 %
Earnings from continuing operations 315.7 285.8 10 %
Earnings from discontinued operations
(net of tax benefit/(expense) of
$416.1 and $(1.7) for the second
quarter of fiscal 2007 and 2006,
respectively) 423.6 18.2 N.M.
Net earnings $739.3 $304.0 143 %
Basic Earnings per Common Share:
Continuing operations $0.78 $0.67 16 %
Discontinued operations 1.06 0.04 N.M.
Net basic earnings per Common Share $1.84 $0.71 159 %
Diluted Earnings per Common Share:
Continuing operations $0.77 $0.66 17 %
Discontinued operations 1.03 0.04 N.M.
Net diluted earnings per Common Share $1.80 $0.70 157 %
Weighted Average Number of
Shares Outstanding:
Basic 402.2 425.5
Diluted 410.6 431.9
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(in millions, except per Year-to-Date
Common Share amounts) 2007 2006 % Change
Revenue $42,722.1 $38,199.3 12 %
Cost of products sold 40,221.7 35,932.0 12 %
Gross margin 2,500.4 2,267.3 10 %
Selling, general and administrative
expenses 1,480.9 1,410.6 5 %
Impairment charges and other 14.3 (0.6) N.M.
Special items:
Restructuring charges 21.8 16.8 N.M.
Merger charges 11.1 12.8 N.M.
Other 8.9 4.9 N.M.
Operating earnings 963.4 822.8 17 %
Interest expense and other 70.1 50.3 39 %
Earnings before income taxes and
discontinued operations 893.3 772.5 16 %
Provision for income taxes 286.0 253.2 13 %
Earnings from continuing operations 607.3 519.3 17 %
Earnings from discontinued operations
(net of tax benefit of $435.9 and $0.8
for fiscal 2007 and 2006
year-to-date, respectively) 402.7 13.0 N.M.
Net earnings $1,010.0 $532.3 90 %
Basic Earnings per Common Share:
Continuing operations $1.50 $1.22 23 %
Discontinued operations 1.00 0.03 N.M.
Net basic earnings per Common Share $2.50 $1.25 100 %
Diluted Earnings per Common Share:
Continuing operations $1.47 $1.20 23 %
Discontinued operations 0.98 0.03 N.M.
Net diluted earnings per Common Share $2.45 $1.23 99 %
Weighted Average Number of
Shares Outstanding:
Basic 403.4 425.9
Diluted 412.0 431.7
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, June 30,
(in millions) 2006 2006
Assets
Cash and equivalents $1,003.3 $1,186.3
Short-term investments available for sale 467.1 498.4
Trade receivables, net 4,394.5 3,808.8
Current portion of net investment in
sales-type leases 330.3 290.1
Inventories 7,309.2 7,493.0
Prepaid expenses and other 579.8 582.5
Assets held for sale and
discontinued operations 3,093.9 2,743.2
Total current assets 17,178.1 16,602.3
Property and equipment, net 1,518.5 1,505.0
Net investment in sales-type leases,
less current portion 758.9 754.7
Goodwill and other intangibles, net 4,391.3 4,283.4
Other assets 290.4 259.3
Total assets $24,137.2 $23,404.7
Liabilities and Shareholders' Equity
Current portion of long-term obligations
and other short-term borrowings $48.9 $199.0
Accounts payable 8,984.7 8,907.8
Other accrued liabilities 2,139.6 1,948.8
Liabilities from businesses held for
sale and discontinued operations 529.4 528.0
Total current liabilities 11,702.6 11,583.6
Long-term obligations, less current portion
and other short-term borrowings 2,935.8 2,588.6
Deferred income taxes and other liabilities 591.0 741.8
Total shareholders' equity 8,907.8 8,490.7
Total liabilities and
shareholders' equity $24,137.2 $23,404.7
CARDINAL HEALTH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Second Quarter Year-to-Date
(in millions) 2007 2006 2007 2006
Cash Flows From Operating Activities:
Net earnings $739.3 $304.0 $1,010.0 $532.3
Earnings from discontinued
operations (423.6) (18.2) (402.7) (13.0)
Earnings from continuing
operations 315.7 285.8 607.3 519.3
Adjustments to reconcile earnings
from continuing operations
to net cash provided by
operating activities:
Depreciation and amortization 77.0 69.9 155.4 145.6
Asset impairments 12.7 (4.1) 14.4 (2.9)
Equity compensation 34.1 46.7 71.5 120.7
Provision for bad debts 2.4 7.2 7.8 14.9
Change in operating assets and
liabilities, net of effects from
acquisitions:
(Increase) / decrease in trade
receivables (699.1) 101.4 (592.1) (160.1)
Decrease in inventories 64.4 65.7 184.1 88.9
Increase in net investment in
sales-type leases (23.5) (23.1) (44.3) (61.9)
Increase in accounts payable 207.6 95.0 76.1 581.3
Other accrued liabilities and
operating items, net (43.4) (60.5) 129.7 (4.3)
Net cash provided by / (used
in) operating activities -
continuing operations (52.1) 584.0 609.9 1,241.5
Net cash provided by operating
activities - discontinued
operations 5.7 74.1 29.5 151.2
Net cash provided by / (used in)
operating activities (46.4) 658.1 639.4 1,392.7
Cash Flows From Investing Activities:
Acquisition of subsidiaries, net
of divestitures and cash
acquired (56.5) (75.8) (121.0) (72.5)
Proceeds from sale of property
and equipment 9.7 3.2 13.3 3.5
Additions to property and equipment (85.4) (116.9) (154.0) (161.5)
Sale / (purchase) of investment
securities available for sale,
net (10.6) (219.1) 31.3 (319.2)
Net cash used in investing
activities - continuing
operations (142.8) (408.6) (230.4) (549.7)
Net cash used in investing
activities - discontinued
operations (11.5) (21.2) (7.9) (52.4)
Net cash used in investing
activities (154.3) (429.8) (238.3) (602.1)
Cash Flows From Financing Activities:
Net change in commercial paper
and short-term borrowings (101.8) 2.6 3.7 4.9
Reduction of long-term
obligations (661.4) (90.6) (689.2) (92.8)
Proceeds from long-term
obligations, net of issuance
costs 850.0 500.4 851.7 500.3
Proceeds from issuance of Common
Shares 18.0 33.7 75.3 68.5
Tax benefits from exercises of
stock options 4.7 10.7 17.1 19.7
Dividends on Common Shares (36.5) (25.7) (73.4) (51.2)
Purchase of treasury shares (300.0) (412.9) (745.3) (412.9)
Net cash provided by / (used
in) financing activities -
continuing operations (226.9) 18.2 (560.1) 36.5
Net cash provided by / (used
in) financing activities -
discontinued operations (11.6) (2.3) (24.0) 3.3
Net cash provided by / (used in)
financing activities (238.5) 15.9 (584.1) 39.8
Net increase / (decrease) in cash
and equivalents (439.5) 244.2 (183.0) 830.4
Cash and equivalents at beginning
of period 1,442.8 1,870.8 1,186.3 1,284.6
Cash and equivalents at end of
period $1,003.3 $2,115.0 $1,003.3 $2,115.0
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SEGMENT BUSINESS ANALYSIS - SECOND QUARTER FISCAL YEAR 2007
HEALTHCARE SUPPLY CHAIN SERVICES
(in millions) 2007 2006
PHARMACEUTICAL
Revenue
Amount $19,238 $16,977
Growth Rate 13 % 8 %
Mix 87 % 86 %
Operating Earnings
Amount $328 $276
Growth Rate 19 % 8 %
Mix 60 % 59 %
Operating Margin 1.71 % 1.63 %
MEDICAL
Revenue
Amount $1,872 $1,770
Growth Rate 6 % 5 %
Mix 8 % 9 %
Operating Earnings
Amount $78 $70
Growth Rate 12 % (12)%
Mix 14 % 15 %
Operating Margin 4.18 % 3.93 %
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SEGMENT BUSINESS ANALYSIS - SECOND QUARTER FISCAL YEAR 2007
PHARMACEUTICAL AND MEDICAL PRODUCTS
(in millions) 2007 2006
CLINICAL TECHNOLOGIES
AND SERVICES
Revenue
Amount $662 $603
Growth Rate 10 % 10 %
Mix 3 % 3 %
Operating Earnings
Amount $92 $79
Growth Rate 16 % 16 %
Mix 17 % 17 %
Operating Margin 13.87 % 13.15 %
MEDICAL PRODUCTS MANUFACTURING
Revenue
Amount $455 $397
Growth Rate 15 % 3 %
Mix 2 % 2 %
Operating Earnings
Amount $51 $42
Growth Rate 21 % (26)%
Mix 9 % 9 %
Operating Margin 11.11 % 10.54 %
Segment results include equity compensation previously held at the
corporate level.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SEGMENT BUSINESS ANALYSIS - FISCAL YEAR 2007
HEALTHCARE SUPPLY CHAIN SERVICES
(in millions) 2007 2006
PHARMACEUTICAL
Revenue
Amount $37,770 $33,510
Growth Rate 13 % 9 %
Mix 87 % 86 %
Operating Earnings
Amount $617 $501
Growth Rate 23 % 7 %
Mix 62 % 59 %
Operating Margin 1.63 % 1.50 %
MEDICAL
Revenue
Amount $3,679 $3,533
Growth Rate 4 % 5 %
Mix 8 % 9 %
Operating Earnings
Amount $139 $132
Growth Rate 5 % (15)%
Mix 14 % 16 %
Operating Margin 3.78 % 3.75 %
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SEGMENT BUSINESS ANALYSIS - FISCAL YEAR 2007
PHARMACEUTICAL AND MEDICAL PRODUCTS
(in millions) 2007 2006
CLINICAL TECHNOLOGIES
AND SERVICES
Revenue
Amount $1,257 $1,179
Growth Rate 7 % 10 %
Mix 3 % 3 %
Operating Earnings
Amount $143 $136
Growth Rate 5 % 26 %
Mix 14 % 16 %
Operating Margin 11.40 % 11.55 %
MEDICAL PRODUCTS MANUFACTURING
Revenue
Amount $879 $780
Growth Rate 13 % 6 %
Mix 2 % 2 %
Operating Earnings
Amount $100 $77
Growth Rate 29 % (9)%
Mix 10 % 9 %
Operating Margin 11.37 % 9.91 %
Segment results include equity compensation previously held at the
corporate level.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
BUSINESS ANALYSIS
TOTAL COMPANY
Non-GAAP
Second Quarter Second Quarter
(in millions) 2007 2006 2007 2006
Revenue
Amount $21,785 $19,347
Growth Rate 13 % 8 %
Operating Earnings
Amount $512 $457 $544 $469
Growth Rate 12 % 13 % 16 % 4 %
Earnings from Continuing Operations
Amount $316 $286 $341 $297
Growth Rate 10 % 11 % 15 % 3 %
Non-GAAP
Year-to-Date Year-to-Date
(in millions) 2007 2006 2007 2006
Revenue
Amount $42,722 $38,199
Growth Rate 12 % 8 %
Operating Earnings
Amount $963 $823 $1,019 $857
Growth Rate 17 % 14 % 19 % 7 %
Earnings from Continuing Operations
Amount $607 $519 $649 $544
Growth Rate 17 % 17 % 19 % 10 %
See the GAAP / Non-GAAP Reconciliation for definitions and calculations
supporting the non-GAAP balances.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
ASSET MANAGEMENT ANALYSIS
Second Quarter Year-to-Date
2007 2006 2007 2006
Receivable Days 19.2 14.4
Days Inventory on Hand 28 31
Debt to Total Capital 25 % 25 %
Net Debt to Capital 15 % 4 %
Return on Equity (1) 34.1% 13.8% 23.5% 12.2%
Non-GAAP Return on Equity (1) 15.2% 14.6% 14.3% 12.9%
Return on Invested Capital (1) 13.85% 5.70% 9.51% 5.02%
Non-GAAP Return on Invested
Capital (1) 6.53% 6.33% 6.22% 5.62%
Effective Tax Rate from
Continuing Operations 34.2% 33.6% 32.0% 32.8%
Non-GAAP Effective Tax Rate from
Continuing Operations 34.3% 32.9% 32.0% 32.5%
See the GAAP / Non-GAAP Reconciliation for definitions and calculations
supporting the non-GAAP balances.
(1) See definitions for explanation of changes in method of calculating
these financial measures from prior quarters.
CARDINAL HEALTH, INC. AND SUBSIDIARIES
SCHEDULE OF NOTABLE ITEMS
Second Quarter Year-to-Date
(in millions, except per
Common Share amounts) 2007 2006 2007 2006
Special Items
Restructuring charges $(10.0) $(9.3) $(21.8) $(16.8)
Merger charges (9.1) (5.9) (11.1) (12.8)
Other (0.5) 0.9 (8.9) (4.9)
Total special items (19