Cardinal Health Reports Second Quarter Fiscal 2024 Results and Raises Fiscal 2024 Outlook

 
  • Revenue increased 12% to $57.4 billion
  • GAAP1 operating earnings were $482 million; GAAP diluted EPS was $1.43
  • Non-GAAP operating earnings increased 20% to $562 million; non-GAAP diluted EPS increased 38% to $1.82
  • Fiscal 2024 non-GAAP EPS guidance raised to $7.20 to $7.35, from $6.75 to $7.002,3
  • Fiscal 2024 non-GAAP adjusted free cash flow guidance raised to ~$2.5 billion, from ~$2.0 billion
  • Cardinal Health to acquire Specialty Networks, a technology-enabled multi-specialty group purchasing and practice enhancement organization

DUBLIN, Ohio, Feb. 1, 2024 /PRNewswire/ --Cardinal Health (NYSE: CAH) today reported second quarter fiscal 2024 revenue of $57.4 billion, an increase of 12% from the second quarter of last year. Second quarter GAAP operating earnings were $482 million and GAAP diluted earnings per share (EPS) were $1.43. Second quarter non-GAAP operating earnings increased 20% to $562 million, driven by strong growth in both Pharmaceutical segment profit and Medical segment profit. Non-GAAP diluted earnings per share (EPS) increased 38% to $1.82, driven by four factors: the increase in non-GAAP operating earnings, a lower share count following incremental share repurchase activity, lower interest and other expense and a lower non-GAAP effective tax rate.

"We delivered strong second quarter results across the enterprise, demonstrating continued momentum against our strategic priorities," said Jason Hollar, CEO of Cardinal Health. "With strong growth in Pharmaceutical segment profit and continued progress against our Medical Improvement Plan, we are continuing to drive operational execution in our core business. Along with our recent announcements of a tech-enabled specialty acquisition and growth portfolio prioritization, we remain focused on best serving our customers and creating value for our shareholders."

"With our first half performance including positive operating leverage, incremental return of capital to shareholders beyond our baseline plans, and confidence in our efforts as we look ahead, we are pleased to again raise our FY24 non-GAAP EPS guidance, which reflects 26% growth at the mid-point compared to our FY23 results," said Aaron Alt, CFO of Cardinal Health.

Q2 FY24 summary

 

Q2 FY24

 

Q2 FY23

 

Y/Y

Revenue

$57.4 billion

 

$51.5 billion

 

12 %

Operating earnings/(loss)

$482 million

 

$(119) million

 

N.M.

Non-GAAP operating earnings

$562 million

 

$467 million

 

20 %

Net earnings/(loss) attributable to Cardinal Health, Inc.

$353 million

 

$(130) million

 

N.M.

Non-GAAP net earnings attributable to Cardinal Health, Inc.

$447 million

 

$346 million

 

29 %

Effective Tax Rate

27.7 %

 

5.4 %4

   

Non-GAAP Effective Tax Rate

21.3 %

 

23.0 %

   

Diluted EPS attributable to Cardinal Health, Inc.

$1.43

 

$(0.50)

 

N.M.

Non-GAAP diluted EPS attributable to Cardinal Health, Inc.

$1.82

 

$1.32

 

38 %

Segment results

Pharmaceutical segment

 

Q2 FY24

 

Q2 FY23

 

Y/Y

Revenue

$53.5 billion

 

$47.7 billion

 

12 %

Segment profit

$518 million

 

$464 million

 

12 %

Second quarter revenue for the Pharmaceutical segment increased 12% to $53.5 billion, driven by brand and specialty pharmaceutical sales growth from existing customers.

Pharmaceutical segment profit increased 12% to $518 million in the second quarter, driven by positive generics program performance and a higher contribution from brand and specialty products, including distribution of COVID-19 vaccines. This increase was partially offset by higher costs to support sales growth.

Medical segment

 

Q2 FY24

 

Q2 FY23

 

Y/Y

Revenue

$3.9 billion

 

$3.8 billion

 

3 %

Segment profit

$71 million

 

$17 million

 

N.M.

Second quarter revenue for the Medical segment increased 3% to $3.9 billion, driven by growth in at-Home Solutions and Global Medical Products and Distribution, which primarily reflects higher Cardinal Health Brand volumes.

Medical segment profit increased by $54 million to $71 million in the second quarter, driven by an improvement in net inflationary impacts, including mitigation initiatives.

Fiscal 2024 outlook2  

The company raised its fiscal 2024 guidance range for non-GAAP diluted earnings per share attributable to Cardinal Health, Inc. to $7.20 to $7.35, from $6.75 to $7.003.

The company reiterated its expectations for segment profit growth for the former Pharmaceutical Segment of 7% to 9% and updated its fiscal 2024 segment profit outlook for the former Medical Segment to approximately $380 million, from approximately $400 million.

Additionally, the company now expects interest and other in the range of $50 million to $65 million, diluted weighted average shares outstanding of approximately 247 million, a non-GAAP effective tax rate of 23% to 24% and non-GAAP adjusted free cash of approximately $2.5 billion.

Pro-forma fiscal 2024 outlook, updated segment structure 

As announced on January 9, 2024, the company updated its enterprise operating and segment reporting structure, effective January 1, 2024, to be reflected in the company's financial reporting beginning third quarter fiscal 2024. Therefore, the company provided preliminary guidance for fiscal 2024 according to its updated segment reporting structure.

 

FY23 Actuals5

FY24 Outlook

Long-term Target

Businesses

Pharmaceutical and
Specialty Solutions

Revenue:

~$188.8B

Segment Profit:

~1.87B

Revenue:

10% to 12% growth

Segment Profit:

7% to 9% growth

4-6%

Segment Profit CAGR6

Former Pharmaceutical Segment,
excluding Nuclear and Precision
Health Solutions

GMPD

Revenue:

~$12.1B

Segment Profit:

~$(165)M

Revenue:

~2% growth

Segment Profit:

~$65M

~$300 million

in Segment Profit by FY267

Former Medical Segment,
excluding at-Home Solutions and OptiFreight®
Logistics

Other

Revenue:

~$4.1B

Segment Profit:

~$410M

Revenue:

~10% growth

Segment Profit:

6% to 8% growth

8-10%

Segment Profit CAGR6

at-Home Solutions, Nuclear and
Precision Health Solutions and
OptiFreight® Logistics

The company does not provide forward-looking guidance on a GAAP basis as certain financial information, the probable significance of which cannot be determined, is not available and cannot be reasonably estimated. See "Use of Non-GAAP Measures" following the attached schedules for additional explanation.

Recent highlights

  • Cardinal Health announced progress on the company's business and portfolio review on January 9, 2024. The company completed its review of the growth businesses within the former Medical Segment, determining to invest in and further develop at-Home Solutions and OptiFreight® Logistics as part of the company's portfolio for long-term growth and value creation. The company's review of the Global Medical Products and Distribution business continues, with a focus on driving operational performance through the Medical Improvement Plan.
  • Cardinal Health completed a $250 million accelerated share repurchase program in the second quarter, resulting in a total of $750 million year-to-date share repurchases in fiscal 2024.
  • Cardinal Health announced plans to build a new at-Home Solutions distribution center in Texas, with increased capacity, advanced automation and robotics within the facility.

Upcoming webcasted investor events

  • Barclays 26th Annual Global Healthcare Conference at 8:30 a.m. EST, March 13, 2024.

Webcast
Cardinal Health will host a webcast today at 8:30 a.m. Eastern to discuss second-quarter results. To access the webcast and corresponding slide presentation, go to the Investor Relations page at ir.cardinalhealth.com. No access code is required. 

Presentation slides and a webcast replay will be available on the Investor Relations page for 12 months.

About Cardinal Health
Cardinal Health is a distributor of pharmaceuticals, a global manufacturer and distributor of medical and laboratory products, and a provider of performance and data solutions for healthcare facilities. With more than 50 years in business, operations in more than 30 countries and approximately 48,000 employees globally, Cardinal Health is essential to care. Information about Cardinal Health is available at cardinalhealth.com. 

Contacts
Media: Erich Timmerman, erich.timmerman@cardinalhealth.com and 614.757.8231
Investors: Matt Sims, matt.sims@cardinalhealth.com and 614.553.3661

1 GAAP refers to U.S. generally accepted accounting principles. This news release includes GAAP financial measures as well as non-GAAP financial measures, which are financial measures not calculated in accordance with GAAP. See "Use of Non-GAAP Measures" following the attached schedules for definitions of the non-GAAP financial measures presented in this news release and see the attached schedules for reconciliations of the differences between the non-GAAP financial measures and their most directly comparable GAAP financial measures.
2 The company does not provide forward-looking guidance on a GAAP basis as certain financial information, the probable significance of which cannot be determined, is not available and cannot be reasonably estimated. See "Use of Non-GAAP Measures" following the attached schedules for additional explanation.
3 The company updated its fiscal 2024 enterprise guidance on January 9, 2024, to the high end of the $6.75 to $7.00 EPS range provided on November 3, 2023, as part of the first quarter fiscal 2024 earnings release.  
4 The second quarter fiscal 2023 GAAP effective tax rate reflected the effects of the goodwill impairment charge included in the company's estimated annual effective tax rate.
5 Recast FY23 actuals for updated segment reporting structure are considered preliminary and pending a final recast of segment results that is expected to be completed by the company's Q3 FY24 earnings release. The sum of the components may reflect rounding adjustments.
6 FY24 to FY26 CAGR, as of FY23 baseline.
7 The company's previously announced Medical Improvement Plan targeting at least $650M of segment profit by FY26 continues, with elements of that plan to reside in the results of both GMPD and Other.

Cardinal Health uses its website as a channel of distribution for material company information. Important information, including news releases, financial information, earnings and analyst presentations, and information about upcoming presentations and events is routinely posted and accessible on the Investor Relations page at  ir.cardinalhealth.com. In addition, the website allows investors and other interested persons to sign up automatically to receive email alerts when the company posts news releases, SEC filings and certain other information on its website.

Cautions Concerning Forward-Looking Statements 
This news release contains forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. These statements may be identified by words such as "expect," "anticipate," "intend," "plan," "believe," "will," "should," "could," "would," "project," "continue," "likely," and similar expressions, and include statements reflecting future results or guidance, statements of outlook, preliminary recast fiscal 2023 results and various accruals and estimates. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These risks and uncertainties include risks arising from ongoing inflationary pressures, including the risk that our plans to mitigate such effects may not be as successful as we anticipate or that costs could remain elevated; the possibility that our Medical unit goodwill could be further impaired due to additional changes to our long-term financial plan, increases in global interest rates or unfavorable changes in the U.S. statutory tax rate; risks associated with our ongoing review of our operations, portfolio and businesses, including the risk that our management team could become distracted or that the outcome of such review may have unintended consequences; competitive pressures in Cardinal Health's various lines of business, including the risk that customers may reduce purchases made under their contracts with us or terminate or not renew their contracts; the performance of our generics program, including the amount or rate of generic deflation and our ability to offset generic deflation and maintain other financial and strategic benefits through our generic sourcing venture or other components of our generics programs; ongoing risks associated with the distribution of opioids, including the financial impact associated with the settlements with governmental authorities and the risk that challenges to tax deductions for opioid-related losses could adversely impact our financial results; risks arising from the Department of Justice investigation which we believe concerns our anti-diversion program and risks associated with the injunctive relief requirements under the national settlement, including the risk that we may incur higher costs or operational challenges in the implementation and maintenance of the required changes; risks associated with the manufacture and sourcing of certain products, including risks related to our ability and the ability of third-party manufacturers to import or export certain products or component parts and to comply with applicable regulations; our ability to manage uncertainties associated with the pricing of branded pharmaceuticals; uncertainties related to the timing, magnitude and profit impact of the distribution of recently commercially available COVID-19 vaccines; risks associated with business process initiatives, such as the Medical Improvement Plan, including the possibility that they could fail to achieve the intended results; the risk that we may not realize the anticipated benefits related to our updated operating and segment reporting structure; and risks associated with our planned acquisition of Specialty Networks, including the risk that we may not receive required regulatory approval or otherwise fail to complete the acquisition and the risk that we may fail to realize the anticipated strategic and financial benefits. Cardinal Health is subject to additional risks and uncertainties described in Cardinal Health's Form 10-K, Form 10-Q and Form 8-K reports and exhibits to those reports. This news release reflects management's views as of February 1, 2024. Except to the extent required by applicable law, Cardinal Health undertakes no obligation to update or revise any forward-looking statement. Forward-looking statements are aspirational and not guarantees or promises that goals, targets or projections will be met, and no assurance can be given that any commitment, expectation, initiative or plan in this news release can or will be achieved or completed.

 

Schedule 1 

Cardinal Health, Inc. and Subsidiaries 

Condensed Consolidated Statements of Earnings/(Loss) (Unaudited)

 
 

Second  Quarter

 

Year-to-Date

(in millions, except per common share amounts)

2024

 

2023

 

% Change

 

2024

 

2023

 

% Change

Revenue

$        57,445

 

$        51,469

 

12 %

 

$       112,208

 

$       101,072

 

11 %

Cost of products sold

55,599

 

49,806

 

12 %

 

108,594

 

97,795

 

11 %

Gross margin

1,846

 

1,663

 

11 %

 

3,614

 

3,277

 

10 %

                       

Operating expenses:

                     

Distribution, selling, general and administrative expenses

1,283

 

1,191

 

8 %

 

2,480

 

2,388

 

4 %

Restructuring and employee severance

28

 

17

     

53

 

46

   

Amortization and other acquisition-related costs

63

 

71

     

127

 

142

   

Impairments and (gain)/loss on disposal of assets, net1

1

 

710

     

538

 

863

   

Litigation (recoveries)/charges, net

(11)

 

(207)

     

(52)

 

(180)

   

Operating earnings/(loss)

482

 

(119)

 

N.M.

 

468

 

18

 

N.M.

                       

Other (income)/expense, net

(16)

 

(7)

     

(18)

 

(5)

   

Interest expense, net

8

 

25

 

(68) %

 

22

 

50

 

(56) %

Earnings/(loss) before income taxes

490

 

(137)

 

N.M.

 

464

 

(27)

 

N.M.

                       

Provision for/(benefit from) income taxes2

136

 

(7)

 

N.M.

 

104

 

(8)

 

N.M.

Net earnings/(loss)

354

 

(130)

 

N.M.

 

360

 

(19)

 

N.M.

                       

Less: Net earnings attributable to noncontrolling interests

(1)

 

     

(2)

 

(1)

   

Net earnings/(loss) attributable to Cardinal Health, Inc.

$            353

 

$           (130)

 

N.M.

 

$            358

 

$             (20)

 

N.M.

                       

Earnings/(Loss) per common share attributable to Cardinal Health, Inc.:

                     

Basic

$            1.44

 

$          (0.50)

 

N.M.

 

$            1.45

 

$          (0.08)

 

N.M.

Diluted

1.43

 

(0.50)

 

N.M.

 

1.44

 

(0.08)

 

N.M.

                       

Weighted-average number of common shares outstanding:

                     

Basic

245

 

261

     

247

 

266

   

Diluted

246

 

261

     

248

 

266

   
 

Impairments and (gain)/loss on disposal of assets, net included pre-tax impairment charges related to the Medical segment of $581 million recorded during the six months ended
  December 31, 2023. During the three and six months ended December 31, 2022, impairments and (gain)/loss on disposal of assets, net included pre-tax goodwill impairment
  charges of $709 million and $863 million, respectively, related to the Medical segment.

 

For fiscal 2024, the net tax benefit related to the impairment charge is $45 million and is included in the annual effective tax rate. As a result, the tax benefit for the six months ended
  December 31, 2023 increased approximately by an incremental $65 million and will increase the provision for income taxes for the remainder of fiscal 2024. For fiscal 2023, the net
  tax benefit related to these impairment charges was $68 million and was included in the annual effective tax rate. As a result, the amount of tax benefit increased approximately by
  an incremental $118 million and $140 million for the three and six months ended December 31, 2022, respectively, and increased the provision for income taxes for the remainder of
  fiscal 2023.

 

Schedule 2

Cardinal Health, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

(in millions)

December 31,
2023

 

June 30,
2023

Assets

(Unaudited)

   

Current assets:

     

Cash and equivalents

$               4,591

 

$               4,043

Trade receivables, net

11,788

 

11,344

Inventories, net

18,451

 

15,940

Prepaid expenses and other

2,816

 

2,362

Assets held for sale

12

 

144

Total current assets

37,658

 

33,833

       

Property and equipment, net

2,446

 

2,462

Goodwill and other intangibles, net

5,371

 

6,081

Other assets

1,098

 

1,041

Total assets

$              46,573

 

$              43,417

       

Liabilities and Shareholders' Deficit

     

Current liabilities:

     

Accounts payable

$              34,259

 

$              29,813

Current portion of long-term obligations and other short-term borrowings                                                                                                               

1,188

 

792

Other accrued liabilities

2,839

 

3,059

Liabilities related to assets held for sale

 

42

Total current liabilities

38,286

 

33,706

       

Long-term obligations, less current portion

3,535

 

3,909

Deferred income taxes and other liabilities

8,199

 

8,653

       

Total shareholders' deficit

(3,447)

 

(2,851)

Total liabilities and shareholders' deficit

$              46,573

 

$              43,417

 

Schedule 3

Cardinal Health, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

 
 

Second Quarter

 

Year-to-Date

(in millions)

2024

 

2023

 

2024

 

2023

Cash flows from operating activities:

             

Net earnings/(loss)

$                354

 

$               (130)

 

$                360

 

$                (19)

               

Adjustments to reconcile net earnings/(loss) to net cash provided by operating activities:

             

Depreciation and amortization

175

 

170

 

347

 

341

Impairments and (gain)/loss on disposal of assets, net

1

 

710

 

538

 

863

Share-based compensation

28

 

25

 

57

 

48

Provision for bad debts

14

 

30

 

43

 

59

Change in operating assets and liabilities, net of effects from acquisitions and divestitures:                         

             

Increase in trade receivables

(537)

 

(411)

 

(487)

 

(919)

Increase in inventories

(1,479)

 

(1,379)

 

(2,536)

 

(1,643)

Increase in accounts payable

2,719

 

1,720

 

4,446

 

2,954

Other accrued liabilities and operating items, net

(86)

 

(138)

 

(1,034)

 

(1,064)

Net cash provided by operating activities

1,189

 

597

 

1,734

 

620

               

Cash flows from investing activities:

             

Proceeds from divestitures, net of cash sold

9

 

 

9

 

Additions to property and equipment

(114)

 

(85)

 

(206)

 

(155)

Proceeds from disposal of property and equipment

1

 

 

2

 

2

Purchases of investments

(1)

 

(2)

 

(2)

 

(5)

Proceeds from investments

 

 

1

 

1

Proceeds from net investment hedge terminations

 

 

28

 

Net cash used in investing activities

(105)

 

(87)

 

(168)

 

(157)

               

Cash flows from financing activities:

             

Reduction of long-term obligations

(8)

 

(6)

 

(15)

 

(13)

Net tax proceeds from share-based compensation

29

 

23

 

1

 

9

Dividends on common shares

(124)

 

(129)

 

(255)

 

(271)

Purchase of treasury shares

(250)

 

(250)

 

(750)

 

(1,250)

Net cash used in financing activities

(353)

 

(362)

 

(1,019)

 

(1,525)

               

Effect of exchange rate changes on cash and equivalents

6

 

14

 

1

 

(1)

               

Net increase/(decrease) in cash and equivalents

737

 

162

 

548

 

(1,063)

Cash and equivalents at beginning of period

3,854

 

3,492

 

4,043

 

4,717

Cash and equivalents at end of period

$              4,591

 

$              3,654

 

$              4,591

 

$              3,654

 

Schedule 4

Cardinal Health, Inc. and Subsidiaries 

Segment Information

 

Second Quarter

                 

(in millions)

2024

 

2023

 

(in millions)

2024

 

2023

Pharmaceutical

       

Medical

     
                 

Revenue

       

Revenue

     

Amount

$       53,520

 

$       47,673

 

Amount

$        3,928

 

$        3,797

Growth rate

12 %

 

15 %

 

Growth rate

3 %

 

(7) %

                 

Segment profit

       

Segment profit

     

Amount

$           518

 

$           464

 

Amount

$            71

 

$            17

Growth rate

12 %

 

9 %

 

Growth rate

N.M.

 

(66) %

Segment profit margin                                        

0.97 %

 

0.97 %

 

Segment profit margin                                        

1.81 %

 

0.45 %

 

Year-to-Date

                 

(in millions)

2024

 

2023

 

(in millions)

2024

 

2023

Pharmaceutical

       

Medical

     
                 

Revenue

       

Revenue

     

Amount

$     104,526

 

$       93,501

 

Amount

$        7,688

 

$        7,575

Growth rate

12 %

 

15 %

 

Growth rate

1 %

 

(8) %

                 

Segment profit

       

Segment profit

     

Amount

$        1,025

 

$           895

 

Amount

$           142

 

$              9

Growth rate

15 %

 

8 %

 

Growth rate

N.M.

 

(95) %

Segment profit margin

0.98 %

 

0.96 %

 

Segment profit margin

1.85 %

 

0.12 %

 

The sum of the components and certain computations may reflect rounding adjustments.

 

Schedule 5

Cardinal Health, Inc. and Subsidiaries

GAAP / Non-GAAP Reconciliation1

 
             

Earnings/

           
   

Gross

     

Operating

(Loss)

Provision for/

 

Net

   

Diluted

   

Margin

 

SG&A2

Operating

Earnings

Before

(Benefit  from)

Net

Earnings3

Effective

 

EPS 3

(in millions, except per common share amounts)

Gross

Growth

 

Growth

Earnings/

Growth

Income

Income

Earnings/

Growth

Tax

Diluted

Growth

Margin

Rate

SG&A 2

Rate

(Loss)

Rate

Taxes

Taxes

(Loss) 3

Rate

Rate

EPS 3,4

Rate

Second Quarter 2024

GAAP

$  1,846

11 %

$  1,283

8 %

$       482

N.M.

$       490

$              136

$        353

N.M.

27.7 %

$    1.43

N.M.

Surgical gown recall income

 

1

 

(1)

 

(1)

(1)

   

 

Restructuring and employee severance

 

 

28

 

28

7

21

   

0.09

 

Amortization and other acquisition-related costs

 

 

63

 

63

17

46

   

0.19

 

Impairments and (gain)/loss on disposal of assets, net

 

 

1

 

1

(33)

34

   

0.14

 

Litigation (recoveries)/charges, net

 

 

(11)

 

(11)

(5)

(6)

   

(0.03)

 

Non-GAAP

$  1,846

11 %

$  1,284

8 %

$       562

20 %

$       569

$              121

$        447

29 %

21.3 %

$    1.82

38 %

                           
 

Second Quarter 2023

GAAP

$  1,663

3 %

$  1,191

3 %

$      (119)

(87) %

$      (137)

$                (7)

$       (130)

N.M.

5.4 %

$  (0.50)

N.M.

State opioid assessment related to prior fiscal years

 

6

 

(6)

 

(6)

(2)

(4)

   

(0.02)

 

Shareholder cooperation agreement costs

 

(2)

 

2

 

2

1

1

   

0.01

 

Restructuring and employee severance

 

 

17

 

17

4

13

   

0.05

 

Amortization and other acquisition-related costs

 

 

71

 

71

18

53

   

0.20

 

Impairments and (gain)/loss on disposal of assets, net 5

 

 

710

 

710

173

537

   

2.06

 

Litigation (recoveries)/charges, net

 

 

(207)

 

(207)

(83)

(124)

   

(0.48)

 

Non-GAAP

$  1,663

3 %

$  1,196

4 %

$       467

— %

$       450

$              104

$        346

(3) %

23.0 %

$    1.32

4 %

 

1For more information on these measures, refer to the Use of Non-GAAP Measures and Definitions schedules. 

 

2Distribution, selling, general and administrative expenses.  

 

3Attributable to Cardinal Health, Inc. 

 

4 For the three months ended December 31, 2022, GAAP diluted EPS and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 261 million common shares, which
excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the periods. For the three months ended December 31, 2022, non-GAAP diluted EPS is calculated 
using a weighted average of 263 million common shares, which includes potentially dilutive shares.

 

5 For the three months ended December 31, 2022, impairments and (gain)/loss on disposal of assets, net included a pre-tax goodwill impairment charge of $709 million related to the Medical segment. For fiscal 2023, the net tax 
benefit related to the cumulative impairment charges was $68 million and was included in the annual effective tax rate. As a result, the amount of tax benefit increased approximately by an incremental $118 million for the three 
months ended December 31, 2022 and increased the provision for income taxes for the remainder of fiscal 2023.

 

The sum of the components and certain computations may reflect rounding adjustments. 

 

We generally apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred. 

 

Schedule 5

Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation1

 
             

Earnings/

           
   

Gross

     

Operating

(Loss)

Provision for/

 

Net

   

Diluted

   

Margin

 

SG&A 2

Operating

Earnings

Before

(Benefit  from)

Net

Earnings3

Effective

 

EPS 3

 

Gross

Growth

 

Growth

Earnings/

Growth

Income

Income

Earnings/

Growth

Tax

Diluted

Growth

(in millions, except per common share amounts)

Margin

Rate

SG&A 2

Rate

(Loss)

Rate

Taxes

Taxes

(Loss) 3

Rate

Rate

EPS 3,4

Rate

Year-to-Date 2024

GAAP

$  3,614

10 %

$  2,480

4 %

$        468

N.M.

$       464

$               104

$        358

N.M.

22.4 %

$    1.44

N.M.

Surgical gown recall income

 

1

 

(1)

 

(1)

(1)

   

 

Restructuring and employee severance

 

 

53

 

53

14

39

   

0.16

 

Amortization and other acquisition-related costs

 

 

127

 

127

33

94

   

0.38

 

Impairments and (gain)/loss on disposal of assets, net 5

 

 

538

 

538

112

426

   

1.71

 

Litigation (recoveries)/charges, net

 

 

(52)

 

(52)

(16)

(36)

   

(0.14)

 

Non-GAAP

$  3,614

10 %

$  2,481

4 %

$      1,133

27 %

$     1,129

$               247

$        880

30 %

21.9 %

$    3.55

41 %

                           
 

Year-to-Date 2023

GAAP

$  3,277

1 %

$  2,388

5 %

$          18

N.M.

$        (27)

$                 (8)

$         (20)

N.M.

30.0 %

$  (0.08)

N.M.

State opioid assessment related to prior fiscal years

 

6

 

(6)

 

(6)

(2)

(4)

   

(0.02)

 

Shareholder cooperation agreement costs

 

(8)

 

8

 

8

2

6

   

0.02

 

Restructuring and employee severance

 

 

46

 

46

10

36

   

0.13

 

Amortization and other acquisition-related costs

 

 

142

 

142

37

105

   

0.40

 

Impairments and (gain)/loss on disposal of assets, net 5

 

 

863

 

863

207

656

   

2.46

 

Litigation (recoveries)/charges, net

 

 

(180)

 

(180)

(76)

(104)

   

(0.39)

 

Non-GAAP

$  3,277

1 %

$  2,386

5 %

$        891

(10) %

$       846

$               170

$        675

(7) %

20.1 %

$    2.52

(2) %

 

1For more information on these measures, refer to the Use of Non-GAAP Measures and Definitions schedules.

 

2Distribution, selling, general and administrative expenses.  

 

3Attributable to Cardinal Health, Inc. 

 

4 For the six months ended December 31, 2022, GAAP diluted EPS and the EPS impact from the GAAP to non-GAAP per share reconciling items are calculated using a weighted average of 266 million common shares, which excludes potentially dilutive securities from the denominator due to their anti-dilutive effects resulting from our GAAP net loss for the periods. For the six months ended December 31, 2022, non-GAAP diluted EPS is calculated using a weighted average of 268 million common shares, which includes potentially dilutive shares.

 

5 For the six months ended December 31, 2023, impairments and (gain)/loss on disposal of assets, net includes a pre-tax goodwill impairment charge of $581 million related to the Medical segment. For fiscal 2024, the net tax benefit related to the impairment charge is $45 million and is included in the annual effective tax rate. As a result, the tax benefit for the six months ended December 31, 2023 increased approximately by an incremental $65 million and will increase the provision for income taxes for the remainder of fiscal 2024.

 

For the six months December 31, 2022, impairments and (gain)/loss on disposal of assets, net included cumulative pre-tax goodwill impairment charges of $863 million related to the Medical segment. For fiscal 2023, the net tax benefit related to these impairment charges was $68 million and was included in the annual effective tax rate. As a result, the amount of tax benefit increased approximately by an incremental $140 million for the six months ended December 31, 2022 and increased the provision for income taxes for the remainder of fiscal 2023.

 

The sum of the components and certain computations may reflect rounding adjustments. 

 

We generally apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred. 

 

Schedule 6

Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation - GAAP Cash Flow to Non-GAAP Adjusted Free Cash Flow

 
 

Second Quarter

 

Year-to-Date

(in millions)

2024

 

2023

 

2024

 

2023

GAAP - Cash Flow Categories

             

Net cash provided by operating activities

$             1,189

 

$               597

 

$             1,734

 

$                620

Net cash used in investing activities

(105)

 

(87)

 

(168)

 

(157)

Net cash used in financing activities

(353)

 

(362)

 

(1,019)

 

(1,525)

Effect of exchange rates changes on cash and equivalents

6

 

14

 

1

 

(1)

Net increase/(decrease) in cash and equivalents

$               737

 

$               162

 

$               548

 

$            (1,063)

               

Non-GAAP Adjusted Free Cash Flow

             

Net cash provided by operating activities

$             1,189

 

$               597

 

$             1,734

 

$                620

Additions to property and equipment

(114)

 

(85)

 

(206)

 

(155)

Payments/(receipts) related to matters included in litigation (recoveries)/charges, net

(27)

 

(73)

 

515

 

316

Non-GAAP Adjusted Free Cash Flow

$             1,048

 

$               439

 

$             2,043

 

$                781

 

1For more information on these measures, refer to the Use of Non-GAAP Measures and Definitions schedules. 

Cardinal Health, Inc. and Subsidiaries

Use of Non-GAAP Measures
This earnings release contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP").

In addition to analyzing our business based on financial information prepared in accordance with GAAP, we use these non-GAAP financial measures internally to evaluate our performance, engage in financial and operational planning, and determine incentive compensation because we believe that these measures provide additional perspective on and, in some circumstances are more closely correlated to, the performance of our underlying, ongoing business. We provide these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results on a year-over-year basis and in comparing our performance to that of our competitors. However, the non-GAAP financial measures that we use may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The non-GAAP financial measures disclosed by us should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth below should be carefully evaluated. 

Exclusions from Non-GAAP Financial Measures
Management believes it is useful to exclude the following items from the non-GAAP measures presented in this report for its own and for investors' assessment of the business for the reasons identified below:

  • LIFO charges and credits are excluded because the factors that drive last-in first-out ("LIFO") inventory charges or credits, such as pharmaceutical manufacturer price appreciation or deflation and year-end inventory levels (which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end), are largely out of our control and cannot be accurately predicted. The exclusion of LIFO charges and credits from non-GAAP metrics facilitates comparison of our current financial results to our historical financial results and to our peer group companies' financial results. We did not recognize any LIFO charges or credits during the periods presented.
  • Surgical gown recall costs or income includes inventory write-offs and certain remediation and supply disruption costs, net of related insurance recoveries, arising from the January 2020 recall of select Association for the Advancement of Medical Instrumentation ("AAMI") Level 3 surgical gowns and voluntary field actions (a recall of some packs and a corrective action allowing overlabeling of other packs) for Presource Procedure Packs containing affected gowns. Income from surgical gown recall costs represents insurance recoveries of these certain costs. We have excluded these costs from our non-GAAP metrics to allow investors to better understand the underlying operating results of the business and to facilitate comparison of our current financial results to our historical financial results and to our peer group companies' financial results.
  • State opioid assessments related to prior fiscal years is the portion of state assessments for prescription opioid medications that were sold or distributed in periods prior to the period in which the expense is incurred. This portion is excluded from non-GAAP financial measures because it is retrospectively applied to sales in prior fiscal years and inclusion would obscure analysis of the current fiscal year results of our underlying, ongoing business. Additionally, while states' laws may require us to make payments on an ongoing basis, the portion of the assessment related to sales in prior periods are contemplated to be one-time, nonrecurring items. Income from state opioid assessments related to prior fiscal years represents reversals of accruals due to changes in estimates or when the underlying assessments were invalidated by a Court or reimbursed by manufacturers.
  • Shareholder cooperation agreement costs includes costs such as legal, consulting and other expenses incurred in relation to the agreement (the "Cooperation Agreement") entered into among Elliott Associates, L.P., Elliott International, L.P. (together, "Elliott") and Cardinal Health, including costs incurred to negotiate and finalize the Cooperation Agreement and costs incurred by the Business Review Committee of the Board of Directors, which was formed under this Cooperation Agreement. We have excluded these costs from our non-GAAP metrics because they do not occur in or reflect the ordinary course of our ongoing business operations and may obscure analysis of trends and financial performance.
  • Restructuring and employee severance costs are excluded because they are not part of the ongoing operations of our underlying business and include, but are not limited to, costs related to divestitures, closing and consolidating facilities, changing the way we manufacture or distribute our products, moving manufacturing of a product to another location, changes in production or business process outsourcing or insourcing, employee severance and realigning operations.
  • Amortization and other acquisition-related costs, which include transaction costs, integration costs, and changes in the fair value of contingent consideration obligations, are excluded because they are not part of the ongoing operations of our underlying business and to facilitate comparison of our current financial results to our historical financial results and to our peer group companies' financial results. Additionally, costs for amortization of acquisition-related intangible assets are non-cash amounts, which are variable in amount and frequency and are significantly impacted by the timing and size of acquisitions, so their exclusion facilitates comparison of historical, current and forecasted financial results. We also exclude other acquisition-related costs, which are directly related to an acquisition but do not meet the criteria to be recognized on the acquired entity's initial balance sheet as part of the purchase price allocation. These costs are also significantly impacted by the timing, complexity and size of acquisitions.
  • Impairments and gain or loss on disposal of assets, net are excluded because they do not occur in or reflect the ordinary course of our ongoing business operations and are inherently unpredictable in timing and amount, and in the case of impairments, are non-cash amounts, so their exclusion facilitates comparison of historical, current and forecasted financial results.
  • Litigation recoveries or charges, net are excluded because they often relate to events that may have occurred in prior or multiple periods, do not occur in or reflect the ordinary course of our business and are inherently unpredictable in timing and amount.
  • Loss on early extinguishment of debt is excluded because it does not typically occur in the normal course of business and may obscure analysis of trends and financial performance. Additionally, the amount and frequency of this type of charge is not consistent and is significantly impacted by the timing and size of debt extinguishment transactions.

The tax effect for each of the items listed above is determined using the tax rate and other tax attributes applicable to the item and the jurisdiction(s) in which the item is recorded. The gross, tax and net impact of each item are presented with our GAAP to non-GAAP reconciliations. 

Non-GAAP adjusted free cash flow: We provide this non-GAAP financial measure as a supplemental metric to assist readers in assessing the effects of items and events on our cash flow on a year-over-year basis and in comparing our performance to that of our peer group companies. In calculating this non-GAAP metric, certain items are excluded from net cash provided by operating activities because they relate to significant and unusual or non-recurring events and are inherently unpredictable in timing and amount. We believe adjusted free cash flow is important to management and useful to investors as a supplemental measure as it indicates the cash flow available for working capital needs, debt repayments, dividend payments, share repurchases, strategic acquisitions, or other strategic uses of cash. A reconciliation of our GAAP financial results to Non-GAAP adjusted free cash flow is provided in Schedule 6 of the financial statement tables included with this release.

Forward Looking Non-GAAP Measures
In this document, the Company presents certain forward-looking non-GAAP metrics. The Company does not provide outlook on a GAAP basis because the items that the Company excludes from GAAP to calculate the comparable non-GAAP measure can be dependent on future events that are less capable of being controlled or reliably predicted by management and are not part of the Company's routine operating activities. Additionally, management does not forecast many of the excluded items for internal use and therefore cannot create or rely on outlook done on a GAAP basis.

The occurrence, timing and amount of any of the items excluded from GAAP to calculate non-GAAP could significantly impact the Company's fiscal 2024 GAAP results. Over the past five fiscal years, the excluded items have impacted the Company's EPS from $0.75 to $18.06, which included a $17.54 charge related to the opioid litigation we recognized in fiscal 2020.

Definitions

Growth rate calculation: growth rates in this report are determined by dividing the difference between current-period results and prior-period results by prior-period results.

Interest and Other, net: other (income)/expense, net plus interest expense, net.

Segment Profit: segment revenue minus (segment cost of products sold and segment distribution, selling, general and administrative expenses).

Segment Profit margin: segment profit divided by segment revenue. 

Non-GAAP gross margin: gross margin, excluding LIFO charges/(credits) and surgical gown recall costs/(income).

Non-GAAP distribution, selling, general and administrative expenses or Non-GAAP SG&A: distribution, selling, general and administrative expenses, excluding surgical gown recall costs/(income), state opioid assessment related to prior fiscal years and shareholder cooperation agreement costs.

Non-GAAP operating earnings: operating earnings/(loss) excluding (1) LIFO charges/(credits), (2) surgical gown recall costs/(income), (3) state opioid assessment related to prior fiscal years, (4) shareholder cooperation agreement costs, (5) restructuring and employee severance, (6) amortization and other acquisition-related costs, (7) impairments and (gain)/loss on disposal of assets, net and (8) litigation (recoveries)/charges, net. 

Non-GAAP earnings before income taxes: earnings/(loss) before income taxes excluding (1) LIFO charges/(credits), (2) surgical gown recall costs/(income), (3) state opioid assessment related to prior fiscal years, (4) shareholder cooperation agreement costs, (5) restructuring and employee severance, (6) amortization and other acquisition-related costs, (7) impairments and (gain)/loss on disposal of assets, net and (8) litigation (recoveries)/charges, net and (9) loss on early extinguishment of debt.

Non-GAAP net earnings attributable to Cardinal Health, Inc.: net earnings/(loss) attributable to Cardinal Health, Inc. excluding (1) LIFO charges/(credits), (2) surgical gown recall costs/(income), (3) state opioid assessment related to prior fiscal years, (4) shareholder cooperation agreement costs, (5) restructuring and employee severance, (6) amortization and other acquisition-related costs, (7) impairments and (gain)/loss on disposal of assets, net and (8) litigation (recoveries)/charges, net and (9) loss on early extinguishment of debt.

Non-GAAP effective tax rate: provision for/(benefit from) income taxes adjusted for the tax impacts of (1) LIFO charges/(credits), (2) surgical gown recall costs/(income), (3) state opioid assessment related to prior fiscal years, (4) shareholder cooperation agreement costs, (5) restructuring and employee severance, (6) amortization and other acquisition-related costs, (7) impairments and (gain)/loss on disposal of assets, net and (8) litigation (recoveries)/charges, net and (9) loss on early extinguishment of debt divided by (earnings/(loss) before income taxes adjusted for the nine items above).

Non-GAAP diluted earnings per share attributable to Cardinal Health, Inc.: non-GAAP net earnings attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding. 

Non-GAAP adjusted free cash flow: net cash provided by operating activities less payments related to additions to property and equipment, excluding settlement payments and receipts related to matters included in litigation (recoveries)/charges, net, as defined above, or other significant and unusual or non-recurring cash payments or receipts.

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SOURCE Cardinal Health, Inc.

 
 
Company Codes: NYSE:CAH
 

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