DUBLIN, Ohio, April 26 /PRNewswire-FirstCall/ -- Cardinal Health, a global provider of products and services that improve the safety and productivity of health care, reported third-quarter results today that included strong revenue growth to nearly $22 billion and a $0.01 loss per share due to a previously announced litigation reserve.
For the third quarter ended March 31, revenue increased 8 percent to $21.9 billion. A $5 million loss from continuing operations was due to establishment of the $600 million reserve toward resolving outstanding securities litigation. On a non-GAAP basis, earnings from continuing operations increased 10 percent to $390 million(1), or 16 percent to $0.96(2) on a diluted per-share basis.
"Results for the third quarter were solid, with good execution in our pharmaceutical supply chain segment and continued momentum in the market for our Alaris and Pyxis products," said R. Kerry Clark, chief executive officer of Cardinal Health. "We have plenty of opportunities to improve - especially in our medical supply chain segment - but have established good momentum through three quarters of the year.
"We also made progress in mediation discussions and took important steps toward resolving the outstanding class-action securities litigation. We are eager to put this matter behind us and focus our full attention on the future."
Q3 and FY07 Year-to-Date Summary Q3 FY07 Q3 FY06 Y/Y FY07 Y-T-D Y/Y Revenue $21.9 $20.2 8% $64.6 11% billion billion billion Operating $(10 $535 N.M. $953 N.M. Earnings/(Loss) million) million million Non-GAAP Operating $606 $553 9% $1.6 15% Earnings(3) million million billion Earnings/(Loss) from Continuing $(5 $340 N.M. $602 N.M. Operations million) million million Non-GAAP Earnings from Continuing $390 $353 10% $1 16% Operations million million billion Diluted EPS from Continuing $(0.01) $0.80 N.M. $1.47 N.M. Operations Non-GAAP Diluted EPS from $0.96 $0.83 16% $2.54 22% Continuing Operations Third-quarter segment results: -- Revenue for the Healthcare Supply Chain Services-Pharmaceutical segment grew 8 percent to $19.2 billion, with direct-store-door (DSD) pharmaceutical sales growing 11 percent to $10.5 billion and bulk customer sales growing 11 percent to $8.4 billion. Strong branded buy- side margins and the launch of new generic pharmaceuticals during the quarter contributed to a 15-percent increase in segment profit to $380 million. -- Revenue for the Healthcare Supply Chain Services-Medical segment increased 4 percent to $1.9 billion, with growth in laboratory sales and Canadian operations that were partially offset by weakness in sales to acute care facilities. Continued investments to improve customer service contributed to an increase in the segment's selling, general and administrative (SG&A) expenses and lower segment profit. Segment profit was $89 million for the quarter, a decline of 5 percent from the prior-year period. -- Revenue for the Clinical Technologies and Services segment increased 12 percent to $674 million from continued strong sales of Alaris(R) and Pyxis(R) products. Segment profit also grew 12 percent, to $98 million. During the quarter, Cardinal Health announced an industry-first offering that will further improve medication safety through integration of its CareFusion(TM) bedside verification application, Pyxis MedStation(R) and Alaris IV pumps. In addition, the Food and Drug Administration approved plans for the Alaris SE line of infusion pumps that enables the company to correct units that were seized and those at customer sites. -- Revenue for the Medical Products Manufacturing segment increased 11 percent to $458 million led by continued, strong demand for surgical drapes, gowns and masks, exam gloves and special procedure products. Segment profit grew 4 percent to $47 million and was negatively affected by several unusual expenses during the quarter and planned investments in international and in the research and development of new products. Additional third-quarter and recent highlights include: -- Repurchase of $1.4 billion of Cardinal Health shares during the quarter and approximately $2.4 billion to date in the fiscal year. -- Divestiture of the Pharmaceutical Technologies and Services segment for $3.3 billion to the Blackstone Group. In the fourth quarter, the company received net proceeds of $3.2 billion for the sale and will record the remaining balance of an approximately $1.1 billion gain on the sale. (As disclosed in its second-quarter earnings release and Form 10-Q filing, $425 million of the gain was recorded in the second quarter). -- Return on equity of 0.9 percent, or 19.7 percent on a non-GAAP basis. Non-GAAP return on equity(4) increased substantially from the prior- year period due to strong non-GAAP earnings and lower shareholders' equity from share buybacks. -- Operating cash flow of $676 million, an increase of $465 million from the prior-year period.
Outlook
Cardinal Health reiterated its fiscal 2007 guidance range of $3.25 to $3.40 for non-GAAP diluted EPS from continuing operations.
Conference Call
Cardinal Health will host a conference call and webcast at 11 a.m. Eastern Daylight Time (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 617-786-2903, conference passcode 78983422. An audio replay will be available until 5 p.m. EDT on April 30 at 617-801-6888, passcode 85219462. 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 $80 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(R) data mining software and the CareFusion(R) 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 and No. 1 in its sector on Fortune's ranking of Most Admired firms, Cardinal Health employs more than 40,000 people on five continents. More information about the company may be found at www.cardinalhealth.com.
(1)Non-GAAP earnings from continuing operations: Earnings/(loss) 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/(loss) excluding special items and impairment charges and other.
(4)Non-GAAP return on equity: (annualized current period net earnings plus special items minus special items tax benefit) divided by average shareholders' equity.
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 any regulatory authority or any legal and administrative proceedings, or settlement discussions with regulatory authorities or plaintiffs in any action against the company; uncertainties related to completing a settlement of the class-action securities litigation or, if completed, obtaining court approval of the settlement, uncertainties regarding whether the amount reserved associated with the class-action securities litigation will be sufficient, and uncertainties regarding the timing or final terms of any settlement; 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) (in millions, except per Common Share Third Quarter amounts) 2007 2006 % Change Revenue $21,867.1 $20,213.2 8 % Cost of products sold 20,479.6 18,958.8 8 % Gross margin 1,387.5 1,254.4 11 % Selling, general and administrative expenses 781.7 701.0 12 % Impairment charges and other 3.6 5.2 N.M. Special items: Restructuring charges 6.6 11.2 N.M. Merger charges 2.9 7.2 N.M. Other 602.5 (5.1) N.M. Operating earnings / (loss) (9.8) 534.9 N.M. Interest expense and other 32.2 26.2 23 % Earnings / (loss) before income taxes and discontinued operations (42.0) 508.7 N.M. Provision for income taxes (37.1) 168.4 N.M. Earnings / (loss) from continuing operations (4.9) 340.3 N.M. Earnings / (loss) from discontinued operations (net of tax benefit / (expense) of $(8.1) and $36.8 for the third quarter of fiscal 2007 and 2006, respectively) 23.9 (193.5) N.M. Net earnings $19.0 $146.8 (87)% Basic Earnings per Common Share: Continuing operations $(0.01) $0.81 N.M. Discontinued operations 0.06 (0.46) N.M. Net basic earnings per Common Share $0.05 $0.35 (86)% Diluted Earnings per Common Share: Continuing operations $(0.01) $0.80 N.M. Discontinued operations 0.06 (0.46) N.M. Net diluted earnings per Common Share $0.05 $0.34 (85)% Weighted Average Number of Shares Outstanding: Basic 394.6 419.1 Diluted (1) 394.6 427.5 -------- (1) Due to the loss from continuing operations during the third quarter of fiscal 2007, dilutive potential Common Shares have not been included in the denominator of the dilutive per share computation due to their antidulitive effect. CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (in millions, except per Common Share Year-to-Date amounts) 2007 2006 % Change Revenue $64,589.1 $58,412.5 11 % Cost of products sold 60,701.3 54,890.7 11 % Gross margin 3,887.8 3,521.8 10 % Selling, general and administrative expenses 2,263.0 2,111.9 7 % Impairment charges and other 17.9 4.6 N.M. Special items: Restructuring charges 28.4 28.0 N.M. Merger charges 14.0 20.0 N.M. Other 611.4 (0.2) N.M. Operating earnings 953.1 1,357.5 (30)% Interest expense and other 102.2 76.7 33 % Earnings before income taxes and discontinued operations 850.9 1,280.8 (34)% Provision for income taxes 248.9 421.3 (41)% Earnings from continuing operations 602.0 859.5 (30)% Earnings / (loss) from discontinued operations (net of tax benefit / (expense) of $427.8 and $37.4 for fiscal 2007 and 2006 year-to-date, respectively) 426.9 (180.4) N.M. Net earnings $1,028.9 $679.1 52 % Basic Earnings per Common Share: Continuing operations $1.50 $2.03 (26)% Discontinued operations 1.07 (0.43) N.M. Net basic earnings per Common Share $2.57 $1.60 61 % Diluted Earnings per Common Share: Continuing operations $1.47 $2.00 (27)% Discontinued operations 1.04 (0.42) N.M. Net diluted earnings per Common Share $2.51 $1.58 59 % Weighted Average Number of Shares Outstanding: Basic 400.5 423.6 Diluted 409.5 430.1 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, June 30, (in millions) 2007 2006 Assets Cash and equivalents $866.5 $1,187.3 Short-term investments available for sale 300.0 498.4 Trade receivables, net 4,618.5 3,808.8 Current portion of net investment in sales-type leases 337.1 290.1 Inventories 7,486.5 7,493.0 Prepaid expenses and other 535.7 558.8 Assets held for sale and discontinued operations 3,118.1 2,739.5 Total current assets 17,262.4 16,575.9 Property and equipment, net 1,533.7 1,505.0 Net investment in sales-type leases, less current portion 784.6 754.7 Goodwill and other intangibles, net 4,406.9 4,283.4 Other assets 304.4 345.9 Total assets $24,292.0 $23,464.9 Liabilities and Shareholders' Equity Current portion of long-term obligations and other short-term borrowings $296.9 $199.0 Accounts payable 9,405.7 8,907.8 Other accrued liabilities 2,724.5 1,941.1 Liabilities from businesses held for sale and discontinued operations 518.3 534.2 Total current liabilities 12,945.4 11,582.1 Long-term obligations, less current portion and other short-term borrowings 2,899.0 2,588.6 Deferred income taxes and other liabilities 578.2 803.5 Total shareholders' equity 7,869.4 8,490.7 Total liabilities and shareholders' equity $24,292.0 $23,464.9 CARDINAL HEALTH, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Third Quarter Year-to-Date (in millions) 2007 2006 2007 2006 Cash Flows From Operating Activities: Net earnings $19.0 $146.8 $1,028.9 $679.1 (Earnings) / loss from discontinued operations (23.9) 193.5 (426.9) 180.4 Earnings / (loss) from continuing operations (4.9) 340.3 602.0 859.5 Adjustments to reconcile earnings from continuing operations to net cash provided by operating activities: Depreciation and amortization 81.7 74.1 237.1 219.8 Asset impairments 3.6 7.3 18.0 4.4 Equity compensation 39.0 42.0 109.3 162.7 Provision for bad debts 9.2 (0.4) 17.0 14.5 Change in operating assets and liabilities, net of effects from acquisitions: Increase in trade receivables (227.6) (676.3) (819.6) (836.4) (Increase) / decrease in inventories (172.7) (491.1) 11.4 (402.2) Increase in net investment in sales-type leases (32.6) (20.2) (77.0) (82.1) Increase in accounts payable 417.0 922.0 493.1 1,503.4 Other accrued liabilities and operating items, net 563.6 13.2 703.3 9.0 Net cash provided by operating activities - continuing operations 676.3 210.9 1,294.6 1,452.6 Net cash provided by operating activities - discontinued operations 93.7 20.6 115.2 171.5 Net cash provided by operating activities 770.0 231.5 1,409.8 1,624.1 Cash Flows From Investing Activities: Acquisition of subsidiaries, net of divestitures and cash acquired (28.0) (33.1) (149.0) (105.6) Proceeds from sale of property and equipment (9.6) 3.5 3.7 7.0 Additions to property and equipment (89.1) (86.9) (243.1) (248.4) Sale / (purchase) of investment securities available for sale, net 167.2 (80.2) 198.4 (399.4) Net cash provided by / (used in) investing activities - continuing operations 40.5 (196.7) (190.0) (746.4) Net cash used in investing activities - discontinued operations (72.2) (26.6) (80.1) (79.0) Net cash used in investing activities (31.7) (223.3) (270.1) (825.4) Cash Flows From Financing Activities: Net change in commercial paper and short-term borrowings 250.8 (1.5) 254.5 3.4 Reduction of long-term obligations (43.6) (161.1) (732.9) (253.9) Proceeds from long-term obligations, net of issuance costs - 0.2 851.7 500.6 Proceeds from issuance of Common Shares 243.5 159.0 318.8 227.5 Tax benefits from exercises of stock options 11.6 19.3 28.7 39.0 Dividends on Common Shares (36.1) (25.3) (109.5) (76.6) Purchase of treasury shares (1,280.0) (560.1) (2,025.2) (973.0) Net cash used in financing activities - continuing operations (853.8) (569.5) (1,413.9) (533.0) Net cash provided by / (used in) financing activities - discontinued operations (22.7) 11.7 (46.6) 15.1 Net cash used in financing activities (876.5) (557.8) (1,460.5) (517.9) Net increase / (decrease) in cash and equivalents (138.2) (549.6) (320.8) 280.8 Cash and equivalents at beginning of period 1,004.7 2,116.3 1,187.3 1,285.9 Cash and equivalents at end of period $866.5 $1,566.7 $866.5 $1,566.7 CARDINAL HEALTH, INC. AND SUBSIDIARIES BUSINESS ANALYSIS TOTAL COMPANY Non-GAAP Third Quarter Third Quarter (in millions) 2007 2006 2007 2006 Revenue Amount $21,867 $20,213 Growth Rate 8 % 9 % Operating Earnings / (Loss) Amount ($10) $535 $606 $553 Growth Rate (102)% (3)% 9 % (8)% Earnings / (Loss) from Continuing Operations Amount ($5) $340 $390 $353 Growth Rate (101)% (2)% 10 % (7)% Non-GAAP Year-to-Date Year-to-Date (in millions) 2007 2006 2007 2006 Revenue Amount $64,589 $58,413 Growth Rate 11 % 9 % Operating Earnings / (Loss) Amount $953 $1,358 $1,625 $1,410 Growth Rate (30)% 6 % 15 % 1 % Earnings / (Loss) from Continuing Operations Amount $602 $860 $1,039 $897 Growth Rate (30)% 8 % 16 % 2 % See the GAAP / Non-GAAP Reconciliation for definitions and calculations supporting the non-GAAP balances. CARDINAL HEALTH, INC. AND SUBSIDIARIES SEGMENT BUSINESS ANALYSIS - THIRD QUARTER FISCAL YEAR 2007 HEALTHCARE SUPPLY CHAIN SERVICES (in millions) 2007 2006 PHARMACEUTICAL Revenue Amount $19,246 $17,785 Growth Rate 8 % 9 % Mix 86 % 86 % Segment Profit (1) Amount $380 $329 Growth Rate 15 % (16)% Mix 62 % 59 % Segment Profit Margin 1.97 % 1.85 % MEDICAL Revenue Amount $1,907 $1,829 Growth Rate 4 % 7 % Mix 9 % 9 % Segment Profit (1) Amount $89 $93 Growth Rate (5)% (11)% Mix 14 % 17 % Segment Profit Margin 4.65 % 5.11 % CLINICAL AND MEDICAL PRODUCTS (in millions) 2007 2006 CLINICAL TECHNOLOGIES AND SERVICES Revenue Amount $674 $603 Growth Rate 12 % 15 % Mix 3 % 3 % Segment Profit (1) Amount $98 $88 Growth Rate 12 % 54 % Mix 16 % 16 % Segment Profit Margin 14.58 % 14.61 % MEDICAL PRODUCTS MANUFACTURING Revenue Amount $458 $413 Growth Rate 11 % 6 % Mix 2 % 2 % Segment Profit (1) Amount $47 $45 Growth Rate 4 % (24)% Mix 8 % 8 % Segment Profit Margin 10.20 % 10.87 % (1) Refer to the definitions for an explanation of how the Company calculates segment profit. CARDINAL HEALTH, INC. AND SUBSIDIARIES SEGMENT BUSINESS ANALYSIS - YEAR-TO-DATE 2007 HEALTHCARE SUPPLY CHAIN SERVICES (in millions) 2007 2006 PHARMACEUTICAL Revenue Amount $57,017 $51,295 Growth Rate 11 % 9 % Mix 87 % 86 % Segment Profit (1) Amount $996 $831 Growth Rate 20 % (4)% Mix 62 % 59 % Segment Profit Margin 1.75 % 1.62 % MEDICAL Revenue Amount $5,585 $5,361 Growth Rate 4 % 6 % Mix 8 % 9 % Segment Profit (1)(2) Amount $235 $229 Growth Rate 2 % (14)% Mix 14 % 16 % Segment Profit Margin 4.20 % 4.28 % CLINICAL AND MEDICAL PRODUCTS (in millions) 2007 2006 CLINICAL TECHNOLOGIES AND SERVICES Revenue Amount $1,931 $1,782 Growth Rate 8 % 12 % Mix 3 % 3 % Segment Profit (1) Amount $242 $224 Growth Rate 8 % 35 % Mix 15 % 16 % Segment Profit Margin 12.51 % 12.58 % MEDICAL PRODUCTS MANUFACTURING Revenue Amount $1,336 $1,193 Growth Rate 12 % 6 % Mix 2 % 2 % Segment Profit (1)(2) Amount $140 $119 Growth Rate 17 % (15)% Mix 9 % 9 % Segment Profit Margin 10.45 % 9.96 % (1) Refer to the definitions for an explanation of how the Company calculates segment profit. (2) During the third quarter of fiscal 2007, the Company revised the method used to allocate certain shared costs between the Healthcare Supply Chain Services - -- Medical segment
and the Medical Products Manufacturing segment to better align costs with the segment that receives the related benefits. Prior period information has been reclassified to conform to this new presentation. CARDINAL HEALTH, INC. AND SUBSIDIARIES QUARTERLY SEGMENT BUSINESS ANALYSIS - FISCAL YEAR 2007 HEALTHCARE SUPPLY CHAIN SERVICES (in millions) Q1 Q2 Q3 YTD PHARMACEUTICAL Revenue Amount $18,533 $19,238 $19,246 $57,017 Growth Rate 12 % 13 % 8 % 11 % Mix 87 % 87 % 86 % 87 % Segment Profit (1) Amount $289 $328 $380 $996 Growth Rate 28 % 19 % 15 % 20 % Mix 64 % 60 % 62 % 62 % Segment Profit Margin 1.56 % 1.71 % 1.97 % 1.75 % MEDICAL Revenue Amount $1,806 $1,872 $1,907 $5,585 Growth Rate 2 % 6 % 4 % 4 % Mix 8 % 8 % 9 % 8 % Segment Profit (1)(2) Amount $64 $82 $89 $235 Growth Rate (1)% 15 % (5)% 2 % Mix 14 % 14 % 14 % 14 % Segment Profit Margin 3.55 % 4.38 % 4.65 % 4.20 % CLINICAL AND MEDICAL PRODUCTS (in millions) Q1 Q2 Q3 YTD CLINICAL TECHNOLOGIES AND SERVICES Revenue Amount $594 $662 $674 $1,931 Growth Rate 3 % 10 % 12 % 8 % Mix 3 % 3 % 3 % 3 % Segment Profit (1) Amount $51 $92 $98 $242 Growth Rate (10)% 16 % 12 % 8 % Mix 12 % 17 % 16 % 15 % Segment Profit Margin 8.66 % 13.87 % 14.58 % 12.51 % MEDICAL PRODUCTS MANUFACTURING Revenue Amount $424 $455 $458 $1,336 Growth Rate 11 % 15 % 11 % 12 % Mix 2 % 2 % 2 % 2 % Segment Profit (1)(2) Amount $46 $47 $47 $140 Growth Rate 36 % 17 % 4 % 17 % Mix 10 % 9 % 8 %
