Cardinal Health Earnings Fall but Beat by a Penny - Analyst Blog

Cardinal Health Inc. CAH posted adjusted earnings per share $1.01 for the third quarter of fiscal 2014 that fell 15.8% from $1.20 in the comparable quarter of fiscal 2013 but surpassed the Zacks Consensus Estimate by a penny.

Adjusted net earnings dipped 15.3% to $349 million from $412 million in the third quarter of fiscal 2013. The fall in earnings was attributable to lower revenues during the quarter.

On a reported basis, net earnings decreased to $315 million or 91 cents per share in the quarter from $346 million or $1.00 per share in the year-ago quarter.

Revenues in the quarter went down 12.7% to $22,427 million, due to lower revenues from the Pharmaceutical segment. Nevertheless, the top line beat the Zacks Consensus Estimate of $21,491 million.

Adjusted operating earnings slid 3.1% to $561 million from $579 million in the year-ago quarter. However, adjusted operating margin upped 20 basis points (bps) to 2.6% from 2.4% a year ago.

Segment Results

Revenues from Cardinal Health's mainstay Pharmaceutical segment ebbed 15.0% to $18,762 million, owing to the expiration of the contract with Walgreens Co. WAG, partially offset by sales growth from new and existing customers. Segment earnings fell 9.2% to $452 million owing to lower revenues, partially offset by strong performance from generic programs.

Revenues from the smaller Medical segment grew 7.0% to $2,657 million in the quarter, due to the home health platform, reflecting the acquisition of AssuraMed. Segment earnings rose 11.0% to $111 million, driven by home health, which was partially offset by the effect of overall procedural volume softness and reductions in Presource kitting volumes.

Financial Status

Cardinal Health exited the fiscal third quarter with cash and cash equivalents of about $3,041 million, up significantly by 60.0% from $1,901 million as of Jun 30, 2013. Total debt stood at $3,920 million as of Mar 31, 2014, up 1.7% from $3,854 million as of Jun 30, 2013. However, debt-to-capitalization ratio fell 170 bps to 37.5% as of Mar 31, 2014 from 39.2% as of Jun 30, 2013 due to increase in shareholder's equity.

In the first nine months of fiscal 2014, operating net cash flow rose 26.7% to $1,808 million from $1,427 million in the prior-year period due to increases in net earnings and depreciation and amortization, and decreases in trade receivables and inventories. Capital expenditure increased 40.0% to $138 million from $103 million in the first nine months of fiscal 2013.

EPS Guidance Reiterated

For fiscal 2014, Cardinal Health retained its forecast for adjusted earnings per share in the band of $3.75 to $3.85. The current Zacks Consensus Estimate of $3.83 for the year lies within the guided range.

Our Take

Despite a fall in earnings and revenues, we are impressed with Cardinal's top line and bottom line results, which comfortably beat the Zacks Consensus Estimates. Cardinal Health's strategy of tuck-in acquisitions is yielding positive results as the AssuraMed acquisition is paying off for the Medical segment.

Cardinal Health currently has a Zacks Rank #2 (Buy). Other stocks from the Medical/Dental Supplies industry include The Cooper Companies Inc. COO and Steris Corp. STE. Both of them also carry a Zacks Rank #2 (Buy).