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Leading distributor of pharmaceuticals and medical supplies Cardinal Health (CAH - Analyst Report) posted fourth-quarter and fiscal 2012 (ended June 30) adjusted (excluding one-time charges and gains) earnings per share from continuing operations of 73 cents and $3.21 respectively, thereby beating the Zacks Consensus Estimate of both fourth quarter and fiscal 2012 by a penny.

Earnings from continuing operations (as reported) were up about 14% year over year to $236 million (or 68 cents a share) in the fourth quarter.

Revenues

Revenues in the fourth quarter stood at $26.8 billion, flat on a year-over-year basis, trailing the Zacks Consensus Estimate of $27.1 billion.

For fiscal 2012, revenues rose 5% year over year to $107.6, missing the Zacks Consensus Estimate of $107.9 million.

Segment Highlights

The Pharmaceutical segment, Cardinal’s mainstay, posted revenues of $24.3 billion in the quarter, a 1% year over year decrease, owing to brand-to-generic conversions.

Sales from the smaller Medical segment improved 5% year over year to $2.4 billion in the quarter, on the back of higher sales of preferred offerings.

Margins

Gross margin in the fourth quarter edged up to 4.2% from 3.9% in the year-ago quarter. Company-wide operating earnings increased 12% year over year to $403 million in the quarter.

Pharmaceutical segment profit climbed 15% year over year to $354 million, reflecting robust performance by generics and expansion of operations with pre-existing as well as new customers. Segment profit margin improved to 1.46%, up from 1.26% in the prior-year quarter.

Profit for the Medical segment increased 2% to $79 million due to higher sales of preferred products. Segment profit margin was 3.27% in the quarter, lower than 3.38% in the year-ago quarter.

Balance Sheet and Dividend

Cardinal ended fiscal 2012 with cash and equivalents of about $2.3 billion, up 17.9% year over year. Long-term obligations (without current portion) increased 11.2% year over year to $2.4 billion.

The company revised its regular quarterly dividend to $0.2375 per share, reflecting an increase of 10.5%, effective from July 15, 2012.

Guidance

For fiscal 2013, Cardinal expects its adjusted earnings per share from continuing operations in a band of $3.35 and $3.50.

Cardinal Health is ranked among the Fortune 500. With over $100 billion in annual sales, Cardinal Health remains one of the largest distributors of pharmaceuticals and medical supplies in the U.S., with a diversified product portfolio which may partly insulate it from the current economic uncertainty.

The company stands to gain from the gradual shift in mix from bulk to the higher-margin non-bulk sector of the Pharmaceutical segment. It is also riding the generic wave. Overall, Cardinal has benefited from a spate of tuck-in acquisitions and capital deployment strategies.

However, the company faces tough competition across all its business segments, which may continue to pressure pricing and margins. Its major competitors in the pharmaceutical supply chain segment include McKesson Corp. (MCK - Analyst Report) and AmerisourceBergen Corp. (ABC - Analyst Report).

We currently have a long-term Neutral recommendation on Cardinal. The stock currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

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