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Cardinal Health (CAH) Beats on Q2 Earnings, Raises '18 View

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Cardinal Health Inc. (CAH - Free Report) reported second-quarter fiscal 2018 adjusted earnings of $1.51 per share, which beat the Zacks Consensus Estimate of $1.14.

However, excluding 20 cents benefit from the legislated tax reform, adjusted earnings were $1.31 per share. Meanwhile, adjusted earnings in the year-ago quarter were $1.34 per share.

Revenues increased 6.1% on a year-over-year basis to almost $35.19 billion and beat the Zacks Consensus Estimate of $34.69 billion.

Cardinal Health, Inc. Price, Consensus and EPS Surprise

 

The stock has a Zacks Rank #2 (Buy).

Segmental Analysis

Pharmaceutical Segment

Pharmaceutical revenues increased 4.7% to $31.15 billion on a year-over-year basis. The segment witnessed strong growth in the Specialty business and also gained a large number of Pharmaceutical Distribution customers.

However, the segment witnessed a 4% decline in profits to $514 million, thanks to generic pharmaceutical pricing, recent investments in Pharmaceutical IT platform and lackluster generics program performance.

However, solid performance by the Specialty Solutions business partially offset the negative impact in the segment.

Medical Segment

Revenues in the segment improved 18.6% to $4.04 billion, primarily on higher contributions from new and existing customers.

Medical segment profits increased 38% to $220 million, courtesy of higher contributions from new and existing customers and acquisition of the Patient Recovery business.

Share-Repurchase Program

The company’s board of directors approved a new authorization to repurchase up to $1 billion of the company’s common shares, which will expire on Dec 31, 2020.

With the latest authorization, Cardinal Health is authorized to repurchase up to $1.3 billion of its common shares.

Margins

As a percentage of revenues, gross margin contracted 50 basis points (bps) to 5.3% of net revenues. However, gross profit in the quarter was $1.86 billion, up 16% year over year.

Distribution, selling, general and administrative (SG&A) expenses increased 24% on a year-over-year basis to $1313 billion.

Guidance

Considering the benefit of 40 cents per share from the lower federal rate due to U.S. tax reform, Cardinal Health raised fiscal 2018 outlook. The company expects adjusted earnings per share from continuing operations in the range of $5.25-$5.50 per share, higher from the previous range of $4.85-$5.10.

Our Take

Cardinal Health exited the quarter on a solid note, courtesy of encouraging performance in the Medical segment. The Pharmaceutical segment witnessed strong growth in the Specialty business and gained a large number of Pharmaceutical Distribution customers. Further, the company is banking on strategic buyouts, joint ventures and supply agreements to drive growth. A strong fiscal 2018 outlook buoys optimism.

On the flip side, despite growth in business, profits at the Pharmaceutical segment were hurt by generic pharmaceutical pricing. Huge investments in Pharmaceutical IT platform and lackluster generics performance are likely to mar Cardinal Health’s operational efficiencies in the upcoming quarter. Intense competition and customer concentration are other bottlenecks. Recently, the company recently closed  divestiture of its Cardinal Health China distribution.

Other Key Picks

A few other top-ranked stocks that reported solid results this earnings season are PetMed Express , PerkinElmer (PKI - Free Report) and Becton, Dickinson and Company (BDX - Free Report) . While PetMed sports a Zacks Rank #1 (Strong Buy), PerkinElmer and Becton, Dickinson carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed r reported third-quarter fiscal 2018 results. Adjusted earnings per share were 44 cents, up 88.3% from the prior-year quarter. Revenues rose 13.7% on a year-over-year basis to $60.1 million.

PerkinElmer reported fourth-quarter 2017 adjusted earnings per share of 97 cents. Adjusted revenues were approximately $641.6 million, up from $567 million in the year-ago quarter.

Becton, Dickinson reported first-quarter 2018 adjusted earnings per share of $2.48, up 3.9% at constant currency. Revenues totaled $3.08 billion, up 3.7% at constant currency.

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