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Cardinal Health (CAH) Surpasses Earnings Estimates in Q4

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Cardinal Health Inc. (CAH - Free Report) reported fourth-quarter fiscal 2018 adjusted earnings of $1.01 per share, beating the Zacks Consensus Estimate of 93 cents. Adjusted earnings declined 22.9% year over year.

Revenues increased 7.2% on a year-over-year basis to $35.35 billion and beat the Zacks Consensus Estimate of $34.55 billion.

Cardinal Health currently has a Zacks Rank #3 (Hold).

FY18 at a Glance

In fiscal 2018, Cardinal Health registered adjusted earnings of $5 per share, down 7% on a year-over-year basis. The Zacks Consensus Estimate is pegged at $4.91 per share.

Revenues increased 5% on a year-over-year basis to a record $137 billion.

Delving deeper into the segmental revenue details, Pharmaceutical (88.3% of net revenues) increased 4% to $121 billion in fiscal 2018.

Medical revenues (11.7% of net revenues) soared 15% on a year-over-year basis to $16 billion.

Cardinal Health, Inc. Price, Consensus and EPS Surprise

 

Segmental Analysis

Pharmaceutical Segment

In the fiscal fourth quarter, pharmaceutical revenues increased 6.4% to $31.46 billion on a year-over-year basis. The segment witnessed strong growth in the Specialty business and gained a large number of Pharmaceutical Distribution customers.

However, the segment witnessed the expiration of a large, mail-order customer contract along with the divestiture of the company's China distribution business.

Pharmaceutical witnessed an 18% decline in profits to $416 million, thanks to generic pharmaceutical pricing.

Medical Segment

In the quarter under review, revenues in the segment improved 14.1% to $3.90 billion, primarily on the acquisition of the Patient Recovery business.

Medical segment profits decreased 17% to $114 million.

Margin Analysis

Gross Profit increased 6.9% year over year to $1.74 billion.

As a percentage of revenues, gross margin remained almost flat on a year-over-year basis to 4.9% of net revenues.

Distribution, selling, general and administrative expenses were $1.27 billion in the quarter under review, up 29.2% year over year.

Guidance

The company has issued guidance for fiscal 2019 adjusted earnings per share.

Adjusted earnings from continuing operations are expected to be $4.90 to $5.15. The Zacks Consensus Estimate was pegged at $5.09 per share, which lies within the guidance.

In Conclusion

Cardinal Health exited the reported quarter on a solid note, with adjusted earnings and revenues beating the consensus mark. The Pharmaceutical segment registered strong growth in the Specialty business and gained a large number of Pharmaceutical Distribution customers. Further, the company exited its transition services agreement (TSA) with Medtronic recently. Cardinal Health also closed on a partnership with Clayton, Dubilier & Rice to accelerate growth of naviHealth – a market leader in post-acute care management.

Despite growth in business, profits in 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 quarters. Intense competition and customer concentration are other bottlenecks. Recently, the company closed the divestiture of its Cardinal Health China distribution.

Earnings Results of MedTech Majors at a Glance

A few better-ranked stocks in the broader medical space, which reported solid earnings this season, are Intuitive Surgical, Inc (ISRG - Free Report) , Chemed Corporation (CHE - Free Report) and Illumina, Inc (ILMN - Free Report) .

While Intuitive Surgical and Illumina sport a Zacks Rank #1 (Strong Buy), Chemed carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported adjusted earnings of $2.76 per share in the second quarter of 2018, which beat the Zacks Consensus Estimate of $2.48. Adjusted earnings improved 38% year over year.

Chemed's second-quarter 2018 adjusted earnings per share were $2.81, up 30.7% from a year ago. The figure also surpassed the Zacks Consensus Estimate of $2.68.

Illumina reported adjusted earnings of $1.43 per share, beating the Zacks Consensus Estimate of $1.11.

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