Cardinal Health CAH reported fourth-quarter fiscal 2015 earnings of $1.00 per share, which beat the Zacks Consensus Estimate by couple of cents and increased 20.5% on a year-over-year basis.
Quarter Details
Revenues advanced 20.3% to $27.55 billion, well above the Zacks Consensus Estimate of $26.08 billion. The year-over-year growth was driven by higher Pharmaceutical revenues, which surged 22.8% to $24.68 billion. Revenues from the Medical segment increased 2.2% to $2.86 billion.
Reported gross margin contracted 20 basis points (bps) on a year-over-year basis to 5.3%.
Distribution, selling, general and administrative (SG&A) expenses, as a percentage of revenues, deteriorated 40 bps year over year to 3.1% in the quarter.
Adjusted operating margin expanded 20 bps on a year-over-year basis to 2.2%. Pharmaceutical operating profit margin increased 30 bps on strong performance by the company's generics program, which includes the net benefit of Red Oak Sourcing as well as growth from existing and new customers.
Medical segment’s operating profit margin expanded approximately 20 bps from the year-ago quarter, primarily attributed to synergies from acquisitions and organic growth.
As of Jun 30, 2015, cash and equivalents were $4.62 billion compared with $3.18 billion as of Mar 31, 2015. Long-term obligations totaled $5.2 billion compared with $4 billion as of Mar 31, 2015.
Acquisition
During the quarter, Cardinal Health announced the acquisition of The Harvard Drug Group (“THDG”) for almost $1.12 billion in cash. Previously owned by Court Square Capital Partners, Livonia, MI-based THDG is a distributor of generic pharmaceuticals, over-the-counter (OTC) medicines and related products to retail, institutional and alternate care customers.
The takeover not only expands Cardinal Health’s product portfolio but also its existing telesales programs and capabilities. The company expects the deal to add 15 cents (including 3 to 4 cents of interest expense) and 20 cents to fiscal 2016 and fiscal 2017 adjusted earnings per share, respectively.
Notably, Cardinal Health completed the acquisition in early July.
Guidance
Cardinal Health expects non-GAAP earnings in the range of $4.85 to $5.05 per share for fiscal 2016. However, the guidance assumes that most of the growth will come in the second half of the fiscal.
Our Take
Fiscal 2016 promises to be good year for Cardinal Health owing to factors like the strengthening product portfolio. The addition of The Harvard Drug Group and Cordis from Johnson & Johnson JNJ is also a key growth catalyst in this regard.
Cardinal Health is banking on strategic buyouts, joint ventures and supply agreements to drive growth. We believe that the Red Oak sourcing venture with CVS Health CVS and partnerships with Henry Schein HSIC and Bayer Healthcare present significant growth opportunities.
Furthermore, we believe that growth in new and existing customer count as well as consistent stock repurchases will boost earnings.
However, intensifying competition and increasing leverage are major concerns.
Currently, Cardinal Health carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment