Leading distributor of pharmaceuticals and medical supplies Cardinal Health (CAH) posted fourth-quarter fiscal 2011 (ended June 30) adjusted (excluding one-time charges and gains) earnings per share from continuing operations of 59 cents, beating the Zacks Consensus Estimate by a penny and exceeding the year-ago earnings of 50 cents.
Earnings from continuing operations (as reported) rose roughly 7% year over year to $207.3 million (or 58 cents a share). However, net earnings dipped 9% year over year to $202.7 million or 57 cents a share.
For fiscal 2011, adjusted earnings of $2.67 per share matched the Zacks Consensus Estimate while exceeding the year-ago earnings of $2.22.
Revenues
Revenues for the fourth quarter jumped 9% year over year to $26.8 billion, beating the Zacks Consensus Estimate of $26.2 billion. Sales were boosted by growth across the board, notably, solid growth at the Ohio-based company’s larger Pharmaceutical segment, backed by acquisitions. For the full year, sales rose 4% year over year to $102.6 billion, also ahead of the Zacks Consensus Estimate of $102 billion.
Segment Highlights
The Pharmaceutical segment posted revenues of $24.5 billion in the quarter, a 10% year-over-year surge. Acquisitions contributed roughly 6% to the growth. Healthy contribution from the company’s generics program also supported growth. Sales to non-bulk customers surged 20% year over year.
Revenues from the smaller Medical segment climbed 7% year over year to $2.3 billion in the quarter, driven by higher sales to existing clients and change in the company’s distribution model with CareFusion (CFN).
Margins
Gross margin for the fourth quarter improved to 3.9% from 3.7% a year-ago. Company-wide adjusted operating earnings jumped 14% year over year to $362 million in the quarter. Pharmaceutical segment profit bumped 30% year over year to $295 million, reflecting improved performance by generics. Segment profit margin was 1.21%, up from 1.02% in the year-ago quarter.
For the Medical segment, profit tumbled 24% to $78 million, hurt by higher commodity prices and inventory-related charges which offset growth in volume. Segment profit margin was 3.35%, down from 4.75% in the year-ago quarter.
Balance Sheet, Cash Flow and Dividend
Cardinal ended fiscal 2011 with cash and equivalents of roughly $1.93 billion, down 30% year over year. Long-term obligations increased 17.5% year over year to $2.5 billion. Operating cash flows fell 63% year over year in the fourth quarter and 34.7% in fiscal 2011 to $119.9 million and $1,394.6 million, respectively.
Separately, the company’s Board has approved a 10% hike in its quarterly dividend to 21.5 cents a share, payable on October 15, 2011, to shareholders of record as of October 1, 2011.
Outlook and Recommendation
Moving forward, Cardinal expects adjusted earnings per share from continuing operations between $3.04 and $3.19 for fiscal 2012. The forecast excludes 14 cents of amortization of acquisition-related intangible assets. The current corresponding Zacks Consensus Estimate is $3.03.
Cardinal 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.
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) and AmerisourceBergen Corp. (ABC).
Moreover, the company’s Medical segment remains affected by higher commodity prices. Currently we are Neutral on the stock, which is backed by a Zacks #3 Rank (Hold).
AMERISOURCEBRGN (ABC): Free Stock Analysis Report
CARDINAL HEALTH (CAH): Free Stock Analysis Report
CAREFUSION CORP (CFN): Free Stock Analysis Report
MCKESSON CORP (MCK): Free Stock Analysis Report
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