- EPS Growth: 29% in both Q4 and fiscal year '24.
- Full Year EPS: $7.53, $0.96 above the midpoint of original outlook.
- Adjusted Free Cash Flow: Nearly $4 billion for the year.
- Year-End Cash Position: Approximately $5 billion.
- Revenue: Increased 12% to $59.9 billion in Q4.
- Gross Margin: Grew 5% to $1.9 billion in Q4.
- SG&A: Increased 2% to $1.3 billion in Q4.
- Operating Earnings: $605 million, up 14% versus last year.
- Effective Tax Rate: 24.6% in Q4, 4.5 percentage points lower than prior year.
- Average Diluted Shares Outstanding: 245 million, 4% lower than a year ago.
- Pharma Segment Revenue: Increased 13% to $55.6 billion in Q4.
- Pharma Segment Profit: Increased 8% to $482 million in Q4.
- GMPD Segment Revenue: Grew 2% to $3.1 billion in Q4.
- GMPD Segment Profit: $47 million in Q4, $40 million year-over-year increase.
- Other Segment Revenue: Increased 15% to $1.2 billion in Q4.
- Other Segment Profit: Grew 11% to $111 million in Q4.
- Full Year Revenue: Increased 11% to $227 billion.
- Full Year Gross Margin: Increased 8% to $7.4 billion.
- Full Year SG&A: Increased 4% to $5 billion.
- Full Year Operating Earnings: Grew 16% to $2.4 billion.
- Interest and Other: Decreased 52% to $42 million for the year.
- Full Year Effective Tax Rate: 21.7%.
- Full Year Average Diluted Shares Outstanding: 247 million, 6% lower than a year ago.
- Fiscal '25 EPS Guidance: Increased to $7.55 to $7.70.
- Fiscal '25 Pharma Segment Revenue: Expected to decline 4% to 6%.
- Fiscal '25 Pharma Segment Profit Growth: Expected 1% to 3%.
- Fiscal '25 GMPD Segment Revenue: Expected growth 3% to 5%.
- Fiscal '25 GMPD Segment Profit: Expected approximately $175 million.
- Fiscal '25 Other Segment Revenue: Expected growth 10% to 12%.
- Fiscal '25 Other Segment Profit: Expected growth approximately 10%.
- Fiscal '25 Interest and Other: Expected $140 million to $170 million.
- Fiscal '25 Effective Tax Rate: Expected 23% to 24%.
- Fiscal '25 Share Repurchase Expectations: $750 million.
- Fiscal '25 Adjusted Free Cash Flow: Expected approximately $1 billion.
Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cardinal Health Inc (CAH, Financial) reported a 29% increase in EPS for both Q4 and fiscal year '24, exceeding guidance.
- The company delivered nearly $4 billion in adjusted free cash flow for the year, ending with approximately $5 billion in cash.
- Cardinal Health Inc (CAH) managed through a significant customer transition and raised its guidance for fiscal year '25.
- The Pharmaceutical and Specialty Solutions segment grew revenue by 14% for the year, with the Specialty business now over $36 billion.
- The GMPD segment returned to profitability, delivering approximately $240 million in year-over-year segment profit improvement.
Negative Points
- The company identified a long-standing accounting error in its at-Home Solutions business, leading to revised financials for fiscal years '22 through Q3 fiscal year '24.
- The large customer contract expiration is expected to result in a nearly $40 billion revenue headwind for fiscal year '25.
- The GMPD segment's Q1 profit is expected to be low, up to $20 million, due to unfavorable manufacturing cost timing and start-up costs.
- Interest and other expenses are expected to increase significantly in fiscal year '25 due to lower average cash balances and higher debt rates.
- The fiscal year '25 adjusted free cash flow is projected to be approximately $1 billion, reflecting negative impacts from the large contract unwind.
Q & A Highlights
Q: Thanks for all the detail, Jason. I just want to better understand just two things. One, nice driver of the margin going into next year, you had originally said roughly 1%. Now you're talking 1% to 3%. I think you called out a couple of things, the Specialty Networks, new customer cost mitigation. But I'm just curious especially in the new customer, is there anything unique about that contract or anything else that you would call out as we think about the margin improvement throughout '25?
A: Thanks for the question. Happy to talk about it. We are really pleased to raise our guide for the pharma business for fiscal '25. It really reflects our continued confidence in the team and continued confidence in the resiliency of that business, notwithstanding some of the puts and takes here over that we've been talking about in the last couple of quarters. I'll touch on the profile in a second, but I do want to emphasize on the revenue side of the house from a guidance perspective that we guided down 4% to 6%, all in, reflecting the $40 million headwind on the low-margin contract nonrenewal. But it's really up 15% to 18% on an adjusted basis, if you take out the impact of that customer loss. Within that 15% to 18% is $10 billion of new revenue, new customers and expansions of service with existing customers. That's on top of an underlying 10% underlying growth with the existing business. And so from that, you can tell that we are growing the portfolio and doing what we said we were going to do with our existing customers and adding on both new customers and expansions with existing customers to get to that revenue base. That supports the increase in guide, the 1% to 3% on the profitability side of the house. The things we called out during the earnings call, it's the consistent market dynamics. It's the generic volume growing at the low single-digit growth in core and the high single-digit growth in specialty and a strong overall Rx demand. There's a lot of things going on, but we are confident in our plans as we carry forward. We commented on the margin profile of any particular customer, particularly in the context of a new customer, and we were delighted to announce formally the Publix win today in our earnings release. I'm not going to comment on their profitability. But I will observe that we have Publix comment on the low margin nature of the business that we've lost. And that certainly doesn't hurt us as we carry forward. Jason, anything you would add?
Jason Hollar: Nothing to add.
Q: I think it's fair to say there was some concern coming into the quarter on the increase in macro freight trends and other input costs. And I know you mentioned you were able to offset that. Can you give us a sense of how this looked to you in terms of the size of that increase versus what we've seen in the past? Was it material and looked under the current or new contracts versus legacy contracts and the ability to pass that along to your customers?
A: Sure. Thanks for the question, Eric. I think it's important to back in time a little bit in those last 12 months. A year ago when we were sitting here, certainly, the freight costs had gone all the way back down to historic levels. So we were enjoying really the run-up had come all the way back down. And it was at the beginning of the calendar year. So in our third quarter when the Red Sea issues first began, and that's when we saw the first spike. And the reason I remind you of that is that first spike was known come springtime when we gave our initial guidance for GMPD. And so we knew about that first step up already, and that's been factored in from the guidance from day one. Yes, there has been further increases since then. But when you look at the combined two increases, the two different steps, first in January then in the spring, they still are woefully short of where we were a couple of years ago when the whole supply chain was under pressure, where even when we were spending two, three times the current levels, we were having difficulty in actually getting reasonable service. So yes, the costs are higher, but not nearly as high as they used to be. And most importantly, the supply chain is functioning a lot more efficiently than it was before. Long way of saying, Eric, that yes, there's a little bit of an increase here. It's something we monitor and manage very, very tightly. But it's not the point where it requires widespread price adjustments accordingly, at least not yet. And in addition to that, it's important that we look at the overall inflationary environment. And we talked about this a couple of years ago at the peak. We had a lot of oil and petroleum-based products, including fuel and other type of freight that was also a big issue. Those are actually a little bit softer in terms of the cost. So overall, net-net, we're managing through it better than we have before. And overall, we have some puts and takes that are all very manageable. We'll continue to evaluate the pricing necessary within that. But at this stage, we haven't had to exercise that lever to near the extent that we did in the past.
Q: Maybe if I could dive a little bit more into the underlying pharma growth, if you can. I mean, you did a good job outlining some of the moving pieces on loss contract versus new. Is there any way you can give us a bit more color on where you expect the profit streams to lie from specialty? And then also a bit more color on the COVID hangover, just so that we can have a better understanding, I guess, maybe the simple straightforward question is, where will you be on a exit run rate on pharma growth exiting the year given all the moving pieces you have to start the year?
A: Yes. Let me try to address a few of those pieces. So specialty is absolutely a key part of the story and why we still anticipate being able to grow this business next year. We highlighted in our comments that in fiscal '24, for the year, we saw another year of 14% growth. You may recall at our Investor Day last year, the specialty business CAGR over the prior three years was anticipated at that time to be 14% as well. So another year of strong growth driven by the widespread investments that we have made and continue to make. We talked today about a couple of interesting growth drivers for the future, whether it's our Advanced Therapy Solutions business, the new venture with CVS for Averon focused on biosimilars. Biosimilars, in general, has been a rising tide type of benefit over the last several years. And of course, then our acquisition of Specialty Networks, which closed in March and as a eight-, nine, month type of year benefit tailwind. So these are all areas that are driving our specialty business to some degree in fiscal '24. But they're all examples of where we would expect that to continue to grow over fiscal '25 to help mitigate for that contract nonrenewal
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
