Cardinal Health Announces Progress on Business and Portfolio Review and Fiscal 2024 Outlook Update
- Progress on business and portfolio review
- Investing in at-Home Solutions and OptiFreight® Logistics for long-term growth
- Plans to build a new distribution center in Texas for at-Home Solutions
- Updated enterprise operating and segment reporting structure
- Fiscal year 2024 non-GAAP diluted EPS guidance updated to high end of $6.75 to $7.00 range
- Pro-forma long-term financial targets for updated segment reporting structure
- Anticipated non-recurring adjustments affecting second quarter Medical segment profit
- Certain financial information for forward-looking guidance not available
Insights
The strategic moves by Cardinal Health, including the optimization of its Medical Segment through investments in at-Home Solutions and OptiFreight® Logistics, signal a commitment to long-term growth and value creation. These decisions reflect a broader industry trend towards personalized and efficient healthcare delivery, particularly in the logistics and home healthcare markets. The investment in a new distribution center in Texas with advanced automation and robotics underlines the company's focus on scaling operations to meet growing demand. This is indicative of the healthcare industry's shift towards more agile and technologically advanced supply chain solutions.
From a market research perspective, Cardinal Health's emphasis on at-Home Solutions aligns with the increasing demand for home healthcare services, a sector expected to grow due to an aging population and the prevalence of chronic diseases. OptiFreight® Logistics' continued investment in technology-driven solutions like TotalVue™ Insights demonstrates a strategic approach to maintaining competitive advantage in healthcare logistics, a market that demands high efficiency and cost-effectiveness. Cardinal Health's updates on financial guidance and reporting structures provide transparency and may instill confidence in investors about the company's financial health and strategic direction.
Cardinal Health's updated fiscal 2024 non-GAAP diluted EPS guidance to the higher end of the $6.75 to $7.00 range is a positive signal to the market, reflecting operational efficiencies and strong cash flow generation. The execution of a $250M accelerated share repurchase program is a direct contributor to the improved EPS guidance, as it reduces the number of shares outstanding, thereby increasing earnings per share. This financial maneuver is often viewed favorably by investors as it can indicate confidence by management in the company's future performance and undervaluation of the stock.
Additionally, the anticipated favorability in Interest and Other due to higher-than-expected cash balances could mean that the company has managed its capital efficiently, potentially reducing interest expenses and improving net income margins. However, the non-recurring adjustments anticipated in the second quarter Medical segment profit warrant scrutiny, as they may mask underlying operational challenges. Investors will need to dissect these one-time adjustments to understand their nature and impact on the company's core profitability.
The ongoing review of Cardinal Health's Global Medical Products and Distribution business with a focus on the Medical Improvement Plan is a critical component of the company's strategy to enhance operational performance. The Medical Improvement Plan's target of at least $650M in segment profit by fiscal 26 demonstrates a clear objective to turnaround this segment, which is crucial given its past performance challenges.
Cardinal Health's reorganization of its leadership structure and the updated reporting segments aim to streamline operations and enhance accountability. By reporting Nuclear and Precision Health Solutions, at-Home Solutions and OptiFreight® Logistics as 'Other', the company is providing a clearer picture of the performance of these distinct businesses. This level of granularity in financial reporting can help stakeholders better assess the contributions of each segment to the overall company performance and it may aid in identifying areas of strength and potential concern within Cardinal Health's diverse portfolio.
- Progress achieved on company's ongoing business and portfolio review
- Completed review of growth businesses within the Medical Segment: investing in and further developing at-Home Solutions and OptiFreight® Logistics as part of the company's portfolio for long-term growth and value creation
- Review of Global Medical Products and Distribution business continues, with focus on driving operational performance through the Medical Improvement Plan
- Reorganizing leadership structure to continue company's simplification efforts, prioritize core operational execution and drive efficiencies, accountability and transparency
- Updated enterprise operating and segment reporting structure, effective January 1, 2024, to be reflected in company's financial reporting beginning third quarter fiscal 2024
- Providing pro-forma long-term financial targets for updated segment reporting structure
- Updated fiscal 2024 non-GAAP diluted EPS guidance to high end of
$6.75 $7.00 - Primarily driven by favorability in Interest and Other and Diluted Weighted Average Shares Outstanding, enabled by continued strong cash flow generation and incremental share repurchase during second quarter fiscal 2024
- Further updates and details to be provided on February 1 during fiscal 2024 Q2 earnings call
"We are excited to demonstrate further progress on how we are driving our company, and healthcare, forward," said Jason Hollar CEO of Cardinal Health. "As we continue down the path of becoming a simplified and more focused company, these actions align with our operational focus on the core of our business, provide increased visibility to key growth areas, and enable greater efficiencies across all our businesses. We continue to prioritize focused execution to best serve our customers and advance our mission as healthcare's most trusted partner."
Business and portfolio review update
While Cardinal Health's business and portfolio review efforts remain active and ongoing, the company has completed a review of its growth businesses within the Medical Segment, at-Home Solutions and OptiFreight® Logistics, and has determined that investing in and further developing these businesses will drive the most significant long-term shareholder value creation for Cardinal Health. This conclusion follows the June 2023 announcement that the business review determined that Cardinal Health would retain and invest in its attractive Nuclear and Precision Health Solutions business.
Cardinal Health's at-Home Solutions business, a
Cardinal Health's OptiFreight® Logistics, a
Cardinal Health's review of its Global Medical Products and Distribution business continues, with a focus on executing the Medical Improvement Plan, which remains a critical priority for the enterprise. The company is continuing to drive ongoing initiatives and invest in the business to support customers' needs and achieve its long-term target.
Operating and segment reporting structure update
The company also announced plans to realign its business to increase its focus on the core and accelerate its growth areas.
Effective January 1, 2024, the company began operating under an updated enterprise operating and segment reporting structure, which includes two reportable segments Pharmaceutical and Specialty Solutions and Global Medical Products and Distribution (GMPD). Separate from these two segments, Nuclear and Precision Health Solutions, at-Home Solutions and OptiFreight® Logistics will be reported as Other1.
The Pharmaceutical and Specialty Solutions Segment, previously in the Pharmaceutical Segment, continues under the leadership of Debbie Weitzman. The segment consists of the company's largest and most significant businesses, its resilient Pharmaceutical Distribution business and its higher-growth Specialty business, including both downstream Specialty Distribution and upstream Manufacturer Services. Weitzman will continue to report directly to Jason Hollar.
The GMPD segment, previously in the Medical Segment, continues to be led by Steve Mason. The segment consists of the company's
Other consists of at-Home Solutions and OptiFreight® Logistics from the former Medical Segment, and Nuclear and Precision Health Solutions from the former Pharmaceutical Segment. Each of these businesses will continue to operate independently and each of the business leaders, Rob Schlissberg, at-Home Solutions; Emily Gallo, OptiFreight® Logistics; and Mike Pintek, Nuclear and Precision Health Solutions, will now report directly to Jason Hollar. This updated operating structure is designed to provide greater visibility to the performance of these businesses and allow prioritization of investments to ensure their long-term success.
The company plans to report its second quarter fiscal 2024 results on February 1, 2024, according to its former reporting segments and will then report its third quarter fiscal 2024 results and forward on the basis of its updated structure.
Fiscal 24 outlook update
The company updated fiscal year 2024 non-GAAP diluted EPS guidance to the high end of its
This update is driven by anticipated favorability in fiscal 24 Interest and Other and Diluted Weighted Average Shares Outstanding, due to continued strong cash flow generation, resulting in higher-than-expected cash balances, and the execution of a new
The company also provided an update to its previous expectations for second quarter Medical segment profit. While utilization trends, including Cardinal Health™ Brand volumes, and inflation mitigation efforts have trended according to the company's expectations in the GMPD business, the company now anticipates second quarter Medical segment profit to be generally consistent with first quarter Medical segment profit, due to anticipated non-recurring adjustments in the second quarter. These anticipated non-recurring adjustments do not affect the company's progression towards its previously-communicated fiscal 26 targets.
The company will provide further updates and details on its fiscal second quarter results and its fiscal 24 guidance during its second quarter earnings call, on February 1, 2024.
Long-term financial targets
The company reiterated its long-term financial targets reflecting
The company also provided pro-forma long-term targets for its updated segment reporting structure, and, for information purposes, recast its fiscal 2023 actuals on the same basis3.
The company's previously announced Medical Improvement Plan targeting at least
FY23 Actuals3 | Long-term Target | Businesses | |
Pharmaceutical and | Revenue: Segment Profit: ~1.87B | 4 Segment Profit CAGR2 | Former Pharmaceutical Segment, excluding Nuclear |
GMPD | Revenue: Segment Profit: ~ | in Segment Profit by FY26 | Former Medical Segment, excluding at-Home Solutions |
Other | Revenue: Segment Profit: ~ | 8 Segment Profit CAGR2 | at-Home Solutions, Nuclear and Precision Health Solutions |
The company does not provide forward-looking guidance on a GAAP basis as certain financial information, the probable significance of which cannot be determined, is not available and cannot be reasonably estimated. See "Forward-Looking Non-GAAP Measures" below for additional explanation.
Analyst Conference Call and Webcasted Investor Events
The company will hold an analyst conference call, which will be webcast, to discuss today's announcements prior to the opening of trading on the New York Stock Exchange beginning at 8:30 a.m. Eastern.
Additionally, the company plans to present at the 42nd Annual J.P. Morgan Healthcare Conference today beginning at 5:15 p.m. Eastern.
To access the webcasts and corresponding presentations, visit Cardinal Health's Investor Relations page. No access code is required. Presentation slides and a webcast replay will be available on the Investor Relations page for 12 months.
About Cardinal Health
Cardinal Health is a distributor of pharmaceuticals, a global manufacturer and distributor of medical and laboratory products, and a provider of performance and data solutions for healthcare facilities. With more than 50 years in business, operations in more than 30 countries and approximately 48,000 employees globally, Cardinal Health is essential to care. Information about Cardinal Health is available at cardinalhealth.com.
Contacts
Media: Erich Timmerman, erich.timmerman@cardinalhealth.com and 614.757.8231
Investors: Matt Sims, matt.sims@cardinalhealth.com and 614.553.3661
1 Other includes the following three operating segments: at-Home Solutions, Nuclear and Precision Health Solutions and OptiFreight® Logistics, which are not significant enough individually to require reportable segment disclosure.
2 FY24 to FY26 CAGR, as of FY23 baseline.
3 Recast FY23 actuals for updated segment reporting structure are considered preliminary and pending a final recast of segment results that is expected to be completed by the company's Q3 FY24 earnings release. The sum of the components may reflect rounding adjustments.
Cautions Concerning Forward-Looking Statements
This news release contains forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. These statements may be identified by words such as "expect," "anticipate," "intend," "plan," "believe," "will," "should," "could," "would," "project," "continue," "likely," and similar expressions, and include statements reflecting future results or guidance, statements of outlook, preliminary recast fiscal 2023 results and various accruals and estimates. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These risks and uncertainties include risks arising from ongoing inflationary pressures, including the risk that our plans to mitigate such effects may not be as successful as we anticipate or that costs could remain elevated; the possibility that our Medical unit goodwill could be further impaired due to additional changes to our long-term financial plan, increases in global interest rates or unfavorable changes in the
Forward Looking Non-GAAP Measures
In this news release, the company presents certain forward-looking non-GAAP metrics. The company does not provide outlook on a GAAP basis because the items that the company excludes from GAAP to calculate the comparable non-GAAP measure can be dependent on future events that are less capable of being controlled or reliably predicted by management and are not part of the company's routine operating activities. Additionally, management does not forecast many of the excluded items for internal use and therefore cannot create or rely on outlook done on a GAAP basis.
The occurrence, timing and amount of any of the items excluded from GAAP to calculate non-GAAP could significantly impact the company's fiscal 2024 GAAP results. Over the past five fiscal years, the excluded items have impacted the company's EPS from
Definitions
Non-GAAP net earnings attributable to Cardinal Health, Inc.: net earnings attributable to Cardinal Health, Inc. excluding (1) LIFO charges/(credits), (2) state opioid assessment related to prior fiscal years, (3) shareholder cooperation agreement costs, (4) restructuring and employee severance, (5) amortization and other acquisition-related costs, (6) impairments and (gain)/loss on disposal of assets, net, (7) litigation (recoveries)/charges, net and (8) loss on early extinguishment of debt.
Non-GAAP diluted earnings per share attributable to Cardinal Health, Inc.: non-GAAP net earnings attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding.
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SOURCE Cardinal Health, Inc.
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