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Cardinal Health (CAH) Q2 Earnings & Revenues Top Estimates

Zacks Equity Research

Cardinal Health, Inc. CAH reported second-quarter fiscal 2020 adjusted earnings of $1.52 per share, which surpassed the Zacks Consensus Estimate of $1.21 by 25.6%. Further, the reported figure improved 17.8% year over year.

Revenues increased 5.3% on a year-over-year basis to $39.74 billion. The figure also beat the Zacks Consensus Estimate by 0.6%.

Segmental Analysis

Pharmaceutical Segment

In the fiscal second quarter, pharmaceutical revenues improved 5.9% to $35.71 billion on a year-over-year basis. The upside can be attributed to sales growth from Pharmaceutical Distribution and Specialty Solutions customers.

Pharmaceutical witnessed an improvement of 4.3% in profits to $462 million owing to positive performance in the company’s generics program and Specialty Solutions business. However, an adverse impact of Pharmaceutical Distribution customer contract renewals partially offset the upside.

Medical Segment

In the quarter under review, revenues at this segment rose 0.4% to $4.02 billion on account of growth in Cardinal Health at Home. However, decline in products and distribution partially negated the upside.

Medical segment profit improved 3.7% to $195 million owing to benefits from cost savings initiatives. However, a decline in products and distribution partially offset the upside.

Cardinal Health, Inc. Price, Consensus and EPS Surprise

 

Cardinal Health, Inc. Price, Consensus and EPS Surprise

Cardinal Health, Inc. price-consensus-eps-surprise-chart | Cardinal Health, Inc. Quote

Margin Analysis

Gross profit dipped 0.9% year over year to $1.74 billion.

As a percentage of revenues, gross margin in the reported quarter was 4.3%, down 30 basis points (bps) on a year-over-year basis.

Distribution, selling, general and administrative expenses totaled $1.16 billion, up 9.3% year over year. Adjusted operating income totaled $646 million, up 1.4% from the year-ago quarter.

The company reported operating income of $3.34 billion in the quarter under review, down 33.7% from the year-ago quarter. As a percentage of revenues, operating margin in the reported quarter was 0.8%, down 50 bps on a year-over-year basis.

Financial Update

As of Dec 31, 2019, cash and cash equivalents amounted to $1.21 billion, up 36.9% sequentially.

Cumulative cash from operating activities totaled $697 million at end of the fiscal second quarter, compared with $372 million in the year-ago quarter.

2020 Guidance Raised

The company has raised fiscal 2020 adjusted earnings per share, which will now range between $5.20 and $5.40 (up from the previously guided range of $4.85-$5.10). The Zacks Consensus Estimate is pegged at $5.06 per share.

Conclusion

Cardinal Health exited the fiscal second quarter on a strong note, wherein both earnings and revenues outpaced the consensus mark. The Pharmaceutical segment witnessed solid growth in Pharmaceutical Distribution and Specialty Solutions customers. Moreover, the Medical segment exhibited a solid performance in the quarter under review. Apart from these, the company’s extension of agreements with CVS Health, collaboration with PANTHERx Specialty Pharmacy and buyout of mscripts raise optimism. The company raised fiscal year 2020 outlook, driven by the aforementioned improved performance across Pharmaceutical segment, especially within the generics program. This instills investor optimism in the stock.

However, contraction in gross margin remains a woe. Further, investments in Pharmaceutical IT platform and lackluster generics performance are likely to mar Cardinal Health’s operational efficiencies in the days ahead. Intense competition and customer concentration are other concerns.

Zacks Rank

Currently, Cardinal Health carries a Zacks Rank #3 (Hold).

Earnings of Other MedTech Majors at a Glance

Some better-ranked stocks which reported solid results this earning season are Stryker Corporation SYK, Accuray Incorporated ARAY and IDEXX Laboratories, Inc. IDXX. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered fourth-quarter 2019 adjusted EPS of $2.49, outpacing the Zacks Consensus Estimate by 1.2%. Fourth-quarter reported revenues of $4.13 billion surpassed the Zacks Consensus Estimate by 0.7%. The company carries a Zacks Rank #2.

Accuray reported second-quarter fiscal 2020 adjusted earnings per share (EPS) of a penny, beating the Zacks Consensus Estimate of a loss of 7 cents. Net revenues of $98.8 million outpaced the Zacks Consensus Estimate by 0.3%. The company sports a Zacks Rank #1.

IDEXX Laboratories reported fourth-quarter 2019 adjusted EPS of $1.04, which beat the Zacks Consensus Estimate of 91 cents by 14.3%. Revenues were $605.4 million, surpassing the Zacks Consensus Estimate by 0.9%. The company carries a Zacks Rank of 2.

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