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Cardinal Health (CAH) Q4 Earnings Top Estimates, Revenues Lag

Zacks Equity Research
·5 min read

Cardinal Health, Inc. CAH reported fourth-quarter fiscal 2020 adjusted earnings of $1.04 per share (EPS), which surpassed the Zacks Consensus Estimate of 91 cents by 14.3%. However, the bottom line declined 6.3% year over year.

For the fiscal 2020, the company reported adjusted EPS of $5.45, which outpaced the Zacks Consensus Estimate by 3%. The figure improved 3.2% from the year-ago period.

Revenue Details

Revenues declined 1.8% on a year-over-year basis to $36.69 billion. The top line also missed the Zacks Consensus Estimate by 0.9%.

For fiscal 2020, the company’s revenues were $152.9 billion, up 5.1% from the year-ago period. The metric, however, lagged the consensus mark by 0.3%.

Segmental Analysis

Pharmaceutical Segment

In the fiscal fourth quarter, pharmaceutical revenues dipped 0.5% to $33.24 billion on a year-over-year basis. The downside was primarily due to lower pharmaceutical demand on account of accelerated fiscal third-quarter sales associated with the COVID-19 pandemic.

Pharmaceutical witnessed a decline of 19.7% in profits to $359 million. An adverse anticipated COVID-19 impact resulted in volume decline that primarily affected Nuclear and Precision Health Solutions and the company’s generics program. Also, Pharmaceutical Distribution customer contract renewals weighed on the performance.

Cardinal Health, Inc. Price, Consensus and EPS Surprise

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

Medical Segment

In the quarter under review, revenues at this segment declined 13% to $3.45 billion attributable to negative impact of cancelled or deferred elective procedures associated with the COVID-19 pandemic, especially on products and distribution.

Medical segment profit improved 23.7% to $120 million driven by benefits from cost savings initiatives and the beneficial comparison to a supplier-related charge in the previous year. However, adverse impact of the pandemic, particularly on products and distribution partially offset the upside.

Margin Analysis

Gross profit declined 5% year over year to $1.59 billion.

As a percentage of revenues, gross margin in the reported quarter was 4.3%, down 20 basis points (bps) on a year-over-year basis.

Distribution, selling, general and administrative expenses totaled $1.14 billion, down 2.7% year over year.

The company reported operating income of $270 million in the quarter under review, down 20.1% from the year-ago quarter. As a percentage of revenues, operating margin in the reported quarter was 0.7%, down 10 bps on a year-over-year basis.

Financial Update

The company exited the quarter with cash and cash equivalents of $2.77 billion, up 18.9% sequentially.

Net cash from operating activities totaled $240 million at end of the fiscal fourth quarter, compared with $506 million in the year-ago quarter.

2021 Guidance

The company anticipates adjusted earnings per share to range between $5.25 and $5.65. The Zacks Consensus Estimate is pegged at $5.30 per share (the fiscal 2021 EPS outlook takes into account an incremental net headwind associated with the COVID-19 pandemic of a similar year-over-year magnitude as witnessed in fiscal 2020).

Conclusion

Cardinal Health exited the fiscal fourth quarter on a mixed note, wherein earnings outpaced the consensus mark, while revenues missed the same. The company witnessed decline in revenues in both its segments in the quarter under review. Contraction in both gross and operating margins remains a woe. Intense competition and customer concentration are other concerns.

Nonetheless, the company’s extension of agreements with CVS Health, collaboration with PANTHERx Specialty Pharmacy and buyout of mscripts continue to fuel optimism. Notably, the company completed the divestiture of its remaining equity interest in naviHealth. The Medical segment also delivered profit in the quarter under review.

Zacks Rank

Currently, Cardinal Health carries a Zacks Rank #4 (Sell).

Key Picks

Some better-ranked stocks in the broader medical space are Thermo Fisher Scientific Inc. TMO, PerkinElmer, Inc. PKI and West Pharmaceutical Services, Inc. WST. While both PerkinElmer and West Pharmaceuticals sport a Zacks Rank #1 (Strong Buy), Thermo Fisher carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher reported second-quarter 2020 adjusted EPS of $3.89, beating the Zacks Consensus Estimate by 45.7%. Revenues of $6.92 billion outpaced the consensus mark by 0.1%.

PerkinElmer reported second-quarter 2020 adjusted EPS of $1.57, surpassing the Zacks Consensus Estimate by 68.8%. Revenues of $811.7 million outpaced the consensus mark by 1.3%.

West Pharmaceuticals reported second-quarter 2020 adjusted EPS of $1.25, outpacing the Zacks Consensus Estimate of 91 cents. Revenues of $527.2 million surpassed the consensus estimate by 6.9%.

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