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Why Is Cardinal (CAH) Down 12.1% Since Last Earnings Report?

Zacks Equity Research
Ligand (LGND) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

It has been about a month since the last earnings report for Cardinal Health (CAH). Shares have lost about 12.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cardinal due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Cardinal Health Beats on Q2 Earnings, Pharmaceutical Segment Strong

Cardinal Health delivered second-quarter fiscal 2019 adjusted earnings of $1.29 per share, which surpassed the Zacks Consensus Estimate of $1.09. However, the reported figure decreased 15% year over year.

Revenues increased 7.3% on a year-over-year basis to $37.74 billion and exceeded the Zacks Consensus Estimate of $36.25 billion.

Segmental Analysis

Pharmaceutical Segment

In the fiscal second quarter, pharmaceutical revenues increased 8% to $33.74 billion on a year-over-year basis. The segment witnessed strong growth in the Specialty business and gained a large number of Pharmaceutical Distribution customers.

However, strong growth in the segment was partially offset by the divestiture of the company's China distribution business.

Pharmaceutical witnessed a 14% decline in profits to $443 million due to a negative impact from the company's generics program performance.

Medical Segment

In the quarter under review, revenues at this segment decreased 1% to $4.01 billion.The downside can be attributed to the divestitures of the China distribution and naviHealth businesses.

Medical segment profits decreased 14% to $188 million.

Margin Analysis

Gross profit plunged 7% year over year to $1.73 billion.

As a percentage of revenues, gross margin in the quarter was 4.6%, down 70 basis points (bps) on a year-over-year basis.

Distribution, selling, general and administrative expenses totaled $1.06 billion, down 6% year over year. Adjusted operating margin for Cardinal Health in the quarter under review was 1.8% of net revenues, down 30 bps.

Guidance Raised

The company raised its guidance for fiscal 2019 adjusted earnings per share.

Adjusted earnings from continuing operations are expected in the range of $4.97-$5.17, up from $4.90-$5.15 projected earlier.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Cardinal has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Cardinal has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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