Cardinal Health, Inc. (CAH) is a leading global healthcare services and products company that provides customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, physician offices, and patients in the home. The company operates through two reportable segments: Pharmaceutical and Specialty Solutions (PSS) and Global Medical Products and Distribution (GMPD).
In the latest fiscal year, Cardinal Health reported annual revenue of $205.01 billion, annual net income of $261 million, annual operating cash flow of $2.84 billion, and annual free cash flow of $2.36 billion. The company's quarterly revenue for the most recent quarter stood at $54.91 billion, reflecting a 9% increase compared to the prior-year period.
Business Overview
The Pharmaceutical and Specialty Solutions (PSS) segment distributes branded and generic pharmaceutical, specialty pharmaceutical, and over-the-counter healthcare and consumer products in the United States. This segment also provides services to pharmaceutical manufacturers and healthcare providers for specialty pharmaceutical products, pharmacy management services to hospitals, and repackages generic pharmaceuticals and over-the-counter healthcare products.
The Global Medical Products and Distribution (GMPD) segment manufactures, sources, and distributes Cardinal Health-branded medical, surgical, and laboratory products, which are sold in the United States, Canada, Europe, Asia, and other markets. In addition to distributing Cardinal Health-branded products, this segment also distributes a broad range of national brand medical, surgical, and laboratory products to hospitals, ambulatory surgery centers, clinical laboratories, and other healthcare providers in the United States and Canada.
The remaining operating segments, which are included in the "Other" category, are Nuclear and Precision Health Solutions, at-Home Solutions, and OptiFreight® Logistics. These segments operate nuclear pharmacies and radiopharmaceutical manufacturing facilities, distribute medical products to patients' homes in the United States, and provide supply chain services and solutions to customers, respectively.
Financials
In the most recent quarter, Cardinal Health reported a 9% increase in revenue to $54.91 billion, driven by growth in the Pharmaceutical and Specialty Solutions segment and the Global Medical Products and Distribution segment, as well as the Other segment. The company's quarterly net income stood at $258 million, while its quarterly operating cash flow and free cash flow were $1.69 billion and $1.37 billion, respectively.
Looking ahead, Cardinal Health has provided guidance for the current fiscal year (2024). The company expects to deliver non-GAAP earnings per share (EPS) in the range of $7.30 to $7.40, representing a midpoint growth of 27% compared to the prior fiscal year. This guidance reflects the company's confidence in its strategic initiatives and the resilience of its business.
For the upcoming fiscal year (2025), Cardinal Health has provided a preliminary outlook. The company expects to deliver at least 1% segment profit growth in the Pharmaceutical and Specialty Solutions segment, despite the impact of a recent customer non-renewal. In the Global Medical Products and Distribution segment, the company anticipates continued growth, with segment profit expected to reach approximately $175 million in fiscal 2025 and $300 million by fiscal 2026. For the businesses included in the Other segment, the company expects collective segment profit growth in fiscal 2025 to be at the top end of its long-term target of approximately 10%.
Geographical Breakdown and Revenue Drivers
Cardinal Health generates the majority of its revenue from the United States, which accounted for $163.55 billion, or 97.8%, of the company's total revenue in the most recent fiscal year. The remaining 2.2% of revenue was derived from international markets, primarily in Canada, Europe, and Asia.
Within the Pharmaceutical and Specialty Solutions segment, the company has seen strong demand across product categories, including branded and specialty pharmaceuticals, consumer health, and generics. The segment's revenue growth was driven by branded and specialty pharmaceutical sales growth from existing customers. In the Global Medical Products and Distribution segment, the revenue increase was primarily driven by volume growth from existing customers, partially offset by the impact of personal protective equipment (PPE) volumes and pricing.
The Other segment, which includes Nuclear and Precision Health Solutions, at-Home Solutions, and OptiFreight® Logistics, also contributed to the company's overall revenue growth, with a 14% increase in the most recent quarter. This growth was driven by strong performance across all three businesses within the segment.
Liquidity
Cardinal Health maintains a strong financial position, with $3.72 billion in cash and equivalents as of the end of the most recent quarter. The company's balance sheet is further strengthened by its ability to generate substantial operating and free cash flow, with annual figures of $2.84 billion and $2.36 billion, respectively, in the latest fiscal year.
The company has a disciplined capital allocation framework, which includes investing in organic growth opportunities, pursuing strategic acquisitions, and returning capital to shareholders through dividends and share repurchases. In the most recent quarter, Cardinal Health deployed $320 million in capital expenditures and completed the $1.2 billion acquisition of Specialty Networks, which is expected to be accretive to the Pharmaceutical and Specialty Solutions segment's performance.
Additionally, the company has returned over $1 billion to shareholders year-to-date, including approximately $375 million in quarterly dividend payments and $750 million in share repurchases. Cardinal Health's strong cash flow generation and financial flexibility position the company to continue investing in its business and returning capital to shareholders.
Risks and Challenges
While Cardinal Health has demonstrated resilience and growth, the company faces several risks and challenges that investors should be aware of. These include:
1. Regulatory and legal risks: The company is subject to various federal, state, and local laws and regulations, as well as potential litigation related to its distribution of opioid medications and other products.
2. Supply chain disruptions: Disruptions in the global supply chain, such as those caused by the COVID-19 pandemic, could impact the company's ability to source and distribute products effectively.
3. Competitive pressures: The healthcare services and products industry is highly competitive, and Cardinal Health faces competition from other distributors, manufacturers, and healthcare providers.
4. Reimbursement changes: Shifts in reimbursement policies and practices by government and private payers could impact the company's financial performance.
5. Integration risks: The successful integration of acquired businesses, such as Specialty Networks, is critical to realizing the expected benefits and synergies.
Despite these risks, Cardinal Health's diversified business model, strong market position, and strategic initiatives position the company for continued growth and success in the years ahead.
Conclusion
Cardinal Health is a resilient and well-positioned healthcare services and products company that is poised for sustained growth. The company's two reportable segments, Pharmaceutical and Specialty Solutions and Global Medical Products and Distribution, along with its other operating businesses, have demonstrated strong performance and growth potential.
With a solid financial foundation, disciplined capital allocation, and a clear strategic plan, Cardinal Health is well-equipped to navigate the evolving healthcare landscape and deliver value for its shareholders. Investors should closely monitor the company's progress in executing its strategic priorities, managing risks, and capitalizing on emerging opportunities in the healthcare industry.