By Cardinal Health, the leading drug distributor, announced better-than-expected earnings in their recent report. However, the company’s shares fell due to a revised outlook for one of its struggling business segments.
Despite the lack of surprises in Thursday’s earnings report, Cardinal Health had previously provided a comprehensive financial update on January 9. Just one day before the report, the company also made headlines by revealing its $1.2 billion acquisition of a privately held healthcare technology company. This strategic move aimed to strengthen Cardinal Health’s specialty pharmacy business.
Unfortunately, the company had to revise its profit guidance for the Medical Segment in 2024. The new projection lowered the expected profit from $400 million to $380 million.
Over the past few years, Cardinal Health has faced challenges with its medical business, which primarily focuses on distributing medical supplies. In response, the company unveiled a plan in mid-2022 to improve the segment’s profitability. Cardinal Health aims to achieve $650 million in profit for the medical segment by the 2026 fiscal year. For the 2023 fiscal year, the former medical segment generated $111 million in profit.
During an investor call on Thursday morning, Cardinal Health’s CEO, Jason Hollar, expressed his satisfaction with the second-quarter performance of the medical business. He assured investors that the company’s plans to enhance this segment are on track.
Hollar emphasized that while the guidance had been adjusted to account for nonrecurring adjustments, this was the only change made. He reaffirmed that their guidance for the year has always focused on the latter half, and that remains unchanged.
Following the earnings announcement, Cardinal Health’s shares experienced a 5.5% decline in early morning trading. In contrast, the S&P 500 showed a 0.2% increase. Despite this setback, Cardinal Health shares have shown strong performance in recent years, mirroring the trend seen in other drug distributors like McKesson.
Cardinal Stock Soars Amidst Challenging Market
Date: February 22, 2024
Cardinal stock has experienced an impressive 96% increase over the course of 2022 and 2023, outperforming the S&P 500 which remained relatively stable. Furthermore, the stock rose by approximately 8% this year prior to Thursday’s market downturn.
Solid Second Quarter Performance
In its most recent financial report for the second quarter of the 2024 fiscal year, Cardinal announced a remarkable revenue of $57.4 billion. This surpassed the FactSet consensus estimate of $57 billion, reflecting the company’s strong performance. However, adjusted operating earnings fell just short of expectations at $562 million, slightly below the consensus estimate of $563.8 million.
Exceeding Earnings Expectations
Despite falling short in adjusted operating earnings, Cardinal managed to surpass expectations in adjusted earnings per share. The company reported adjusted earnings of $1.82 per share compared to the analyst consensus estimate of $1.60.
Streamlined Reporting Structure
In early January, Cardinal outlined its plans to restructure its financial reporting practices. As part of this initiative, certain businesses within its former Medical Segment will now be reported separately. Additionally, the Medical Segment itself will be renamed Global Medical Products and Distribution. Cardinal’s core drug distribution business will now be known as Pharmaceutical and Specialty Solutions.
Raised Guidance for Fiscal Year 2024
On Thursday, Cardinal provided an updated guidance for its fiscal year 2024, citing increased expectations for adjusted diluted earnings per share. The company now anticipates earnings to be within the range of $7.20 to $7.35 per share, up from the previous guidance of $6.75 to $7 per share. This upward revision indicates Cardinal’s confidence in achieving strong financial performance moving forward.
Positive Projections for Pharmaceutical and Specialty Solutions
Cardinal expressed optimism for the growth of its Pharmaceutical and Specialty Solutions segment, stating an expected profit increase of 7% to 9% in 2024. Additionally, the company forecasts a profit of approximately $65 million for its recently renamed Global Medical Products and Distribution (GMPD) segment. Notably, the GMPD segment incurred a loss of $165 million in 2023.
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