Release Date: January 30, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cardinal Health Inc (CAH, Financial) reported strong second quarter results, driven by robust demand in pharmaceutical and specialty solutions.
- The company raised its fiscal '25 EPS guidance to a range of $7.85 to $8, reflecting strong growth in the pharma segment.
- The acquisition of a majority stake in GI Alliance and the integrated oncology network transaction are expected to expand key therapeutic areas and generate additional value.
- The nuclear, at-home, and OptiFreight businesses showed robust demand and are considered high-margin growth areas.
- Cardinal Health Inc (CAH) continues to invest in advanced distribution centers and automation technologies to enhance efficiency and scale.
Negative Points
- The GMPD segment's Q2 performance was below expectations, with a $15 million impact from uncollectible receivables in the WaveMark business.
- Total company revenue decreased by 4% due to the impact of a customer contract expiration.
- The company faces increased interest costs due to recent acquisitions, impacting fiscal '25 EPS.
- There are concerns about potential tariffs in Mexico and the United States, which could affect pricing and supply chain dynamics.
- The company anticipates a normalization of utilization rates in the second half of fiscal '25, which may impact growth compared to the first half.
Q & A Highlights
Q: Can you explain the expected deceleration in pharma operating profit growth in the second half of fiscal '25, excluding M&A?
A: Aaron Alt, CFO: We are pleased with the results and have raised our guidance. The full-year operating income (OI) is expected to grow by 10% to 12%, including M&A impacts. Without the deals, OI growth would be high single digits. The first half saw strong utilization, but we expect a more normalized environment in the second half. We are also onboarding new customers, and the costs are included in our updated guidance.
Q: What are the key drivers in the specialty segment, and how is the integration of recent acquisitions progressing?
A: Jason Hollar, CEO: Specialty was a significant driver of revenue and profit. We've seen mid-teens growth over the last few years, and this quarter was even stronger. The integration of ION and GI Alliance is progressing well, and we are investing in specialty to support community physicians with services beyond distribution. We have two distinct platforms: oncology and multi-specialty, which includes GI Alliance.
Q: How did COVID vaccine volumes perform in the second quarter compared to expectations?
A: Aaron Alt, CFO: COVID vaccine volumes came in as expected and were a modest headwind. We were pleased to overcome this with strong results from the pharma business.
Q: Can you provide more details on the GMPD segment and the impact of WaveMark adjustments?
A: Aaron Alt, CFO: We started the year with a GMPD guidance of $175 million, which was adjusted due to unanticipated healthcare costs and a $15 million charge in WaveMark. Despite these, the GMPD improvement plan continues as expected. We anticipate sequential improvement in profitability, with Q4 being higher than Q3.
Q: How is the integration of specialty acquisitions impacting market competitiveness and growth?
A: Jason Hollar, CEO: Our investments in specialty enhance our competitiveness, especially for specialty physicians. The integration of recent acquisitions like ION and GI Alliance strengthens our service offerings, supporting physicians beyond distribution. We are seeing strong specialty revenue growth, and our strategy positions us well for continued growth.
Q: What is the impact of macroeconomic factors on GMPD and at-home solutions?
A: Jason Hollar, CEO: We saw slight growth in both overall and Cardinal Health brand products. While there was some weakness in respiratory and lab products within GMPD, at-home solutions saw strong growth, particularly in diabetes and urology-related categories. We continue to invest in automation and efficiency in at-home solutions.
Q: How are tariffs affecting your onshoring strategy for Cardinal-branded products?
A: Jason Hollar, CEO: We have diversified our supply chain, with about 50% of Cardinal-branded products made in North America. We are evaluating the impact of potential tariffs and have the capability to manufacture 50% of Cardinal brand products in the U.S. However, widespread tariffs would likely lead to price increases.
Q: How does the current illness season impact your business across segments?
A: Jason Hollar, CEO: We observed strong utilization in pharma, with no significant weakness in treatment rates. However, there was some softness in lab and respiratory products within GMPD. It's too early to determine if January will see a resurgence in illness-related demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
