DUBLIN, Ohio — A leaner and more energized Cardinal Health Inc. is beginning to emerge from the company’s ongoing strategic overhaul, judging by the company’s second fiscal quarter earnings results.
Calling the overhaul a “marathon, not a sprint,” Chairman and CEO George Barrett told securities analysts during a Thursday conference call, “Our overall operating performance was better than originally expected, with a number of our key initiatives already taking hold.”
In addition, some things the company can’t control — lower raw material prices and an overactive flu season, for instance — helped it to a stronger-than-expected quarter. “I do believe that we’re clear about our course and we are making the progress I had hoped to see,” Barrett said.
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The distributor of drugs and medical products — and Ohio’s biggest company — had net earnings of $234.5 million, or 65 cents a diluted share, in the quarter ended Dec. 31. That was down 26 percent from $316.5, or 88 cents a diluted share, in the year-ago quarter.
Remember: Cardinal Health spun off its CareFusion medical technology business to shareholders on Sept. 1. Earnings from continuing operations (without CareFusion) rose 36 percent to $230.2, or 64 cents a diluted share, from $169.0, or 47 cents a diluted share, a year ago.
Excluding special items, earnings were 57 cents a share. Analysts on average had expected 46 cents a share, according to Thomson Reuters I/B/E/S. Meanwhile, revenue rose 3 percent to $24.9 billion in the just-ended quarter from $24.1 billion a year ago, when Cardinal still owned CareFusion.
“Our medical segment has had particularly strong year-to-year performance … and our pharma segment has continued its momentum, performing considerably better than we had expected in the second quarter,” Barrett told analysts.
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Cardinal’s medical segment distributes products like surgical scrubs, patient gowns and surgical kits. In this segment alone, profits rose 38 percent to $103 million, and revenue, a respectable 9 percent to $2.2 billion from the year-ago quarter. The segment’s profit margin was 4.59 percent in the second quarter.
In its larger pharmaceuticals segment, which distributes drugs to drugstore chains, hospitals, nursing homes and other health care facilities, profits fell 1 percent to $260 million, and revenue grew 3 percent to $22.7 billion from the year-ago quarter. Barrett told analysts this segment drop was less than expected.
Cardinal has been trying to wring out costs in its bulk drug distribution business. Earlier this week, the company said it would close a distribution center in Findlay, Ohio, by the end of April, to cut excess warehouse capacity created by going to “just in time” delivery, according to Business First of Columbus. The closure will eliminate 115 jobs.
“Cardinal beat our expectations due to strong gross margins in both pharma and medical distribution, as well as strong medical distribution top-line,” Sanford Bernstein analyst Helene Wolk said in a research note, according to a Reuters report.
In spite of having “both opportunities and challenges in front of us,” Barrett and his company raised their sights for fiscal 2010: “non-GAAP” diluted earnings-per-share from continuing operations of between $2.08 and $2.18, up from the company’s previous guidance of between $1.90 and $2.00. Non-GAAP earnings exclude one-time costs, such as restructuring and employee severance, losses on the sale of assets and costs to spin-off CareFusion.
Investors liked the optimism expressed in the bump in the company’s earnings expectations — and the upside earnings surprise in the second quarter — pushing up Cardinal shares more than 5 percent to $32.91 Thursday on the New York Stock Exchange.
Cardinal was the last major U.S. pharmaceutical wholesaler to report results this quarter, Reuters said. Earlier this week, AmerisourceBergen Corp. in Valley Forge, Pa., posted better-than-expected profits and its shares hit an all-time high, while profits of San Francisco’s McKesson Corp. met analyst targets, helped by higher demand for flu vaccines.
