Cardinal Health closes important year on the upswing, CEO says

Cardinal Health Inc. (NYSE: CAH) has closed the books on fiscal 2010 — a year of transition that included continuing financial and operating turnarounds, as well as a major spin-off — while raising its earnings sights for the coming year.

Ohio’s largest company earned $642.2 million, or $1.77 a diluted share, in fiscal 2010, which ended June 30. That was down 44 percent from $1.2 billion, or $3.18 a diluted share, in fiscal 2009. Revenue grew 3 percent to $98.5 billion in that time.

The distributor of drugs and medical products earned $1.62 a share from continuing operations during the just-ended fiscal year. Taking out one-time items like restructuring, severance and acquisition costs, as well as costs for spinning off its CareFusion business a year ago, Cardinal Health earned $2.22 a share. That was down 2 percent from $2.26 a share in fiscal 2009.

While acknowledging a “general sluggishness” among hospitals and doctors’ offices, Cardinal Health expects to earn between $2.38 and $2.48 a share (omitting one-time items) in fiscal 2010. That was up from between $2.15 and $2.20 a share in April. Company executives said they expect revenue gains of about 4 percent over the coming year.

“It has been an important year for us in many ways,” George Barrett, Cardinal Health’s chairman and chief executive, told analysts during a conference call this morning. For one, the company’s adjusted earnings per share were “considerably better than we had anticipated in August of last year,” even though they are down slightly, Barrett said.

“Our organization did an outstanding job in managing our working capital, and we generated $2.1 billion in cash from operations,” Barrett said. “Overall, these are significant accomplishments, given the considerable strategic changes and investments we made in the business.”

Cardinal Health entered fiscal 2010 “with a commitment to take action to improve our performance, our strategic positioning, our internal culture — to shift our center of gravity more decisively, as to the customer — and of course, our trajectory,” he said.

Some systemic issues, such as a fall in the number of generic drug launches over the year and a severe shortage of radioisotopes for its nuclear pharmacies, were out of the company’s hands. And at the beginning of the year, Cardinal lost a few big hospital and retail chain customers. “That was disappointing,” Barrett said.

And in March, seven Medicine Shoppe and Medicap independent pharmacy franchise owners sued the company and its two franchising companies, seeking to undo agreements renegotiated last year through Cardinal’s “heavy-handed ways” and “predatory pricing on pharmaceuticals.”

Cardinal Health has dealt with the disappointments. Earlier this year, both Standard & Poor’s and Moody’s Investors Service raised their outlooks on the Dublin, Ohio, company’s $2.1 billion long-term debt.

The credit-rating agencies cited Cardinal’s better-than-expected cost savings and profit margins at a time when the company is dealing with operating challenges such as renewing contracts with its largest customers, absorbing lower prices from new customers and spinning off its CareFusion division.

In June, Cardinal Health bought Healthcare Solutions Holding LLC for $517 million in cash with the potential to pay another $150 million over three years to expand its specialty pharmaceuticals business.

“We have made enormous progress on our road to position the company for renewed growth, and we’ve moved the needle considerably faster than we had anticipated,” Barrett said. “It is still a journey, but I believe we have a lot to be excited about.”

Cardinal shares have gained a mere 1.5 percent in the last year, closing Wednesday at $33.48. The shares are down 87 cents to $32.61 in mid-afternoon trading on the New York Stock Market.