DUBLIN, Ohio — There’s little worry in George Barrett, the new Cardinal Health CEO whose company loses 40 percent of its revenue by day’s end.
That’s when Cardinal spins off CareFusion, the medical device portion of its business that has provided higher-margin growth than what’s left behind: Cardinal’s traditional pharmaceutical and medical supplies business.
But Barrett, the third chief executive in Cardinal’s history, told The Columbus Dispatch this weekend that he’s been converted into a proponent of the CareFusion-Cardinal spinoff and expects to deliver returns that will satisfy his shareholders.
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“I don’t think anybody is immune to the economy, but health care is relatively insulated,” Barrett told The Dispatch. “The demographic trend of an aging population is inescapable. We’re probably less healthy as a society. And I think the things there’s the most consensus around in health-care reform are efficiency and safety. Those are things we’re already focused on, and will continue to be.
“Our investors (in Cardinal) have a different expectation, since we don’t have to put back as much into R&D,” Barrett also told the newspaper. “Just because you’re a lower-margin business doesn’t mean you can’t have substantial growth or shareholder return. Any small change in our margins has a huge impact.”
The economy will make for a bumpy start for the two new companies.
During its year-end earnings announcement two weeks ago, Cardinal predicted “low single-digit revenue growth” and earnings per share between $1.90 to $2.00 next year. CareFusion, meanwhile, is expected to have per-share earnings between $1.10 and $1.20 — compared to adjusted earnings of $1.54 (that number is broken out from Cardinal as if the split had already occurred). Some of the lower earnings for CareFusion will come from higher R&D costs; a higher tax rate from the end of a 2009 tax break; and infrastructure costs as a new public company.
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The Dispatch describes Barrett as a blunt-speaking leader who eschews the “ivory-tower” approach to management. He moved quickly to correct a company that had lost a bit of focus when he started less than two years ago as head of its health care supply chain services segment. Barrett equated his Cardinal experience to “drinking from a fire hose”.
Barrett held a series of meetings in which he urged employees to “make it personal,” ensure that customers were taken care of and recognize that the hospitals and other health-care facilities they serve need Cardinal to be a partner more than ever.
“The health-care industry overall has been going through a lot of change. Hospitals aren’t really set up to be run like businesses, but they have increasing financial pressures,” Barrett said. “We can be part of a solution” that includes offering inventory-tracking systems and other services customers need.
One plus for Barrett is that virtually every analyst endorses the spinoff and thinks Barrett will automatically find a better-focused company now without CareFusion.
Some have already praised Barrett for addressing a traditional problem at Cardinal: namely, meshing all the disparate acquired companies into a more cohesive unit. That was also a strength and goal of the former chief executive, R. Kerry Clark. Also, Cardinal last week announced plans to reduce its debt by buying back $1.2 billion in long-term debt securities.
Now, analysts want to see Cardinal reach out to the smaller pharmacies to supply them with generic drugs, according to the Dispatch.
