Cardinal Health (CAH) reported fourth-quarter and fiscal 2010 adjusted (excluding one-time expenses) earnings per share of 50 cents and $2.22 respectively, exceeding the Zacks Consensus Estimates of 49 cents and $2.21, respectively, but below the year-ago results of 63 cents and $2.26, respectively.
Revenues
Total revenue was $24.5 billion in the fourth quarter, up by a mere 0.5% year over year, and $98.5 billion in fiscal 2010, up 3%. Reported results were marginally below the Zacks Consensus Estimates of $24.6 billion and $98.7 billion for the fourth quarter and fiscal year, respectively.
Segment-wise Revenue
The Pharmaceutical segment reported fourth-quarter revenue of $22.3 billion, up a nominal 0.2%. Sales to non-bulk customers were $11.5 billion, up 3% year over year, while sales to bulk customers were $10.8 billion, down 3%. Generic pharmaceutical sales were up 10%. Pharmaceutical segment revenue was $89.8 billion in the fiscal year, up 2% year over year.
Revenue from the Medical segment was $2.2 billion in the fourth quarter, up 3% on account of sales growth with existing clients. Medical segment revenue was $8.8 billion in the fiscal year, up 7% year over year, driven by growth from existing clients, new products and favorable foreign exchange.
Margin
Company-wide adjusted operating earnings were $317 million in the fourth quarter, down 11% year over year and $1,383 million in fiscal 2010, down 2% year over year.
Pharmaceutical segment profit was $227 million in the fourth quarter, down 17%, primarily due to lower inflation of branded products, negative impact from changes in customer pricing as well as supply disruptions in nuclear pharmacy business, which were partially offset by contribution from generic products. Segment profit margin was 1.02% in the fourth quarter of 2010, down from 1.23% in the year-ago period. Segment profit was $1 billion in the fiscal year, down 3% year over year.
For the Medical unit, segment profit was $102 million in the fourth quarter, up 22%, primarily due to growth in the Hospital Supply operations and strict cost containment, which were partially offset by higher commodity prices. Segment profit margin was 4.75% in the fiscal 2010, up from 4.03% in the year-ago period. Segment profit was $428 million in the fiscal year, up 11% year over year, due to the lower price of commodity raw materials.
Balance Sheet and Cash Flow
Cash and equivalents totaled $2.8 billion, as of June 30, 2010, up 126% year over year. Long-term obligations amounted to $2.1 billion, down 41.5% year over year.
Outlook
Cardinal raised its guidance for adjusted earnings per share from continuing operations to a range of $2.38 to $2.48 from $2.15 to $2.20 earlier.
We maintain our cautious stance on Cardinal Health. It continues to be one of the largest distributors of pharmaceuticals and medical supplies in the US with a diversified product portfolio.
Further, the company offers a good example of how distributors are positioning themselves through acquisitions, divestments and internal development initiatives to increase their value proposition for providers. Yet the company continues to face significant customer concentration on account of two large customers, Walgreen Co. (WAG) and CVS Caremark Corporation (CVS).
The spin-off of CareFusion Corporation (CFN) will enable the new Cardinal Health to focus on its core business. However, the company faces tough competition across all its business segments, which may pressure pricing and margins.
We are concerned that margins in the bulk pharmaceutical business are extremely low. However, the shift in the customer mix toward the non-bulk segment of the distribution business will help drive margin expansion from current depressed levels. Furthermore, we believe that Cardinal Health will need to boost its generics program in order to counter the impact of further branded margin erosion. We currently have a Neutral recommendation on Cardinal Health.
CARDINAL HEALTH (CAH): Free Stock Analysis Report
COVENTRY HLTHCR (CVH): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
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Total revenue was $24.5 billion in the fourth quarter, up by a mere 0.5% year over year, and $98.5 billion in fiscal 2010, up 3%. Reported results were marginally below the Zacks Consensus Estimates of $24.6 billion and $98.7 billion for the fourth quarter and fiscal year, respectively.
Segment-wise Revenue
The Pharmaceutical segment reported fourth-quarter revenue of $22.3 billion, up a nominal 0.2%. Sales to non-bulk customers were $11.5 billion, up 3% year over year, while sales to bulk customers were $10.8 billion, down 3%. Generic pharmaceutical sales were up 10%. Pharmaceutical segment revenue was $89.8 billion in the fiscal year, up 2% year over year.
Revenue from the Medical segment was $2.2 billion in the fourth quarter, up 3% on account of sales growth with existing clients. Medical segment revenue was $8.8 billion in the fiscal year, up 7% year over year, driven by growth from existing clients, new products and favorable foreign exchange.
Margin
Company-wide adjusted operating earnings were $317 million in the fourth quarter, down 11% year over year and $1,383 million in fiscal 2010, down 2% year over year.
Pharmaceutical segment profit was $227 million in the fourth quarter, down 17%, primarily due to lower inflation of branded products, negative impact from changes in customer pricing as well as supply disruptions in nuclear pharmacy business, which were partially offset by contribution from generic products. Segment profit margin was 1.02% in the fourth quarter of 2010, down from 1.23% in the year-ago period. Segment profit was $1 billion in the fiscal year, down 3% year over year.
For the Medical unit, segment profit was $102 million in the fourth quarter, up 22%, primarily due to growth in the Hospital Supply operations and strict cost containment, which were partially offset by higher commodity prices. Segment profit margin was 4.75% in the fiscal 2010, up from 4.03% in the year-ago period. Segment profit was $428 million in the fiscal year, up 11% year over year, due to the lower price of commodity raw materials.
Balance Sheet and Cash Flow
Cash and equivalents totaled $2.8 billion, as of June 30, 2010, up 126% year over year. Long-term obligations amounted to $2.1 billion, down 41.5% year over year.
Outlook
Cardinal raised its guidance for adjusted earnings per share from continuing operations to a range of $2.38 to $2.48 from $2.15 to $2.20 earlier.
We maintain our cautious stance on Cardinal Health. It continues to be one of the largest distributors of pharmaceuticals and medical supplies in the US with a diversified product portfolio.
Further, the company offers a good example of how distributors are positioning themselves through acquisitions, divestments and internal development initiatives to increase their value proposition for providers. Yet the company continues to face significant customer concentration on account of two large customers, Walgreen Co. (WAG) and CVS Caremark Corporation (CVS).
The spin-off of CareFusion Corporation (CFN) will enable the new Cardinal Health to focus on its core business. However, the company faces tough competition across all its business segments, which may pressure pricing and margins.
We are concerned that margins in the bulk pharmaceutical business are extremely low. However, the shift in the customer mix toward the non-bulk segment of the distribution business will help drive margin expansion from current depressed levels. Furthermore, we believe that Cardinal Health will need to boost its generics program in order to counter the impact of further branded margin erosion. We currently have a Neutral recommendation on Cardinal Health.
CARDINAL HEALTH (CAH): Free Stock Analysis Report
COVENTRY HLTHCR (CVH): Free Stock Analysis Report
WALGREEN CO (WAG): Free Stock Analysis Report
Zacks Investment Research
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