Earnings Scorecard: Cardinal Health - Analyst Blog

Cardinal Health (CAH) reported first-quarter fiscal 2011 (ended September 30) adjusted (excluding one-time expenses) earnings per share of 64 cents, exceeding the Zacks Consensus Estimate of 53 cents as well as the year-ago figure of 54 cents.

Highlights from the First Quarter

Total revenue was $24.4 billion in the reported quarter, down about 1% year over year. Reported results were below the Zacks Consensus Estimate of $25.1 billion.

The Pharmaceutical segment reported first-quarter revenue of $22.3 billion, down approximately 1% year over year, partly as a result of lower sales to pre-existing bulk customers. Generic pharmaceutical sales were up 19% while revenue from the company's Source generics program jumped 34%. Revenue from the Medical segment was $2.2 billion in the first quarter, dipping 3% partly due to the early outbreak of the flu season in the year-ago quarter.

Company-wide adjusted operating earnings were $372 million in the reported quarter, up 15% year over year. Pharmaceutical segment profit margin was 1.33%, up from 0.92% in the year-ago quarter. Medical segment profit margin was 3.82%, down from 5.13% in the year-ago quarter.

We have discussed the quarterly results at length here: Cardinal Beats EPS, Misses on Sales

Agreement – Estimate Revisions

The overall trend in estimate revisions for fiscal 2011 is overwhelmingly inclined on the positive side following the release of the first quarter results. Out of the 20 analysts covering the stock, 16 raised their estimates over the past week while 1 lowered his/her estimate. A similar trend applies for 2012 with 16 analysts (out of 20) raising their forecast with no instance of a downward revision.

Magnitude – Consensus Estimate Trend

Upward directional agreement, for the most part, has led to a 5 cent increase in the forecast for 2011 and a similar jump of a nickel for 2012. The current Zacks Consensus Estimate for 2011 is $2.50, reflecting an estimated 12.41% year-over-year growth.     

Cardinal Stays at Neutral

Cardinal is one of the largest diversified distributors of pharmaceuticals and medical supplies. Its size and diversity partly insulate it from economic cycles. The company's generics business continues to grow at a healthy pace.

Moreover, Cardinal's Pharmaceutical and Medical segments have revamped their operations. However, client and supplier concentration and reliance on group purchasing organizations remain areas of concern. Further, competition is intense and the margins are thin, more on the bulk Pharmaceutical business.

The regulatory framework remains cumbersome with a plethora of rules and regulations. We currently have a Neutral recommendation for Cardinal, which is supported by a short-term Zacks #3 Rank (Hold).