Cardinal Health, Inc. (CAH) Earnings

Management highlights

### Four-Year Strategic Progress - Since fiscal 2022, management simplified the company's strategy, structure, and operations, and invested heavily in infrastructure, automation, and technology to drive scale, efficiency, and service capabilities. - Completed 6 strategic acquisitions; non-GAAP EPS more than doubled from $5.07 in fiscal 2022 to $11.26 in fiscal 2026, and adjusted free cash flow grew to $5 billion, enabling $7 billion in total capital return to shareholders over the four-year period. ### Pharmaceutical and Specialty Solutions Operational Updates - Core distribution operational metrics are at or near all-time highs; automation and analytics deployment across the distribution network has delivered efficiency and service gains. - Biopharma Solutions (upstream specialty) secured two new gene therapy commercialization agreements, bringing its exclusive cell and gene therapy market share to nearly half of the total segment, and ~75% of the overall market. - Opened a new specialized care pharmacy in La Verne, Tennessee, designed to support high-cost, complex cell and gene therapies, providing end-to-end clinical, logistical, and financial support to expand patient access. - Multi-specialty MSO strategy continues to expand both the number of MSOs and the range of services offered. ### GMPD Operational Updates - Continued execution of the multi-year improvement plan, with six consecutive quarters of normalized mid-single-digit growth for the Cardinal Health brand, and long-term renewal of the segment's largest customer secured. - Automation deployment across the distribution network has improved efficiency, employee safety, and order accuracy. ### Other Growth Businesses Operational Updates - At-home solutions achieved a 99% total fill rate and record on-time departures, driven by investment in capacity, automation, and inventory management. Recent tuck-in acquisitions (Strive Medical, Adapt Health's diabetes health segment) build on prior synergies from the ADS acquisition and support profitable scaling of the home care business. - Nuclear and Precision Health Solutions delivered over 20% PET growth and nearly 30% Theranostics growth in the quarter (over 30% full-year fiscal 2026 growth); integrated Synexis patient support into the nuclear business's digital ordering platform for a streamlined end-to-end workflow. - OptiFruit Logistics saw strong adoption of its new tech-enabled tracking and shipment tools, which deliver cost savings and efficiency for healthcare customers. ### Capital Return Update - The Board of Directors authorized a $5 billion increase to share repurchase authority, bringing total authorization to $6.4 billion, signaling confidence in durable cash generation and commitment to disciplined capital allocation.

Guidance

- Long-term non-GAAP EPS annual growth guidance of 12% to 14% is reconfirmed. - For fiscal 2027, management guides 13% to 15% adjusted non-GAAP EPS growth (against a baseline of $10.95, excluding the one-time Q4 2026 tariff refund benefit), for a full-year EPS range of $12.40 to $12.60, which is above the long-term growth target. - Pharmaceutical and Specialty Solutions: 3% to 5% revenue growth, and 8% to 11% segment profit growth. Q1 2027 profit growth is expected to be near the high end of the full-year range due to Solaris acquisition benefits prior to lapping the acquisition in Q2. Already completed M&A is expected to contribute 2 to 3 percentage points of profit growth for the full year. - GMPD: 2% to 4% revenue growth, with segment profit expected to grow ~$50 million off the normalized fiscal 2026 base, for a full-year profit range of $200 million to $220 million. Profit is expected to be weighted to the second half of the year (particularly Q4), and Q1 2027 profit is expected to be roughly half of Q1 2026's normalized result due to foreign currency and purchase timing impacts. Expected tariff tailwinds are assumed to offset rising fuel and commodity costs. - Other Growth Businesses: 11% to 13% revenue growth (accelerating through the year) and 15% to 18% segment profit growth. Recently completed tuck-in acquisitions are expected to add 2 percentage points of profit growth for the segment. - Adjusted free cash flow for fiscal 2027 is projected to be $3.5 billion to $4 billion; capital expenditures are expected to total $700 million. - At least $1 billion in share repurchases is planned for fiscal 2027, marking the third consecutive year of repurchases above the original baseline commitment; diluted weighted average shares outstanding are expected to be ~233 million. - Effective tax rate is projected to be 19% to 20% for fiscal 2027; interest and other expenses are forecast to be $240 million to $290 million. - No material M&A is assumed in guidance, but modest capital flexibility is reserved for small tuck-in acquisitions.

Segment performance

1. Pharmaceutical and Specialty Solutions Segment: Fourth quarter revenue was $58.8 billion, a 6% increase year-over-year. Segment profit was $645 million, growing 21% year-over-year. This segment contributed ~92.3% of total fourth quarter company revenue. Offsetting impacts of 500 basis points of GLP-1 growth tailwinds and 500 basis points of IRA WAC change headwinds were seen, with positive contributions from brand-to-generic conversion and strength in brand, specialty, and generics portfolios. 2. Global Medical Products and Distribution (GMPD) Segment: Fourth quarter revenue was $3.1 billion, a 2% year-over-year decrease, impacted by expected customer payables tied to IEPA tariff refunds and lower distribution volumes. This segment contributed ~4.9% of total fourth quarter company revenue. Reported segment profit grew $80 million year-over-year to $150 million, including a $100 million one-time net benefit from IEPA tariff refunds; normalized segment profit (excluding the benefit) was $50 million. On a normalized basis, U.S. Cardinal Health brand grew at mid-single digits for the sixth consecutive quarter. 3. Other Growth Businesses Segment: Fourth quarter revenue was $1.7 billion, a 7% year-over-year increase. Segment profit was $183 million, a 14% year-over-year increase. This segment contributed ~2.7% of total fourth quarter company revenue. Strength was seen across at-home solutions (with Advanced Diabetes Supply integration progressing ahead of synergy targets), Nuclear Precision Health Solutions (driven by rapid Theranostics expansion), and OptiFruit Logistics.

Risks & headwinds

- A protracted conflict in Iran could push GMPD profit to the lower end of its guidance range due to impacts on fuel and commodity prices. - Evolving regulatory changes (including IRA price adjustments and 340B program modifications) create uncertainty for customer volumes and business terms, even as management remains confident in Cardinal Health's core distribution role. - Persistently elevated fuel and commodity costs could create upward pressure on GMPD input and logistics costs, even after offsetting from expected tariff tailwinds. - Uncertainty around the final implementation of 2027 IRA WAC price changes creates modest revenue forecasting risk, though management expects no adverse profit impact. - Market fragmentation in high-growth specialty and at-home segments requires sustained investment, creating near-term margin pressure if scale gains do not materialize as expected.

Analyst Q&A

• Q: What momentum from Q4 2026 pharma segment performance is baked into fiscal 2027's 8% to 11% profit growth guidance? /

  A: Management confirms strong Q4 and full-year 2026 momentum across key pharma categories, large customers, higher-margin specialty, and the generics program was driven by consistent market dynamics and strong operational execution. This momentum is expected to continue into fiscal 2027, but guidance does not assume the outsized periodic demand seen in 2026. Already completed 2026 M&A will contribute 2 to 3 percentage points of 2027 profit growth, with no additional material M&A assumed. (243 characters)

• Q: How will specialty business growth evolve in fiscal 2027 after several years of acquisitions and integration, and will focus shift to services? /

  A: Fiscal 2026 saw overall specialty growth over 25%, driven by organic growth and M&A contributions, with strong momentum heading into 2027. Fiscal 2027 will see continued broad-based growth, with carryover tailwinds from 2026 M&A, and biopharma solutions remains on track to hit $1 billion in revenue by 2028 with 20%+ expected growth. Growth will remain broad across distribution, MSOs, biopharma solutions, and associated services, with internal cross-business collaboration improving customer and patient outcomes. (312 characters)

• Q: What are the key regulatory risks from IRA and 340B changes, and what opportunities exist for Cardinal Health as customers navigate these changes? /

  A: Management is closely tracking all regulatory developments and engaging with all stakeholders to influence outcomes, with the core policy goal of improving healthcare access and affordability ultimately driving higher volume, which benefits Cardinal Health's distribution business. While 340B changes create greater pressure on health system customers that could limit patient access, management is confident its core role safely and efficiently delivering products will not change, and it will adapt to any evolving transaction structures while maintaining appropriate compensation for its services. (324 characters)

• Q: What is driving faster profit growth than revenue growth for the other growth businesses segment in fiscal 2027, and why wasn't nuclear called out as a profit driver this quarter? /

  A: Faster profit growth reflects strong demand fueled by secular tailwinds across all three segment businesses, plus synergies from recent tuck-in acquisitions (Strive Medical and Adapt Health's diabetes segment) that add 2 percentage points of full-year profit growth. Differing margin profiles across the three businesses (higher-margin services for OptiFreight, lower-margin distribution for at-home) also contribute to the gap between revenue and profit growth. Nuclear continues to deliver strong double-digit growth in Theranostics and PET, and its reduced prominence in prepared remarks reflected prioritization of investment updates, not weak performance. (388 characters)

• Q: Can you clarify the difference between "outsized demand" and "strong demand" for fiscal 2027 planning, and is the 19% to 20% tax rate the new long-term baseline? /

  A: The 19% to 20% tax rate is confirmed as durable for fiscal 2027, consistent with prior guidance, but no long-term tax rate update is provided this early in the fiscal year. For demand, the 25% specialty growth seen in fiscal 2026 is higher than the long-term expected double-digit mid-teens growth built into 2027 guidance. Generics volumes, which were above the long-term 2% to 3% target in 2026, will move closer to that target in 2027, but will still remain above the long-term planning level. (321 characters)