Cardinal Health, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Progress: Pharmaceutical and Specialty Solutions strategy focuses on strengthening core and expanding in Specialty. Successfully onboarded new customers, expanded distribution footprint, launched new consumer health and pharma distribution centers, and modernized technology platforms like Vantus HQ.
• Specialty Expansion: Acquired Solaris Health, accelerating the Specialty Alliances multi-specialty MSO platform. Adds over 750 providers in urology, bolstering the business model.
• GMPD Improvements: Continues to execute cost optimization and improvement plan initiatives. Cardinal Health Brand trended positively with over 6% revenue growth in the U.S.
• Other Businesses: Strong performance across at-Home Solutions (revenue grew nearly 50% in Q4), Nuclear (outpacing market with differentiated offerings), and OptiFreight Logistics (renewed key contracts due to leading value proposition).

Segment Performance

• Pharmaceutical and Specialty Solutions: Fourth quarter revenue was relatively flat at $55.4 billion. Excluding the customer contract expiration, revenue increased 22% due to brand and specialty pharmaceutical sales growth. Segment profit increased 11% to $535 million. Generics program also showed positive performance.
• GMPD: Fourth quarter revenue grew 3% to $3.2 billion driven by volume growth from existing customers. Segment profit was $70 million, its highest profit quarter, driven by volume growth and cost containment efforts.
• Other Growth Businesses: Fourth quarter revenue increased 37% to $1.6 billion, and segment profit increased 44% to $160 million. Driven by at-Home Solutions (including ADS acquisition), Nuclear and Precision Health Solutions, and OptiFreight Logistics. These businesses contributed over 40% of enterprise operating earnings growth for the quarter.

Guidance

• Fiscal '26 EPS: Increased to a range of $9.30 to $9.50, reflecting 13%-15% growth. Driven by liability classification impact, stronger Pharma performance, and Other growth businesses.
• Pharma: Expected revenue increase of 11%-13% annualizing new customer wins. Segment profit guidance raised.
• GMPD: Revenue growth expected 2%-4%, segment profit at least $140 million, with profit weighted to second half.
• Other Growth Businesses: Robust revenue growth 26%-28% and profit growth 25%-27%, with strong growth in at-Home, Nuclear, and OptiFreight.
• Cash Flow: Adjusted free cash flow expected between $2.75 billion and $3.25 billion, aiming to delever to targeted leverage range by fiscal '26 end.

Risks

• Regulatory Uncertainty: Impact on business operations and financial results due to evolving health care regulations.
• Tariff Impacts: Ongoing efforts to mitigate tariff impacts, but potential costs and pricing pressures remain.
• Market Competition: Impact on market share and profitability from competitive landscape in health care distribution.

Question and Answer

Q: Lisa Gill from JPMorgan asked about updated guidance.

A: Aaron Alt stated the guide was raised by $0.20, with roughly half due to liability classification and half from stronger Pharma and Other business performance.

Q: Allen Lutz from Bank of America inquired about SG&A drivers.

A: Aaron Alt said SG&A includes investments for future, inclusion of acquisitions, but majority increase tied to recent acquisitions with synergy opportunities.

Q: Michael Cherny from Leerink Partners asked about gross profit margin.

A: Aaron Alt noted Specialty Distribution and MSO acquisitions contribute to higher-margin profile, along with growth in Other businesses.

Q: Eric Percher from Nephron Research asked about Solaris acquisition.

A: Jason Hollar said Solaris fits strategy, adds 750 providers and $1.5B revenue, with diverse revenue streams and fits into urology focus. Aaron Alt added details on revenue, EBITDA, and accretion from scale and efficiencies.

Q: Daniel Grosslight from Citi asked about home solutions pricing headwinds.

A: Jason Hollar stated CGMs in at-Home Solutions represent less than 15% of total revenue, and the setup is favorable with low rates and concentrated manufacturers.