- Revenue increased 10% to $54.8
billion
- GAAP1 operating loss was
$14 million and GAAP diluted EPS was
$0.02, driven by a Medical segment
goodwill impairment
- Non-GAAP operating earnings increased 35% to $571 million, driven by significant increases in
both Pharmaceutical segment profit and Medical segment profit;
non-GAAP diluted EPS increased 44% to $1.73
- Pharmaceutical segment profit grew 18% to $507 million and the Medical segment delivered
$71 million in segment
profit
- Fiscal 2024 non-GAAP EPS guidance raised to $6.75 to $7.00,
from $6.50 to $6.75
DUBLIN,
Ohio, Nov. 3, 2023 /PRNewswire/ --
Cardinal Health (NYSE: CAH) today reported first quarter fiscal
2024 revenue of $54.8 billion, an
increase of 10% from the first quarter of last year. First quarter
GAAP operating loss was $14 million
due to a non-cash, pre-tax goodwill impairment of $581 million related to the Medical segment, due
to an increase in the discount rate.² GAAP diluted earnings per
share (EPS) were $0.02, primarily due
to this impairment, net of tax effects. Non-GAAP operating earnings
increased 35% to $571 million in the
quarter, driven by significant increases in both Pharmaceutical
segment profit and Medical segment profit. Non-GAAP diluted EPS
increased 44% to $1.73, reflecting
the increase in non-GAAP operating earnings, a lower share count
and lower interest and other expense, partially offset by a higher
non-GAAP effective tax rate.
"With strong first quarter results and an improved outlook for
the year, we are continuing our operating momentum into fiscal
2024," said Jason Hollar, CEO of
Cardinal Health. "In Q1, we delivered significant profit growth in
both the Pharmaceutical and Medical segments, which along with our
favorable capital structure and opportunistic capital deployment,
gives us confidence to raise fiscal 2024 non-GAAP EPS guidance.
Across the enterprise, we continue to prioritize focused execution
to best serve our customers and create value for our
shareholders."
Q1 FY24 summary
|
Q1
FY24
|
|
Q1 FY23
|
|
Y/Y
|
Revenue
|
$54.8
billion
|
|
$49.6
billion
|
|
10 %
|
Operating
earnings/(loss)
|
$(14)
million
|
|
$137 million
|
|
N.M.
|
Non-GAAP operating
earnings
|
$571
million
|
|
$423 million
|
|
35 %
|
Net earnings
attributable to Cardinal Health, Inc.
|
$5
million
|
|
$110 million
|
|
N.M.
|
Non-GAAP net earnings
attributable to Cardinal Health, Inc.
|
$433
million
|
|
$328 million
|
|
32 %
|
Effective Tax
Rate3
|
122.5 %
|
|
(0.7) %
|
|
|
Non-GAAP Effective Tax
Rate
|
22.5 %
|
|
16.9 %
|
|
|
Diluted EPS
attributable to Cardinal Health, Inc.
|
$0.02
|
|
$0.40
|
|
N.M.
|
Non-GAAP diluted EPS
attributable to Cardinal Health, Inc.
|
$1.73
|
|
$1.20
|
|
44 %
|
Segment results
Pharmaceutical segment
|
Q1
FY24
|
|
Q1 FY23
|
|
Y/Y
|
Revenue
|
$51.0
billion
|
|
$45.8
billion
|
|
11 %
|
Segment
profit
|
$507
million
|
|
$431 million
|
|
18 %
|
First quarter revenue for the Pharmaceutical segment increased
11% to $51.0 billion, driven by
brand and specialty pharmaceutical sales growth from existing
customers.
Pharmaceutical segment profit increased 18% to $507 million in the first quarter, driven by a
higher contribution from brand and specialty products, including
distribution of COVID-19 vaccines, and positive generics program
performance.
Medical segment
|
Q1
FY24
|
|
Q1 FY23
|
|
Y/Y
|
Revenue
|
$3.8
billion
|
|
$3.8 billion
|
|
— %
|
Segment
profit
|
$71
million
|
|
$(8) million
|
|
N.M.
|
First quarter revenue for the Medical segment was flat at
$3.8 billion. This reflects lower PPE
volumes and pricing, offset by growth in at-Home Solutions and
inflationary impacts, including mitigation initiatives. PPE volumes
and pricing includes the impact from the prior year exit of our
non-healthcare gloves portfolio in connection with our
simplification strategy.
Medical segment profit increased to $71
million in the first quarter, driven by an improvement in
net inflationary impacts, including mitigation initiatives.
Fiscal year 2024 outlook1
The company raised its fiscal 2024 guidance range for non-GAAP
diluted earnings per share attributable to Cardinal Health, Inc. to
$6.75 to $7.00, from $6.50
to $6.75.
This guidance includes an update to the company's Pharmaceutical
segment profit outlook for fiscal 2024 to 7% to 9% growth, from 4%
to 6% growth. Additionally, the company updated expectations for
interest and other to $100 million to
$120 million, from $110 million to $130
million, and for diluted weighted average shares outstanding
of approximately 249 million, from 250 million to 253 million.
The company does not provide forward-looking guidance on a GAAP
basis as certain financial information, the probable significance
of which cannot be determined, is not available and cannot be
reasonably estimated. See "Use of Non-GAAP Measures" following the
attached schedules for additional explanation.
Recent highlights
- Cardinal Health initiated a $500M
accelerated share repurchase program in the first quarter, which
was completed in October.
- Cardinal Health began distributing the recently commercialized
COVID-19 vaccines to customers following FDA approval in
September.
- Cardinal Health launched its Kangaroo OMNI™ Enteral Feeding
Pump in the U.S., designed to help provide enteral feeding patients
with more options to meet their personalized needs throughout their
enteral feeding journey.
- Cardinal Health was named to the 100 Best Corporate Citizens
ranking by 3BL Media based on an assessment of environmental,
social and governance (ESG) transparency and performance of the
1,000 largest public companies in the U.S.
- Cardinal Health was named to Seramount's 2023 lists of 100 Best
Companies, Top Companies for Executive Women, and Best Companies
for Multicultural Women.
Upcoming webcasted investor events
- Evercore ISI Healthcare Conference at 10:00 a.m. EST, November
29, 2023
- J.P. Morgan Healthcare Conference, January 8-11, 2024
Webcast
Cardinal Health will host a webcast today at
8:30 a.m. EST to discuss first
quarter results. To access the webcast and corresponding slide
presentation, go to the Investor Relations page at
ir.cardinalhealth.com. No access code is required.
Presentation slides and a webcast replay will be available on
the Investor Relations page for 12 months.
About Cardinal Health
Cardinal Health is a distributor
of pharmaceuticals, a global manufacturer and distributor of
medical and laboratory products, and a provider of performance and
data solutions for healthcare facilities. With more than 50 years
in business, operations in more than 30 countries and approximately
48,000 employees globally, Cardinal Health is essential to care.
Information about Cardinal Health is available at
cardinalhealth.com.
Contacts
Media: Erich
Timmerman, Erich.Timmerman@cardinalhealth.com and
614.757.8231
Investors: Matt Sims,
Matt.Sims@cardinalhealth.com and 614.553.3661
1 GAAP refers to U.S. generally accepted accounting
principles. This news release includes GAAP financial measures as
well as non-GAAP financial measures, which are financial measures
not calculated in accordance with GAAP. See "Use of Non-GAAP
Measures" following the attached schedules for definitions of the
non-GAAP financial measures presented in this news release and see
the attached schedules for reconciliations of the differences
between the non-GAAP financial measures and their most directly
comparable GAAP financial measures.
2 The first quarter fiscal 2024 impairment charge
related to the Medical segment reflects an increase in the
risk-free interest rate used in the company's goodwill impairment
analysis.
3 The first quarter fiscal 2024 and 2023 GAAP effective
tax rates primarily reflect the tax effects of the goodwill
impairment charge included in the company's estimated annual
effective tax rate for each year.
Cardinal Health uses its website as a channel of distribution
for material company information. Important information, including
news releases, financial information, earnings and analyst
presentations, and information about upcoming presentations and
events is routinely posted and accessible on the Investor Relations
page at ir.cardinalhealth.com. In addition, the website allows
investors and other interested persons to sign up automatically to
receive email alerts when the company posts news releases, SEC
filings and certain other information on its website.
Cautions Concerning Forward-Looking Statements
This
news release contains forward-looking statements addressing
expectations, prospects, estimates and other matters that are
dependent upon future events or developments. These statements may
be identified by words such as "expect," "anticipate," "intend,"
"plan," "believe," "will," "should," "could," "would," "project,"
"continue," "likely," and similar expressions, and include
statements reflecting future results or guidance, statements of
outlook and various accruals and estimates. These matters are
subject to risks and uncertainties that could cause actual results
to differ materially from those projected, anticipated or implied.
These risks and uncertainties include risks arising from ongoing
inflationary pressures, including the risk that our plans to
mitigate such effects may not be as successful as we anticipate or
that costs could remain elevated; the possibility that our Medical
unit goodwill could be further impaired due to additional changes
to our long-term financial plan, increases in global interest rates
or unfavorable changes in the U.S. statutory tax rate; risks
associated with our ongoing review of our operations, portfolio and
businesses, including the risk that our management team could
become distracted or that the outcome of such review may have
unintended consequences; competitive pressures in Cardinal Health's
various lines of business, including the risk that customers may
reduce purchases made under their contracts with us or terminate or
not renew their contracts; the performance of our generics program,
including the amount or rate of generic deflation and our ability
to offset generic deflation and maintain other financial and
strategic benefits through our generic sourcing venture or other
components of our generics programs; ongoing risks associated with
the distribution of opioids, including the financial impact
associated with the settlements with governmental authorities and
the risk that challenges to tax deductions for opioid-related
losses could adversely impact our financial results; risks arising
from the Department of Justice investigation which we believe
concerns our anti-diversion program and risks associated with the
injunctive relief requirements under the national settlement,
including the risk that we may incur higher costs or operational
challenges in the implementation and maintenance of the required
changes; risks associated with the manufacture and sourcing of
certain products, including risks related to our ability and the
ability of third-party manufacturers to import or export certain
products or component parts and to comply with applicable
regulations; our ability to manage uncertainties associated with
the pricing of branded pharmaceuticals; uncertainties related to
the timing, magnitude and profit impact of the distribution of
recently commercially available COVID-19 vaccines; and risks
associated with business process initiatives, such as the Medical
Improvement Plan, including the possibility that they could fail to
achieve the intended results. Cardinal Health is subject to
additional risks and uncertainties described in Cardinal Health's
Form 10-K, Form 10-Q and Form 8-K reports and exhibits to those
reports. This news release reflects management's views as of
November 3, 2023. Except to the
extent required by applicable law, Cardinal Health undertakes no
obligation to update or revise any forward-looking statement.
Forward-looking statements are aspirational and not guarantees or
promises that goals, targets or projections will be met, and no
assurance can be given that any commitment, expectation, initiative
or plan in this news release can or will be achieved or
completed.
Schedule
1
|
Cardinal Health,
Inc. and Subsidiaries
Condensed
Consolidated Statements of Earnings (Unaudited)
|
|
|
First
Quarter
|
(in millions, except
per common share amounts)
|
2024
|
|
2023
|
|
%
Change
|
Revenue
|
$
54,763
|
|
$
49,603
|
|
10 %
|
Cost of products
sold
|
52,995
|
|
47,989
|
|
10 %
|
Gross
margin
|
1,768
|
|
1,614
|
|
10 %
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Distribution, selling,
general and administrative expenses
|
1,197
|
|
1,197
|
|
— %
|
Restructuring and
employee severance
|
25
|
|
29
|
|
|
Amortization and other
acquisition-related costs
|
64
|
|
71
|
|
|
Impairments and
(gain)/loss on disposal of assets, net 1
|
537
|
|
153
|
|
|
Litigation
(recoveries)/charges, net
|
(41)
|
|
27
|
|
|
Operating
earnings/(loss)
|
(14)
|
|
137
|
|
N.M.
|
|
|
|
|
|
|
Other (income)/expense,
net
|
(2)
|
|
2
|
|
|
Interest expense,
net
|
14
|
|
25
|
|
(44) %
|
Earnings/(loss) before
income taxes
|
(26)
|
|
110
|
|
N.M.
|
|
|
|
|
|
|
Benefit from income
taxes 2
|
(32)
|
|
(1)
|
|
N.M.
|
Net
earnings
|
6
|
|
111
|
|
N.M.
|
|
|
|
|
|
|
Less: Net earnings
attributable to noncontrolling interests
|
(1)
|
|
(1)
|
|
|
Net earnings
attributable to Cardinal Health, Inc.
|
$
5
|
|
$
110
|
|
N.M.
|
|
|
|
|
|
|
Earnings per common
share attributable to Cardinal Health, Inc.:
|
|
|
|
|
|
Basic
|
$
0.02
|
|
$
0.41
|
|
N.M.
|
Diluted
|
0.02
|
|
0.40
|
|
N.M.
|
|
|
|
|
|
|
Weighted-average
number of common shares outstanding:
|
|
|
|
|
|
Basic
|
249
|
|
271
|
|
|
Diluted
|
250
|
|
273
|
|
|
|
1 For the
three months ended September 30, 2023 and 2022, impairments and
(gain)/loss on disposal of assets, net include pre-tax goodwill
impairment charges of $581 million and $154 million,
respectively, related to the Medical segment.
|
2 For fiscal
2024 and 2023, the net tax benefits related to these impairment
charges were $45 million and $12 million and were included in the
annual effective tax rate. As a result, the tax benefits for the
three months ended September 30, 2023 and 2022 increased
approximately by an incremental $99 million and $22 million,
respectively, and will increase the provision for income taxes
during the remainder of fiscal 2024 and 2023,
respectively.
|
Schedule
2
|
Cardinal Health,
Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
|
|
(in
millions)
|
September
30,
2023
|
|
June 30,
2023
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash and
equivalents
|
$
3,854
|
|
$
4,043
|
Trade receivables,
net
|
11,265
|
|
11,344
|
Inventories,
net
|
16,987
|
|
15,940
|
Prepaid expenses and
other
|
2,582
|
|
2,362
|
Assets held for
sale
|
—
|
|
144
|
Total current
assets
|
34,688
|
|
33,833
|
|
|
|
|
Property and equipment,
net
|
2,441
|
|
2,462
|
Goodwill and other
intangibles, net
|
5,432
|
|
6,081
|
Other assets
|
1,149
|
|
1,041
|
Total
assets
|
$
43,710
|
|
$
43,417
|
|
|
|
|
Liabilities and
Shareholders' Deficit
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable
|
$
31,540
|
|
$
29,813
|
Current portion of
long-term obligations and other short-term borrowings
|
788
|
|
792
|
Other accrued
liabilities
|
2,737
|
|
3,059
|
Liabilities related to
assets held for sale
|
—
|
|
42
|
Total current
liabilities
|
35,065
|
|
33,706
|
|
|
|
|
Long-term obligations,
less current portion
|
3,890
|
|
3,909
|
Deferred income taxes
and other liabilities
|
8,245
|
|
8,653
|
|
|
|
|
Total shareholders'
deficit
|
(3,490)
|
|
(2,851)
|
Total liabilities
and shareholders' deficit
|
$
43,710
|
|
$
43,417
|
Schedule
3
|
Cardinal Health,
Inc. and Subsidiaries
Condensed
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
First
Quarter
|
(in
millions)
|
2024
|
|
2023
|
Cash flows from
operating activities:
|
|
|
|
Net earnings
|
$
6
|
|
$
111
|
|
|
|
|
Adjustments to
reconcile net earnings to net cash provided by/(used in) operating
activities:
|
|
|
|
Depreciation and
amortization
|
172
|
|
171
|
Impairments and
(gain)/loss on disposal of assets, net
|
537
|
|
153
|
Share-based
compensation
|
29
|
|
23
|
Provision for bad
debts
|
29
|
|
29
|
Change in operating
assets and liabilities, net of effects from acquisitions and
divestitures:
|
|
|
|
(Increase)/decrease in
trade receivables
|
50
|
|
(508)
|
Increase in
inventories
|
(1,057)
|
|
(264)
|
Increase in accounts
payable
|
1,727
|
|
1,234
|
Other accrued
liabilities and operating items, net
|
(948)
|
|
(926)
|
Net cash provided by
operating activities
|
545
|
|
23
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
Additions to property
and equipment
|
(92)
|
|
(70)
|
Proceeds from disposal
of property and equipment
|
1
|
|
2
|
Purchases of
investments
|
(1)
|
|
(3)
|
Proceeds from
investments
|
1
|
|
1
|
Proceeds from net
investment hedge terminations
|
28
|
|
—
|
Net cash used in
investing activities
|
(63)
|
|
(70)
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
Reduction of long-term
obligations
|
(7)
|
|
(7)
|
Net tax withholdings
from share-based compensation
|
(28)
|
|
(14)
|
Dividends on common
shares
|
(131)
|
|
(142)
|
Purchase of treasury
shares
|
(500)
|
|
(1,000)
|
Net cash used in
financing activities
|
(666)
|
|
(1,163)
|
|
|
|
|
Effect of exchange
rates changes on cash and equivalents
|
(5)
|
|
(15)
|
|
|
|
|
Net decrease in cash
and equivalents
|
(189)
|
|
(1,225)
|
Cash and equivalents at
beginning of period
|
4,043
|
|
4,717
|
Cash and
equivalents at end of period
|
$
3,854
|
|
$
3,492
|
Schedule
4
|
Cardinal Health,
Inc. and Subsidiaries
Segment
Information
|
|
First
Quarter
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
2024
|
|
2023
|
|
(in
millions)
|
2024
|
|
2023
|
Pharmaceutical
|
|
|
|
|
Medical
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
Revenue
|
|
|
|
Amount
|
$
51,006
|
|
$
45,828
|
|
Amount
|
$
3,760
|
|
$
3,778
|
Growth rate
|
11 %
|
|
15 %
|
|
Growth rate
|
— %
|
|
(9) %
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
|
|
Segment
profit
|
|
|
|
Amount
|
$
507
|
|
$
431
|
|
Amount
|
$
71
|
|
$
(8)
|
Growth rate
|
18 %
|
|
6 %
|
|
Growth rate
|
N.M.
|
|
N.M.
|
Segment profit
margin
|
0.99 %
|
|
0.94 %
|
|
Segment profit
margin
|
1.89 %
|
|
(0.21) %
|
|
The sum of the
components and certain computations may reflect rounding
adjustments.
|
Schedule
5
|
Cardinal Health,
Inc. and Subsidiaries
GAAP / Non-GAAP
Reconciliation1
|
|
|
|
|
|
|
|
|
Earnings/
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
Operating
|
(Loss)
|
Provision
for/
|
|
Net
|
|
|
Diluted
|
|
|
Margin
|
|
SG&A2
|
Operating
|
Earnings
|
Before
|
(Benefit
from)
|
|
Earnings3
|
Effective
|
|
EPS3
|
|
Gross
|
Growth
|
|
Growth
|
Earnings/
|
Growth
|
Income
|
Income
|
Net
|
Growth
|
Tax
|
Diluted
|
Growth
|
(in millions, except
per
common share
amounts)
|
Margin
|
Rate
|
SG&A2
|
Rate
|
(Loss)
|
Rate
|
Taxes
|
Taxes
|
Earnings3
|
Rate
|
Rate
|
EPS3
|
Rate
|
First Quarter
2024
|
GAAP
|
$
1,768
|
10 %
|
$
1,197
|
— %
|
$
(14)
|
N.M.
|
$
(26)
|
$
(32)
|
$
5
|
N.M.
|
122.5 %
|
$
0.02
|
N.M.
|
Restructuring and
employee severance
|
—
|
|
—
|
|
25
|
|
25
|
7
|
18
|
|
|
0.07
|
|
Amortization and
other
acquisition-related costs
|
—
|
|
—
|
|
64
|
|
64
|
17
|
47
|
|
|
0.19
|
|
Impairments and
(gain)/loss on disposal
of assets, net
4
|
—
|
|
—
|
|
537
|
|
537
|
146
|
391
|
|
|
1.57
|
|
Litigation
(recoveries)/charges, net
|
—
|
|
—
|
|
(41)
|
|
(41)
|
(12)
|
(29)
|
|
|
(0.12)
|
|
Non-GAAP
|
$
1,768
|
10 %
|
$
1,197
|
1 %
|
$
571
|
35 %
|
$
560
|
$
126
|
$
433
|
32 %
|
22.5 %
|
$
1.73
|
44 %
|
|
First Quarter
2023
|
GAAP
|
$
1,614
|
(2) %
|
$
1,197
|
7 %
|
$ 137
|
(67) %
|
$ 110
|
$
(1)
|
$ 110
|
(59) %
|
(0.7) %
|
$
0.40
|
(57) %
|
Shareholder
cooperation
agreement
costs
|
—
|
|
(6)
|
|
6
|
|
6
|
2
|
4
|
|
|
0.01
|
|
Restructuring and
employee severance
|
—
|
|
—
|
|
29
|
|
29
|
7
|
22
|
|
|
0.08
|
|
Amortization and
other
acquisition-related
costs
|
—
|
|
—
|
|
71
|
|
71
|
18
|
53
|
|
|
0.20
|
|
Impairments and
(gain)/loss on disposal of
assets, net 4
|
—
|
|
—
|
|
153
|
|
153
|
34
|
119
|
|
|
0.44
|
|
Litigation
(recoveries)/charges, net
|
—
|
|
—
|
|
27
|
|
27
|
7
|
20
|
|
|
0.07
|
|
Non-GAAP
|
$
1,614
|
(2) %
|
$
1,191
|
7 %
|
$ 423
|
(20) %
|
$ 396
|
$
67
|
$ 328
|
(12) %
|
16.9 %
|
$
1.20
|
(7) %
|
|
1For more
information on these measures, refer to the Use of Non-GAAP
Measures and Definitions schedules.
|
|
2Distribution, selling, general and
administrative expenses.
|
|
3Attributable to Cardinal Health,
Inc.
|
|
4 For the
three months ended September 30, 2023 and 2022, impairments and
(gain)/loss on disposals of assets, net includes pre-tax goodwill
impairment charges of $581 million and $154 million, respectively,
related to the Medical segment. For fiscal 2024 and 2023, the net
tax benefits related to these impairment charges were $45 million
and $12 million, respectively, and were included in the annual
effective tax rate. As a result, the tax benefits for the three
months ended September 30, 2023 and 2022 increased approximately by
an incremental $99 million and $22 million, respectively, and will
increase the provision for income taxes during the remainder of
fiscal 2024 and 2023, respectively.
|
|
The sum of the
components and certain computations may reflect rounding
adjustments.
|
|
We generally apply
varying tax rates depending on the item's nature and tax
jurisdiction where it is incurred.
|
Schedule
6
|
Cardinal Health,
Inc. and Subsidiaries
GAAP / Non-GAAP
Reconciliation - GAAP Cash Flow to Non-GAAP Adjusted Free Cash
Flow
|
|
|
First
Quarter
|
(in
millions)
|
2024
|
2023
|
GAAP - Cash Flow
Categories
|
|
|
Net cash provided by
operating activities
|
$
545
|
$
23
|
Net cash used in
investing activities
|
(63)
|
(70)
|
Net cash used in
financing activities
|
(666)
|
(1,163)
|
Effect of exchange
rates changes on cash and equivalents
|
(5)
|
(15)
|
Net decrease in cash
and equivalents
|
$
(189)
|
$
(1,225)
|
|
|
|
Non-GAAP Adjusted
Free Cash Flow
|
|
|
Net cash provided by
operating activities
|
$
545
|
$
23
|
Additions to property
and equipment
|
(92)
|
(70)
|
Payments related to
matters included in litigation (recoveries)/charges, net
|
542
|
389
|
Non-GAAP Adjusted Free
Cash Flow
|
$
995
|
$
342
|
|
For more information on
these measures, refer to the Use of Non-GAAP Measures and
Definitions schedules.
|
Cardinal Health, Inc. and Subsidiaries
Use of Non-GAAP Measures
This earnings release contains financial measures that are not
calculated in accordance with U.S. generally accepted accounting
principles ("GAAP").
In addition to analyzing our business based on financial
information prepared in accordance with GAAP, we use these non-GAAP
financial measures internally to evaluate our performance, engage
in financial and operational planning, and determine incentive
compensation because we believe that these measures provide
additional perspective on and, in some circumstances are more
closely correlated to, the performance of our underlying, ongoing
business. We provide these non-GAAP financial measures to investors
as supplemental metrics to assist readers in assessing the effects
of items and events on our financial and operating results on a
year-over-year basis and in comparing our performance to that of
our competitors. However, the non-GAAP financial measures that we
use may be calculated differently from, and therefore may not be
comparable to, similarly titled measures used by other companies.
The non-GAAP financial measures disclosed by us should not be
considered a substitute for, or superior to, financial measures
calculated in accordance with GAAP, and the financial results
calculated in accordance with GAAP and reconciliations to those
financial statements set forth below should be carefully
evaluated.
Exclusions from Non-GAAP Financial Measures
Management believes it is useful to exclude the following items
from the non-GAAP measures presented in this report for its own and
for investors' assessment of the business for the reasons
identified below:
- LIFO charges and credits are excluded because the factors that
drive last-in first-out ("LIFO") inventory charges or credits, such
as pharmaceutical manufacturer price appreciation or deflation and
year-end inventory levels (which can be meaningfully influenced by
customer buying behavior immediately preceding our fiscal
year-end), are largely out of our control and cannot be accurately
predicted. The exclusion of LIFO charges and credits from non-GAAP
metrics facilitates comparison of our current financial results to
our historical financial results and to our peer group companies'
financial results. We did not recognize any LIFO charges or credits
during the periods presented.
- State opioid assessments related to prior fiscal years is the
portion of state assessments for prescription opioid medications
that were sold or distributed in periods prior to the period in
which the expense is incurred. This portion is excluded from
non-GAAP financial measures because it is retrospectively applied
to sales in prior fiscal years and inclusion would obscure analysis
of the current fiscal year results of our underlying, ongoing
business. Additionally, while states' laws may require us to make
payments on an ongoing basis, the portion of the assessment related
to sales in prior periods are contemplated to be one-time,
nonrecurring items. Income from state opioid assessments related to
prior fiscal years represents reversals of accruals due to changes
in estimates or when the underlying assessments were invalidated by
a Court or reimbursed by manufacturers.
- Shareholder cooperation agreement costs includes costs such as
legal, consulting and other expenses incurred in relation to the
agreement (the "Cooperation Agreement") entered into among Elliott
Associates, L.P., Elliott International, L.P. (together, "Elliott")
and Cardinal Health, including costs incurred to negotiate and
finalize the Cooperation Agreement and costs incurred by the
Business Review Committee of the Board of Directors, which was
formed under this Cooperation Agreement. We have excluded these
costs from our non-GAAP metrics because they do not occur in or
reflect the ordinary course of our ongoing business operations and
may obscure analysis of trends and financial performance.
- Restructuring and employee severance costs are excluded because
they are not part of the ongoing operations of our underlying
business and include, but are not limited to, costs related to
divestitures, closing and consolidating facilities, changing the
way we manufacture or distribute our products, moving manufacturing
of a product to another location, changes in production or business
process outsourcing or insourcing, employee severance and
realigning operations.
- Amortization and other acquisition-related costs, which include
transaction costs, integration costs, and changes in the fair value
of contingent consideration obligations, are excluded because they
are not part of the ongoing operations of our underlying business
and to facilitate comparison of our current financial results to
our historical financial results and to our peer group companies'
financial results. Additionally, costs for amortization of
acquisition-related intangible assets are non-cash amounts, which
are variable in amount and frequency and are significantly impacted
by the timing and size of acquisitions, so their exclusion
facilitates comparison of historical, current and forecasted
financial results. We also exclude other acquisition-related costs,
which are directly related to an acquisition but do not meet the
criteria to be recognized on the acquired entity's initial balance
sheet as part of the purchase price allocation. These costs are
also significantly impacted by the timing, complexity and size of
acquisitions.
- Impairments and gain or loss on disposal of assets, net are
excluded because they do not occur in or reflect the ordinary
course of our ongoing business operations and are inherently
unpredictable in timing and amount, and in the case of impairments,
are non-cash amounts, so their exclusion facilitates comparison of
historical, current and forecasted financial results.
- Litigation recoveries or charges, net are excluded because they
often relate to events that may have occurred in prior or multiple
periods, do not occur in or reflect the ordinary course of our
business and are inherently unpredictable in timing and
amount.
- Loss on early extinguishment of debt is excluded because it
does not typically occur in the normal course of business and may
obscure analysis of trends and financial performance. Additionally,
the amount and frequency of this type of charge is not consistent
and is significantly impacted by the timing and size of debt
extinguishment transactions.
The tax effect for each of the items listed above is determined
using the tax rate and other tax attributes applicable to the item
and the jurisdiction(s) in which the item is recorded. The gross,
tax and net impact of each item are presented with our GAAP to
non-GAAP reconciliations.
Non-GAAP adjusted free cash flow: We provide this non-GAAP
financial measure as a supplemental metric to assist readers in
assessing the effects of items and events on our cash flow on a
year-over-year basis and in comparing our performance to that of
our peer group companies. In calculating this non-GAAP metric,
certain items are excluded from net cash provided by operating
activities because they relate to significant and unusual or
non-recurring events and are inherently unpredictable in timing and
amount. We believe adjusted free cash flow is important to
management and useful to investors as a supplemental measure as it
indicates the cash flow available for working capital needs, debt
repayments, dividend payments, share repurchases, strategic
acquisitions, or other strategic uses of cash. A reconciliation of
our GAAP financial results to Non-GAAP adjusted free cash flow is
provided in Schedule 6 of the financial statement tables included
with this release.
Forward Looking Non-GAAP Measures
In this document, the Company presents certain forward-looking
non-GAAP metrics. The Company does not provide outlook on a GAAP
basis because the items that the Company excludes from GAAP to
calculate the comparable non-GAAP measure can be dependent on
future events that are less capable of being controlled or reliably
predicted by management and are not part of the Company's routine
operating activities. Additionally, management does not forecast
many of the excluded items for internal use and therefore cannot
create or rely on outlook done on a GAAP basis.
The occurrence, timing and amount of any of the items excluded
from GAAP to calculate non-GAAP could significantly impact the
Company's fiscal 2024 GAAP results. Over the past five fiscal
years, the excluded items have impacted the Company's EPS from
$0.75 to $18.06, which includes a $17.54 charge related to the opioid litigation we
recognized in fiscal 2020.
Definitions
Growth rate calculation: growth rates in this report are
determined by dividing the difference between current-period
results and prior-period results by prior-period results.
Interest and Other, net: other (income)/expense, net plus
interest expense, net.
Segment Profit: segment revenue minus (segment cost
of products sold and segment distribution, selling, general, and
administrative expenses).
Segment Profit margin: segment profit divided by segment
revenue.
Non-GAAP gross margin: gross margin, excluding LIFO
charges/(credits).
Non-GAAP distribution, selling, general and administrative
expenses or Non-GAAP SG&A: distribution, selling, general
and administrative expenses, excluding state opioid assessment
related to prior fiscal years and shareholder cooperation agreement
costs.
Non-GAAP operating earnings: operating
earnings/(loss) excluding (1) LIFO charges/(credits), (2) state
opioid assessment related to prior fiscal years, (3) shareholder
cooperation agreement costs, (4) restructuring and employee
severance, (5) amortization and other acquisition-related costs,
(6) impairments and (gain)/loss on disposal of assets, net, and (7)
litigation (recoveries)/charges, net.
Non-GAAP earnings before income taxes: earnings/(loss)
before income taxes excluding (1) LIFO charges/(credits), (2) state
opioid assessment related to prior fiscal years, (3) shareholder
cooperation agreement costs, (4) restructuring and employee
severance, (5) amortization and other acquisition-related costs,
(6) impairments and (gain)/loss on disposal of assets, net, (7)
litigation (recoveries)/charges, net and (8) loss on early
extinguishment of debt.
Non-GAAP net earnings attributable to Cardinal Health,
Inc.: net earnings attributable to Cardinal Health, Inc.
excluding (1) LIFO charges/(credits), (2) state opioid assessment
related to prior fiscal years, (3) shareholder cooperation
agreement costs, (4) restructuring and employee severance, (5)
amortization and other acquisition-related costs, (6) impairments
and (gain)/loss on disposal of assets, net, (7) litigation
(recoveries)/charges, net and (8) loss on early extinguishment of
debt.
Non-GAAP effective tax rate: provision for/(benefit from)
income taxes adjusted for the tax impacts of (1) LIFO
charges/(credits), (2) state opioid assessment related to prior
fiscal years, (3) shareholder cooperation agreement costs, (4)
restructuring and employee severance, (5) amortization and other
acquisition-related costs, (6) impairments and (gain)/loss on
disposal of assets, net, (7) litigation (recoveries)/charges, net
and (8) loss on early extinguishment of debt divided by (earnings
before income taxes adjusted for the eight items above).
Non-GAAP diluted earnings per share attributable to Cardinal
Health, Inc.: non-GAAP net earnings attributable to
Cardinal Health, Inc. divided by diluted weighted-average shares
outstanding.
Non-GAAP adjusted free cash flow: net cash provided by
operating activities less payments related to additions to property
and equipment, excluding settlement payments and receipts related
to matters included in litigation (recoveries)/charges, net, as
defined above, or other significant and unusual or non-recurring
cash payments or receipts.
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SOURCE Cardinal Health