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Home > News/Media > News releases
Cardinal Health Reports Record First-Quarter Earnings and Revenues
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DUBLIN, Ohio, Oct. 24 /PRNewswire/ -- Cardinal Health, Inc. (NYSE: CAH), a diversified provider of products and services supporting the health-care industry, today reported record revenues and earnings in its fiscal 2001 first quarter ended September 30, with strong performances in each of its business segments and rising returns across the company. Cardinal Health again exceeded its longstanding goal of growing earnings per share by 20 percent while continuing to invest for future growth.
Unless noted otherwise, the following discussion excludes special items.
First-Quarter Highlights
- Earnings per diluted share in the first quarter rose 23 percent to a record $0.65 from $0.53 a year ago. Net earnings rose to a first-quarter record $184 million from $152 million in the year-earlier period.
- Driving the earnings gains were strong operating revenues, which increased 20 percent to a record $7.0 billion in the first quarter from $5.8 billion a year ago.
- Robust revenue growth and improved productivity fueled first-quarter operating earnings, which rose to a record $310 million, up 18 percent over last year's $263 million. Even with higher corporate expenses associated with investment spending activities the company sustained a strong operating margin of 4.5 percent.
- Cardinal Health reported lower selling, general and administrative expenses as a percent of sales in each of its business segments and down 61 basis points overall to 6.10 percent.
- Return on committed capital rose 140 basis points to 28.5 percent and return on equity increased 120 basis points to 17.9 percent, both first-quarter records.
- Investing for future long-term growth continues to be a major theme in Cardinal Health's business strategy. During the first quarter, the company used its strong earnings and balance sheet to fund increased research and development, to build on its accomplishments in e-commerce, to launch new ventures such as Vistant Corporation and the New Health Exchange, to modernize its facilities and expand capacity, and to begin construction of a flagship pharmaceutical product development center in New Jersey. The company also completed four acquisitions that bring new technologies, new capacity and new market opportunities to Cardinal Health.
- Special items: Including merger-related charges totaling $11 million (after tax) in the first quarter (versus $30 million in the year-earlier period), net earnings increased 42 percent over the year-earlier quarter to $173 million, and earnings per diluted share rose 42 percent to $0.61.
"As we look ahead," Walter added, "our consistent performance gives us confidence in our ability to sustain the momentum we have created over the last decade. The strength of our balance sheet and earnings performance gives us a unique ability to invest, and so we reaffirm our 20 percent EPS growth objective."
Business-Segment Results
"Our management teams are organized around four industry-leading segments," said John C. Kane, vice chairman, president and chief operating officer. "These teams enjoy significant management depth, experience and tenure, and are producing strong growth individually while working together in innovative ways to deliver integrated solutions for customers. Our corporate sales team, for example, signed five new agreements with hospitals and health systems in the first quarter. And our companywide Internet initiative is on track to transact annualized revenues of more than $2 billion a year online."
"Productivity is up and expense ratios are down across the company," Kane added. "This management discipline, which is characteristic of all Cardinal Health companies, is an important element in producing rising returns. We continue to benefit from a strong capital commitment to modern facilities with advanced automation, employee training and development, and the use of information technology. These positive initiatives more than offset higher expenses, including the costs associated with rising oil prices and currency fluctuations."
Reflecting Cardinal Health's diversified sources of earnings, the pharmaceutical distribution and provider services segment accounted for 46 percent of the company's operating earnings in the first quarter, medical-surgical products and services made up 32 percent, pharmaceutical technologies and services represented 15 percent, and automation and information services contributed 7 percent.
Pharmaceutical Distribution and Provider Services
The Pharmaceutical Distribution and Provider Services segment posted record first-quarter operating earnings of $151 million, up 22 percent. These strong earnings were fueled by a 22-percent increase in operating revenues to $5.3 billion -- an all-time high. Return on committed capital rose 20 basis points to an industry-leading 27.9 percent and operating margin for this segment was 2.88 percent, consistent with the prior-year quarter.
Highlights
- This segment produced strong revenue growth in all customer categories, with especially robust growth -- up more than 40 percent -- with retail chain pharmacies. This growth was fueled by higher sales to existing customers as well as contract wins in the second half of last year. While chain revenues carry a lower gross margin, costs to serve these customers are also lower, which drives operating earnings and returns for this segment.
- During the first quarter, the company signed new and renewed multiyear contracts covering annual operating revenues of more than $300 million.
- Earnings growth was driven by strong vendor margins, excellent expense control (down 35 basis points to a record low 2.49 percent of revenues) and productivity improvements. These achievements helped sustain a strong operating margin and an improvement in return on committed capital.
Allegiance Corporation improved its returns on sales and capital with higher sales of its "Best Value Product" lines and continued improvements in productivity and manufacturing and administrative cost controls. The company's results in this quarter include results from Bergen Brunswig Medical Corporation (BBMC), which Allegiance acquired on August 16, 2000. This transaction had little impact on earnings in the first quarter, but is expected to be increasingly accretive over the next three years as the business is integrated into Allegiance and produces expected synergies and strategic benefits. The BBMC acquisition gives Allegiance an expanded presence serving physicians' offices and other sites of care outside traditional hospitals. This is a faster-growing sector that enjoys higher margins as well.
Allegiance increased its first-quarter operating earnings by 19 percent to $103 million, on revenues of $1.4 billion, a 14 percent rise over the prior-year period. As anticipated, BBMC's distribution-only revenues served to reduce the segment's gross margin by 50 basis points from the year-earlier period to 22.50 percent. Excluding BBMC's results, however, Allegiance's gross margin improved.
Improved productivity and continued cost controls (down 80 basis points to 15.06 percent) more than offset the gross margin decline in this segment and lifted the company's operating margin 30 basis points over prior year to 7.44 percent. Return on capital also improved significantly, rising 350 basis points over prior year to 31.5 percent.
Highlights
- In addition to the BBMC acquisition, Allegiance took other important steps to expand in new markets. The company completed the acquisition of Endolap Inc., a company that specializes in selling and telemarketing surgical instruments to hospitals and surgery centers outside major metropolitan markets. Allegiance also announced last week that it intends to acquire the Ni-Med sterile procedure kit business from Oak Medical Industries LLC. This product line gives Allegiance a new platform for manufacturing products needed to perform a range of common procedures such as changing a wound dressing, removing sutures or starting a patient on intravenous fluids.
- The company's Internet initiative is also progressing rapidly. Through cardinal.com, Allegiance's Internet sales are rising steadily, and the average sales per order is about 30 percent higher than sales through "traditional e-commerce," or electronic data interchange. Customers also are using cardinal.com's enhanced service features, which allow health-care providers to check the status of their orders, product pricing and availability. The number of Allegiance customers actively using the Web site has more than doubled since March.
As expected, this segment improved operating earnings by 11 percent to $50 million on revenue gains of 5 percent to $272 million. These revenue and earnings gains compare to an exceptionally strong performance in the first quarter of fiscal 2000, when earnings improved 55 percent and revenues rose 24 percent. Higher-margin pharmaceutical revenues continue to drive higher returns in this segment.
Return on sales rose sharply in the first quarter, up 97 basis points to 18.36 percent, driven by a more profitable sales mix and productivity improvements. Return on committed capital was 26.6 percent.
Highlights
- Reflecting a continued emphasis on growing its higher-margin pharmaceutical-related products and services, this segment helped launch two major drugs in the first quarter. The first was Eli Lilly's schizophrenia drug Zyprexa(R) (olanzapine) in Zydis(R) formulation. Cardinal Health's PCI Services business packages this product as well. The second was the launch of Kaletra(TM) (lopinavir/ritonavir), Abbott Laboratories' new protease inhibitor in softgel formulation.
- R.P. Scherer's drug-delivery technology received another new U.S. patent in the first quarter for its unique method of delivering water-insoluble drugs into the bloodstream. The technology opens a new avenue for pharmaceutical companies looking to improve absorption of hydrophobic drug compounds taken orally.
- Cardinal Health made substantial investments in this segment's future growth with the groundbreaking of the Cardinal Health Product Development Center in Franklin Township, New Jersey; the acquisition of rights to Advanced Polymer System's Microsponge(R) and Polytrap(R) technologies for the delivery of active ingredients to the skin; and the purchase of Rexam Healthcare Packaging's folding-carton manufacturing operations in Puerto Rico. The company also began to scale up for contract manufacturing in another plant in Puerto Rico that Cardinal is scheduled to acquire from the Alcon group in mid-December.
This segment posted sharply higher sales and earnings versus the prior year. Operating earnings increased 35 percent to $23 million, with revenues gaining 29 percent to $90 million. Strong demand for Pyxis Corporation's products -- both new products and existing automation systems -- in the acute-care market was the main driver of the performance.
Fueled by productivity improvements, operating margin in the segment rose sharply, up 113 basis points to 25.64 percent. Return on committed capital was 14.8 percent, up 120 basis points over the year-ago quarter.
Highlights
- New product sales, representing products introduced in the last 12 months, generated 17 percent of first-quarter revenues in this segment. MEDSTATION(R) SN, Pyxis' flagship product that addresses many medication safety issues, Pyxis Anesthesia System(TM) and the HelpMate(R) robot were the main drivers of new product sales. Sales of Pyxis' SUPPLYSTATION(R), which automates the management and dispensing of medical supplies, were very strong, rising more than 50 percent over the prior year. This product is supported by a specialty sales force created last year and enjoys cross-selling opportunities with Allegiance.
- In the first quarter, the company launched its SAMPLESTATION(R) system to help physicians and pharmaceutical companies manage drug samples; and received two new U.S. patents for its proprietary technologies.
Cardinal has scheduled an Internet "webcast" today to discuss its first-quarter financial performance and outlook. To access this discussion, please visit http://www.cardinal.com and follow directions to the company's Investor Center. The conference will begin at 11 a.m. Eastern Time today.
Cardinal Health, Inc. (http://www.cardinal.com) is a leading provider of products and services supporting the health-care industry. Cardinal companies develop, manufacture, package and market products for patient care; develop drug-delivery technologies; distribute pharmaceuticals, medical-surgical and laboratory supplies; and offer consulting and other services that improve quality and efficiency in health care. The company employs more than 40,000 people on five continents and produces annual revenues of more than $25 billion.
Except for historical information, all other information in this news release consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these uncertainties are described in Cardinal's Form 10-K, Form 8-K and Form 10-Q reports and exhibits to those reports, and include (but are not limited to) the costs and difficulties related to the integration of acquired businesses, the loss of one or more key customer or supplier relationships, changes in the distribution outsourcing pattern for health-care products and/or services, and the costs and other effects of governmental regulation and legal and administrative proceedings. Cardinal undertakes no obligation to update or revise any forward-looking statements.
CARDINAL HEALTH, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(in millions, except per share amounts)
FIRST QUARTER
September September
2000 1999 % Change
Revenue:
Operating Revenue $6,983.2 $5,829.3 20%
Bulk Deliveries to
Customer Warehouses 1,751.4 954.4 84%
Total Revenue 8,734.6 6,783.7 29%
Cost of Products Sold:
Operating Cost of
Products Sold 6,246.8 5,174.5 21%
Cost of Products
Sold - Bulk Deliveries 1,751.4 954.4 84%
Total Cost of Products Sold 7,998.2 6,128.9 30%
Gross Margin 736.4 654.8 12%
S, G & A Expenses 426.1 391.3 9%
Merger-Related Costs 17.3 36.8 (53)%
Operating Earnings 293.0 226.7 29%
Interest Expense and Other (27.0) (24.9) 8%
Earnings Before Income Taxes 266.0 201.8 32%
Provision for Income Taxes 92.8 79.8 16%
Net Earnings $173.2 $122.0 42%
Earnings Per Common Share:
Basic $0.62 $0.44 41%
Diluted $0.61 $0.43 42%
Weighted Average Number of
Shares Outstanding:
Basic 277.6 280.0 -
Diluted 284.4 286.2 -
The following table summarizes the impact of merger-related costs on net
earnings and diluted earnings per Common Share in the quarters in which
they were recorded:
Current Year Prior Year
Net Diluted Net Diluted
Earnings EPS Earnings EPS
Merger-Related Costs $(11.0) $(0.04) $(29.7) $(0.10)
CARDINAL HEALTH, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions)
September 30, June 30, September 30,
2000 2000 1999
ASSETS CURRENT ASSETS
Cash and Equivalents $491.1 $504.6 $185.4
Trade Receivables 1,904.2 1,677.0 1,750.9
Current Portion of Investment
in Sales-Type Leases 198.5 187.7 157.7
Inventories 4,468.4 3,865.3 3,568.0
Prepaid Expenses and Other 677.5 636.0 497.8
Total Current Assets 7,739.7 6,870.6 6,159.8
Property and Equipment - Net 1,654.3 1,626.9 1,594.3
Investment in Sales-Type Leases 579.7 578.6 464.7
Other Assets 1,250.9 1,188.8 1,218.5
TOTAL ASSETS $11,224.6 $10,264.9 $9,437.3
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable - Banks and
Current Portion of
Long-Term Obligations $21.1 $28.4 $23.3
Accounts Payable 3,429.4 3,030.9 2,799.7
Other Accrued Liabilities 1,058.8 1,202.2 834.4
Total Current Liabilities 4,509.3 4,261.5 3,657.4
Long-Term Obligations, Less
Current Portion 1,973.3 1,485.8 1,519.6
Deferred Taxes and Other
Liabilities 511.7 536.4 579.3
Total Shareholders' Equity 4,230.3 3,981.2 3,681.0
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $11,224.6 $10,264.9 $9,437.3
CARDINAL HEALTH, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in millions)
For the three months ended
September 30, September 30,
2000 1999
Cash Flows From Operating Activities:
Net earnings available for Common Shares $173.2 $122.0
Adjustments to reconcile net earnings to net cash
from operations:
Depreciation and amortization 64.0 61.7
Change in operating assets and
liabilities, net of
effects from acquisitions:
Increase in trade receivables (138.8) (148.2)
Increase in inventories (504.3) (627.9)
Increase in net investment in
sales-type leases (11.9) (15.5)
Increase in accounts payable 341.9 442.6
Other operating items - net (189.1) (13.3)
Net cash used in operating activities (265.0) (178.6)
Cash Flows From Investing Activities:
Net acquisition of subsidiaries,
net of cash acquired (239.9) (48.3)
Proceeds from sale of property and equipment 1.8 2.6
Additions to property and equipment (47.8) (81.6)
Other - 48.4
Net cash used in investing activities (285.9) (78.9)
Cash Flows From Financing Activities:
Net short-term borrowing activity 488.0 356.0
Net change in long-term obligations (8.4) (79.0)
Common Shares issued under employee benefit plans 66.3 9.9
Other (8.5) (29.4)
Net cash provided by financing activities 537.4 257.5
Net Decrease in Cash and Equivalents (13.5) -
Cash and Equivalents at Beginning of Period 504.6 185.4
Cash and Equivalents at End of Period $491.1 $185.4
CARDINAL HEALTH, INC. - FIRST QUARTER FY 2001 BUSINESS ANALYSIS
($ millions)
PHARMACEUTICAL DISTRIBUTION AND PROVIDER SERVICES
2001 2000 Comment
* REVENUE
- Amount $5,252 $4,290 RECORD
- Growth Rate 22% 20% All internal
- Mix 75% 74%
* RATIO TO REVENUE
- Gross Margin 5.37% 5.74% Customer mix
- Expenses 2.49% 2.84% RECORD LOW
- Operating Earnings 2.88% 2.90%
* OPERATING EARNINGS
- Growth Rate 22% 33%
- Mix 46% 46%
* PRODUCTIVITY
- Margin Per Expense Dollar* $2.15 $2.02 6% improvement
* ASSET MANAGEMENT
- Average Committed Capital $2,166 $1,786
- Return On Committed Capital 27.9% 27.7% RECORD
- Operating Cash Flow ($261) ($196)
- Capital Expenditures
Investment $12 $24
MEDICAL-SURGICAL PRODUCTS AND SERVICES
2001 2000 Comment
* REVENUE
- Amount $1,379 $1,213 RECORD
- Growth Rate 14% 5% BBMC acquisition
- Mix 20% 20%
* RATIO TO REVENUE
- Gross Margin 22.50% 23.00% BBMC impact
- Expenses 15.06% 15.86% Expense focus
- Operating Earnings 7.44% 7.14% Q1 RECORD
* OPERATING EARNINGS
- Growth Rate 19% 22%
- Mix 32% 32%
* PRODUCTIVITY
- Margin Per Expense Dollar* $1.49 $1.45
* ASSET MANAGEMENT
- Average Committed Capital $1,302 $1,236 BBMC impact
- Return On Committed Capital 31.5% 28.0% Q1 RECORD
- Operating Cash Flow $9 $48
- Capital Expenditures Investment $11 $17
PHARMACEUTICAL TECHNOLOGIES AND SERVICES
2001 2000 Comment
* REVENUE
- Amount $272 $259 Q1 RECORD
- Growth Rate 5% 24%
- Mix 4% 4%
* RATIO TO REVENUE
- Gross Margin 32.44% 31.80% Product mix
- Expenses 14.08% 14.41% Operating efficiencies
- Operating Earnings 18.36% 17.39% Q1 RECORD
* OPERATING EARNINGS
- Growth Rate 11% 55%
- Mix 15% 16%
* PRODUCTIVITY
- Margin Per Expense Dollar* $2.30 $2.21
* ASSET MANAGEMENT
- Average Committed Capital $750 $644 Strategic investment
- Return On Committed Capital 26.6% 28.0%
- Operating Cash Flow $9 $10
- Capital Expenditures Investment $24 $35
AUTOMATION AND INFORMATION SERVICES
2001 2000 Comment
* REVENUE
- Amount $90 $70 Q1 RECORD
- Growth Rate 29% (22)%
- Mix 1% 2%
* RATIO TO REVENUE
- Gross Margin 64.32% 68.79% Product mix
- Expenses 38.68% 44.28% Strong leverage
- Operating Earnings 25.64% 24.51%
* OPERATING EARNINGS
- Growth Rate 35% (39)%
- Mix 7% 6%
* PRODUCTIVITY
- Margin Per Expense Dollar* $1.66 $1.55 7% improvement
* ASSET MANAGEMENT
- Average Committed Capital $623 $503 Lease investment
- Return On Committed Capital 14.8% 13.6%
- Operating Cash Flow ($22) ($41)
- Capital Expenditures
Investment $1 $6
- Revenue and all ratios to revenue exclude bulk deliveries to customer warehouses
- Corporate costs are fully allocated to businesses except for special charges and eliminations
- Margin Per Expense Dollar = Ratio of gross margin to expenses
($ millions)
TOTAL
2001 2000 Comment
* REVENUE
- Amount $6,983 $5,829
- Growth Rate 20% 16%
* RATIO TO REVENUE
- Gross Margin 10.55% 11.23%
- Expenses 6.10% 6.71% 2001 2000
- Special Charges 0.25% 0.63%
- Operating Earnings 4.20% 3.89% 4.45% 4.52%
* OPERATING EARNINGS
- Growth Rate 29% 24% 18% 21%
* NET EARNINGS
- Ratio to Revenue 2.48% 2.09% 2.64% 2.60%
- Growth Rate 42% 29% 21% 24%
* PRODUCTIVITY
- Margin Per Expense
Dollar* $1.73 $1.67
* ASSET MANAGEMENT
- Average Committed
Capital $4,360 $3,888
- Return On Committed
Capital 26.9% 23.3% 28.5% 27.1%
- Operating Cash Flow ($265) ($179)
- Capital Expenditures
Investment $48 $82
- Revenue and all ratios to revenue exclude bulk deliveries to customer warehouses
- Margin Per Expense Dollar = Ratio of gross margin to expenses
ASSET MANAGEMENT ANALYSIS
($ millions)
2001 2000 COMMENT
* RECEIVABLE DAYS 21 23 Q1 RECORD
* INVENTORY TURNS 6.3 6.6
* CASH $491 $185
* DEBT $1,994 $1,543
* EQUITY $4,230 $3,681
* NET DEBT/TOTAL CAPITAL 26% 27% Q1 RECORD
* TANGIBLE NET WORTH $3,185 $2,711
* RETURN ON EQUITY 16.9% 13.5%
EXCLUDING SPECIAL CHARGES 17.9% 16.7% Q1 RECORD
* TAX RATE 35% 40%
EXCLUDING SPECIAL CHARGES 35% 37% International
impact,
consistent
with FY 2000 Q4
SOURCE Cardinal Health, Inc. CONTACT: Investors, Stephen T. Fischbach, 614-757-7067, or Media, Geoffrey D. Fenton, 614-757-7871, both of Cardinal Health/
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