Cardinal Health Sees FY10 Pressures, Then Momentum
June 02 2009 - 12:31PM
Dow Jones News
Cardinal Health Inc. (CAH) expects business investments and
other headwinds to hit earnings in its core business in fiscal
2010, with the drug distributor regaining momentum starting the
following year, executives said at the drug distributor's investor
day Tuesday.
Earnings for the "new" Cardinal Health - the company as it will
be after the upcoming spinoff of its CareFusion clinical and
medical products business - will be down some 15% from a FY09 base
of $2.20 a share to $2.25 a share, on a pro-forma non-GAAP basis,
executives said. Cardinal's fiscal 2010 starts July 1 and the
company expects to provide more specific guidance in August.
Cardinal shares recently traded down about 11%, or $4.07, to
$32.49.
JPMorgan analyst Lisa Gill said she believes Cardinal management
was being conservative in its guidance on the distribution segment
and that the drop in shares appears to be an overreaction. She also
said the FY09 year-to-date combined pro forma EPS figures that the
company provided for Cardinal and CareFusion are lower than
investor expectations.
Operating earnings per share at new Cardinal Health should grow
by a high- single-digit percentage rate after fiscal 2010 as
pressures subside, even though the company expects $100 million
overall in negative synergies from the spinoff, to be shared
between the two entities, Cardinal executives said during the
webcast event. Those pressures include continued business
investments to strengthen the business's "core," generic-launch
cycles and effects of the economy.
Cardinal, in its fiscal 2010 outlook, also took into
consideration a contract renewal with its largest customer, CVS
Caremark Corp (CVS). George Barrett, who will be Chairman and CEO
of Cardinal Health after the spinoff, told investors the company's
discussions with CVS Caremark are ongoing and positive.
Supply contracts that Cardinal and rival wholesaler McKesson
Corp. (MCK) have with CVS Caremark - the pharmacy giant formed from
the 2007 merger of a drug-store chain and a pharmacy benefits
manager - are scheduled to expire this year, and Wall Street
anticipates terms of the new pacts will be less favorable to the
wholesalers.
Cardinal Health aims to complete the spinoff this summer, and
Cardinal and CareFusion will start to function as separate
businesses on July 1 in anticipation of the transaction. Cardinal's
fiscal 2010 forecast assumes the spinoff happens close to the start
of the fiscal year.
Executives said they aim to reposition and streamline Cardinal's
business portfolio and announced plans to divest two non-core
business, a U.K. pharmaceutical products business, Martindale, and
its SpecialtyScripts pharmacy; the company said it will remain
committed to specialty distribution. They also plan to reposition
the Medicine Shoppe International retail pharmacy franchise
business.
Cardinal plans to expand its private-label business and explore
growth opportunities in clinically oriented products and services,
"information-enabled" strategies and targeted international
expansion, company executives said.
Cardinal on Tuesday also increased its quarterly dividend by
25%, to 70 cents a share on an annualized basis.
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285;
dinah.brin@dowjones.com