Cardinal Health posts Q4 loss as Cordis struggles
- Medical and drugs distributor Cardinal Health on Monday reported a net loss in the fourth quarter, hurt by a goodwill impairment charge of $1.4 billion stemming from inventory write-offs in its Cordis medical device business.
- The net loss of $1.2 billion, or $3.76 a share, in the quarter compared with a profit of $274 million, or 86 cents, a year ago. Fourth-quarter revenue rose 7% to $35 billion.
- Earnings excluding special items of $1.01 a share exceeded the average analyst estimate of 93 cents as compiled by Reuters.
Even though adjusted earnings beat Wall Street’s consensus forecast, Leerink Research analyst David Larsen noted results were inflated by a sizable tax benefit and otherwise well behind his expectations. “Overall, results are disappointing,” Larsen said in a research note.
The company acknowledged its struggles.
"Fiscal '18 was a challenging year, but we are making significant progress by taking decisive actions to drive growth, reduce costs and enhance profitability," said Cardinal CEO Mike Kaufmann.
Cardinal is targeting $100 million in cost reductions in fiscal 2019 and has launched other initiatives to generate and additional $100 million in savings by fiscal 2020. "I am not wed to the past. Everything is on the table when it comes to driving long-term growth, delivering shareholder returns and serving our customers," Kaufmann told analysts on a conference call.
In terms of "optimizing the portfolio," he gave two examples: the company in February divested its China distribution business and in June sold a majority stake in post-acute care benefits manager naviHealth to a private equity firm.
He also said workforce reductions were mostly complete and that any M&A in the near the near term will be "limited and focused."
Expectations for Cardinal were tempered last quarter when the company missed analysts’ forecasts due to operational problems in its Cordis unit, prompting a stock sell-off from which the shares have yet to recover. Cardinal bought the Cordis business, which makes stents and other devices used in cardiovascular procedures, from Johnson & Johnson for about $2 billion in 2015.
Cardinal said its medical division saw a 17% slide in fourth-quarter profit, to $114 million, due to the negative performance of Cardinal Health branded products, primarily Cordis, and compensation-related items. Revenue for the unit increased 14% to $4 billion, boosted by the acquisition of the Patient Recovery business.
Cardinal said it is working to turn around the Cordis business under a new management team and is maintaining sales momentum. "The team is working with a great sense of urgency to execute our turnaround plan," Kaufmann told analysts. He said Cordis is expected to return to profitable growth by the end of fiscal 2019.
In the pharmaceutical unit, profit fell 18% to $416 million, primarily due to weakness in the generic drug business. Low generic drug prices across the industry are also pressuring Cardinal competitors McKesson and AmerisourceBergen. Pharmaceutical revenue in the quarter rose 6% to $31 billion, helped by sales growth from Specialty Distribution as well as Pharmaceutical customers.
The company said it is negotiating fee structures with branded drug manufacturers and evaluating customer contracting models.
Cardinal Health gave its initial earnings forecast for fiscal year 2019, predicting adjusted earnings from continuing operations in a range of $4.90 to $5.15 a share.
Editor's note: This story has been updated with details from the investor call.