Rising Cordis costs drag on Cardinal Health profits
The Cardinal Health unit that features its medical device business has reported a 2% uptick in sales as a result of demand from new and existing customers.
Profits at Cardinal's medical segment rose 5% to $135 million but device business Cordis was a weak spot, with the company singling out increased costs at the unit as a headwind.
The results come weeks after Fitch Ratings downgraded Cardinal's credit risk amid concerns about the debt the company took on to support its expansion into medical devices.
Cardinal's integration of Cordis has been dogged by multiple problems. Earlier in 2018, Cardinal revealed poor visibility into its inventory had led to a large write-off and was creating difficulties for production plants. The revelations, and accompanying underwhelming financial results, wiped 19% off Cardinal's share price. In the last quarter, the inventory write-offs resulted in a $1.4 billion charge.
Mike Kaufmann, who took over as CEO in January, made the stabilization of the Cordis business one of his six priorities for fiscal 2019. The first quarter results provide an early look at how that effort is faring.
Cordis and Cardinal still have a long way to go but the first quarter results are free from sort of bad news that shook the company earlier in 2018. The impact of rising costs at Cordis on the profitability of the medical segment was the only reference to the business in Cardinal's release and presentation.
Cardinal has also added a reference to risks associated with its ability to cut costs at its Cordis business to its cautions concerning forward-looking statements. The cautions accompanying Cardinal's fourth quarter results made no mention of the costs of the Cordis business.
The absence of dramatic news about Cordis helped Cardinal's overall business to post solid results. Supported by the contribution of the patient recovery business acquired from Medtronic last year, Cardinal's earnings per share and total revenues come in above analyst estimates at $1.29 and $35.2 billion, respectively. The performance enabled Cardinal reaffirm its outlook for 2019, and commit to a $1 billion stock buyback.
Cardinal published the results the day after its annual shareholder meeting. Whereas Cardinal's 2017 meeting was subject to protests related to the company's role in the opioid crisis, the latest event passed without incident, according to The Columbus Dispatch. Shareholders approved all the board nominees and voted down two stockholder proposals.
Shares in Cardinal rose 9% in premarket trading. The stock has fallen more than 10% this year.
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