Cardinal Health Management Discusses Q4 2012 Results - Earnings Call Transcript

Cardinal Health (CAH)

Q4 2012 Earnings Call

August 02, 2012 8:00 am ET


Sally Curley

George S. Barrett - Chairman, Chief Executive Officer and Chairman of Executive Committee

Jeffrey W. Henderson - Chief Financial Officer


Glen J. Santangelo - Crédit Suisse AG, Research Division

John Kreger - William Blair & Company L.L.C., Research Division

Ricky Goldwasser - Morgan Stanley, Research Division

Lisa C. Gill - JP Morgan Chase & Co, Research Division

Charles Rhyee - Cowen and Company, LLC, Research Division

George Hill - Citigroup Inc, Research Division

Thomas Gallucci - Lazard Capital Markets LLC, Research Division

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Ross Muken - ISI Group Inc., Research Division

Robert P. Jones - Goldman Sachs Group Inc., Research Division

Steven Valiquette - UBS Investment Bank, Research Division

David Larsen - Leerink Swann LLC, Research Division

Lawrence C. Marsh - Barclays Capital, Research Division



Good day, ladies and gentlemen, and welcome to the Cardinal Health, Inc. Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions]

As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Sally Curley. Ma'am, you may begin.

Sally Curley

Thank you, and welcome to Cardinal Health's fourth quarter fiscal 2012 and our FY '13 guidance conference call.

Today, we will be making forward-looking statements, and matters addressed in these statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to the SEC filings and the forward-looking statements slide at the beginning of the presentation found on the Investor page of our website for a description of those risks and uncertainties. In addition, we will reference non-GAAP financial measures. Information about these measures is included at the end of the slides.

Now I'd like to turn the call over to Mr. George Barrett. George?

George S. Barrett

Thanks, Sally. Good morning, and thanks to all of you for joining us today for our fiscal 2012 fourth quarter and year-end call.

2012 was a year of considerable accomplishments. We achieved virtually all of our financial goals, including revenues, operating profit, earnings per share, margin rate growth and capital efficiency. We made excellent progress in most of our strategic priorities and continued to strengthen our organization through a focus on talent development and supplemented through the addition of some world-class talent. It was also a year which brought us challenges. But through this, we continue to grow and to learn, a necessary ingredient for any organization with bold, long-term aspirations.

So what we've done in fiscal 2012 continued to move us down the path we started on 3 years ago when we spun off CareFusion and set in motion a plan to transform Cardinal Health. Today, we serve a total of over 25,000 retail pharmacies, including chain, food combo and over 7,500 independents, a group that 3 years ago numbered around 4,000.

We possess a significantly broader network of Positron Emission Tomography facilities, well positioned to grow and benefit from the exciting developments in neuroscience and oncology. Today, our specialty solutions group serves more than 1,700 oncologists through almost 400 oncology practices. We serve in excess of 150 urology practices, 70% of the nation's largest practices, all customers with which we had virtually no presence just a few years ago. We have grown substantially in our ability to serve health care customers in subacute settings and to follow patients through the continuum of care.

Our preferred medical product programs offer significant value for our customers, and this area is growing at a rate significantly in excess of market rates, contributing disproportionately to our margin. We have built an IT platform for our Medical segment, which should allow us to marshal the full capabilities of Cardinal Health portfolio and to create value for our customers, replacing a patchwork of systems, which, in the past, made it difficult to work across business lines. Today, we have a business in China, which is positioned to serve this enormous population and will act as a platform for growth for a number of business lines and as a platform for innovation.

These operational and strategic accomplishments have helped us achieve important financial goals. You may recall that during our December 2010 Investor Day, we laid out some long-term financial objectives. These included achievement of a compound annual non-GAAP EPS growth rate and operational TSR of at least 10% and 11%, respectively. Operational TSR being defined as EPS growth plus dividend yield. We have tracked well ahead of those trajectories in 2011 and 2012 and remain committed to those long-term goals.

Let me offer some observations about the quarter just completed, then I'll provide some color on our expectations for fiscal year 2013. We had a strong fourth quarter. Though our revenues were essentially flat, largely an outcome of brand-to-generic conversions, our non-GAAP EPS of $0.73 was up 22% versus last year's fourth quarter.

Our Pharma segment continued its strong performance, with 15% profit growth, as margins continued to expand. Performance under our branded agreement, new customer wins and strong contributions from our base of independent pharmacy customers contributed to profit growth.

Our pharma distribution business held its 21st Annual Retail Business Conference just a few weeks ago. We enjoyed the largest turnout to date, with nearly 7,500 people in attendance representing 4,100 pharmacies. The event provides peer-to-peer networking, buying opportunities, continuing education sessions and programs and technologies to help pharmacists improve patient care, efficiency and profitability.

And lastly, we closed on our acquisition of the regional wholesaler, Dik Drug, giving us the opportunity to serve another 500 independent pharmacies. This acquisition is consistent with our strategy to both build out a retail independent customer base and grow our generics business.

Our Specialty Solutions group posted another quarter of robust revenue growth. The business continues to build important relationships with both providers and payers by offering innovative and value-enhancing programs, as evidenced by increased revenues from both new and existing customers.

Read the rest of this transcript for free on