Cardinal Health, Inc. — Form 10-Q Summary
Reporting period: Fiscal 2023 third quarter and first nine months ended March 31, 2023; comparisons are with the same periods in fiscal 2022. The filing date was May 4, 2023. The requested “2022 Q3” metadata does not match the filing’s stated period.
Business and results
Cardinal Health is a healthcare services and products company operating through Pharmaceutical and Medical segments.
| Metric | Q3 FY2023 | Change vs. Q3 FY2022 | Nine months FY2023 | Change vs. prior year |
|---|---|---|---|---|
| Revenue | $50.5 billion | +13% | $151.6 billion | +13% |
| GAAP operating earnings/(loss) | $572 million | Prior-year loss of $97 million | $590 million | Prior-year loss of $632 million |
| Non-GAAP operating earnings | $606 million | +11% | $1.497 billion | -3% |
| GAAP diluted EPS | $1.34 | Prior-year loss of $5.05 | $1.23 | Prior-year loss of $3.82 |
| Non-GAAP diluted EPS | $1.74 | +20% | $4.24 | +6% |
| Gross margin | $1.785 billion | +6% | $5.062 billion | +2% |
Quarterly GAAP net earnings attributable to Cardinal Health were $345 million, versus a $1.391 billion loss a year earlier; nine-month results were $325 million versus a $1.071 billion loss. Prior-year comparisons were heavily affected by Medical goodwill impairment charges. FY2023 nine-month results included $863 million of pre-tax impairment charges; no additional Medical Unit goodwill impairment was recorded in the March quarter.
Pharmaceutical revenue rose 14% in the quarter and 15% year to date, supported by branded and specialty drug sales and generics performance. Pharmaceutical segment profit increased 23% and 13%, respectively. Medical revenue fell 5% and 7%; Medical segment profit declined 66% and 88%, respectively, reflecting lower volumes and unfavorable product mix, with year-to-date results also affected by inflation.
Cash, debt and liquidity
- Cash and equivalents were $4.0 billion at March 31, 2023, down from $4.7 billion at June 30, 2022.
- Nine-month operating cash flow was $1.981 billion, compared with $130 million in the prior-year period. Working-capital movements included increases in receivables and inventory, offset by higher accounts payable.
- Nine-month cash uses included $1.5 billion for share repurchases, $571 million for debt repayments, $399 million for dividends and $264 million for capital expenditures.
- Total long-term obligations, including current debt and other short-term borrowings, were $4.7 billion, down from $5.3 billion. The company repaid $550 million of notes at maturity in March.
- No amounts were outstanding under the $2.0 billion commercial paper/revolving credit facilities or the $1.0 billion receivables facility at quarter-end. The company reported covenant compliance and stated it believes available resources and projected operating cash flow are adequate for anticipated needs.
- Shareholders’ deficit was $2.218 billion at March 31, 2023, compared with $706 million at June 30, 2022.
Changes, outlook and material risks
- Gross margin dollars increased, but gross margin rate declined 21 basis points in the quarter and 34 basis points year to date, mainly due to product mix, including increased branded pharmaceutical distribution sales.
- Management said Medical inflation and supply-chain pressures were slightly favorable year over year in the quarter after mitigation actions, but remained unfavorable year to date. It expects these effects to continue in fiscal 2023 and beyond, though to a lesser extent than in prior periods; costs and mitigation timing remain uncertain.
- PPE-related volume and price declines pressured Medical revenue. PPE made a positive profit contribution, primarily because of lower costs, but demand and pricing remain uncertain.
- The Medical Unit’s estimated fair value exceeded carrying value by approximately 4% at March 31. Management warned adverse changes in assumptions or business conditions could lead to future impairment; its sensitivity example indicated a hypothetical 0.5 percentage-point increase in the discount rate or 1.7 percentage-point decrease in terminal growth would put carrying value about 1% above fair value.
- The company had accrued $5.85 billion for opioid litigation at quarter-end and expects most remaining national-settlement payments over the next 17 years. It cannot estimate a range of reasonably possible additional losses. Separate investigations and private-party lawsuits continue.
- In April 2023, Cardinal Health agreed, subject to conditions, to a $275 million settlement of approximately 4,376 IVC filter claims, with payments expected between May and September 2023. It also had $385 million accrued for IVC filter losses and defense costs at March 31.
- A shareholder securities-litigation settlement for $109 million was agreed in principle and was subject to final court approval; the filing says insurers would fund it if approved. A Board Business Review Committee, formed under a cooperation agreement with Elliott, was extended through July 15, 2024; resulting actions could affect future operations and financial results.
- No specific full-year earnings guidance is provided in the supplied filing text. Management’s statements about trends and resources are forward-looking and subject to risks.
Important facts for investors to verify
- Reconcile GAAP and non-GAAP earnings, especially the effects of goodwill impairment charges and litigation recoveries; non-GAAP measures are not substitutes for GAAP results.
- Monitor Medical segment volumes, product mix, inflation and supply-chain costs, and the assumptions supporting goodwill valuation.
- Track cash generation and working capital alongside share repurchases, dividends, debt repayments and the remaining $1.2 billion authorization under the repurchase program.
- Review opioid settlement obligations and developments in private lawsuits, DOJ investigations, IVC filter claims and the pending shareholder securities settlement.