Exhibit 99.1
FOR IMMEDIATE RELEASE
Media: | Ellen Barry | Investors: | Lisa Capodici | |
(614) 553-3858 | (614) 757-5035 | |||
ellen.barry@cardinalhealth.com | lisa.capodici@cardinalhealth.com | |||
Cardinal Health Reports Q4 and Fiscal 2017 Results, Provides 2018 Guidance
• | Fourth-quarter revenue increases 5 percent to $33 billion; full-year revenue increases 7 percent to a record $130 billion |
• | Fourth-quarter GAAP1 diluted earnings per share decreases 16 percent to $0.86, and non-GAAP diluted earnings per share increases 15 percent to $1.31 |
• | Full-year GAAP diluted earnings per share decreases 7 percent to $4.03, and non-GAAP diluted earnings per share increases 3 percent to $5.40 |
DUBLIN, Ohio, August 2, 2017 - Cardinal Health (NYSE: CAH) today reported fourth-quarter fiscal year 2017 revenues of $33 billion, an increase of 5 percent from the fourth quarter last year, and fiscal 2017 revenues of $130 billion, an increase of 7 percent from the same period last year. For the quarter, GAAP diluted earnings per share (EPS) decreased 16 percent to $0.86, while non-GAAP diluted EPS increased 15 percent to $1.31. GAAP diluted EPS for fiscal year 2017 decreased 7 percent to $4.03, and non-GAAP diluted EPS increased 3 percent to $5.40.
"While these last 12 months were clearly a dynamic period in healthcare and certainly presented challenges for our fiscal 17, it was also a year in which we took important actions to strengthen our market positioning, grow our scale, add new, long-term drivers of growth, and improve the overall balance of our integrated portfolio,” said George Barrett, chairman and CEO of Cardinal Health. "In spite of the challenges of the year, our team was able to deliver growth in non-GAAP EPS.”
Q4 and year-end FY17 summary
Q4 FY17 | Q4 FY16 | Y/Y | FY17 | FY16 | Y/Y | ||||||||||||||
Revenue | $ | 33.0 | billion | $ | 31.4 | billion | 5% | $ | 130.0 | billion | $ | 121.5 | billion | 7% | |||||
Operating earnings | $ | 439 | million | $ | 620 | million | (29)% | $ | 2,120 | million | $ | 2,459 | million | (14)% | |||||
Non-GAAP operating earnings | $ | 640 | million | $ | 643 | million | (1)% | $ | 2,769 | million | $ | 2,895 | million | (4)% | |||||
Net earnings attributable to Cardinal Health, Inc. | $ | 274 | million | $ | 333 | million | (18)% | $ | 1,288 | million | $ | 1,427 | million | (10)% | |||||
Non-GAAP net earnings attributable to Cardinal Health, Inc. | $ | 416 | million | $ | 372 | million | 12% | $ | 1,727 | million | $ | 1,732 | million | — | |||||
Diluted EPS attributable to Cardinal Health, Inc. | $ | 0.86 | $ | 1.02 | (16)% | $ | 4.03 | $ | 4.32 | (7)% | |||||||||
Non-GAAP diluted EPS attributable to Cardinal Health, Inc. | $ | 1.31 | $ | 1.14 | 15% | $ | 5.40 | $ | 5.24 | 3% | |||||||||
Diluted EPS for the quarter and year benefitted from a lower effective tax rate and fewer weighted average shares outstanding than the prior-year periods.
Segment results
Pharmaceutical segment
Fourth-quarter revenue for the Pharmaceutical segment increased 5 percent to $29.6 billion due to growth from Pharmaceutical Distribution customers and strong performance from the Specialty Solutions business. Segment profit decreased 7 percent to $505 million. This decrease was driven by generic pharmaceutical pricing and the company’s ongoing investment in its Pharmaceutical IT platform. These were partially offset by solid performance from Red Oak Sourcing.
Full-year revenue for the Pharmaceutical segment increased 7 percent to $116.5 billion due to growth from Pharmaceutical Distribution customers and strong performance from the Specialty Solutions business. Segment profit for the year decreased 12 percent to $2.2 billion driven by generic pharmaceutical pricing, and to a lesser extent, the impact of the loss of Safeway and reduced levels of branded manufacturer price appreciation. These were partially offset by solid performance from Red Oak Sourcing.
Cardinal Health
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Q4 FY17 | Q4 FY16 | Y/Y | FY17 | FY16 | Y/Y | ||||||||||||||
Revenue | $ | 29.6 | billion | $ | 28.2 | billion | 5% | $ | 116.5 | billion | $ | 109.1 | billion | 7% | |||||
Segment profit | $ | 505 | million | $ | 542 | million | (7)% | $ | 2.2 | billion | $ | 2.5 | billion | (12)% | |||||
Medical segment
Revenue for the Medical segment increased 6 percent to $3.4 billion driven by contributions from new and existing customers. Segment profit increased 13 percent to $138 million reflecting solid performance from post-acute solutions, favorability from compensation-related items and growth in distribution services. These were partially offset by performance in Cardinal Health Branded products (including Cordis).
Full-year revenue for the Medical segment increased 9 percent to $13.5 billion due to contributions from new and existing customers and, to a lesser extent, acquisitions. Segment profit increased 25 percent to $572 million due to the contribution from post-acute solutions, Cardinal Health Branded products (including Cordis), favorability from compensation-related items and growth in distribution services.
Q4 FY17 | Q4 FY16 | Y/Y | FY17 | FY16 | Y/Y | ||||||||||||||
Revenue | $ | 3.4 | billion | $ | 3.2 | billion | 6% | $ | 13.5 | billion | $ | 12.4 | billion | 9% | |||||
Segment profit | $ | 138 | million | $ | 122 | million | 13% | $ | 572 | million | $ | 457 | million | 25% | |||||
Outlook
The company does not provide GAAP EPS outlook because it is unable to reliably forecast most of the items that are excluded from GAAP EPS to calculate non-GAAP EPS. These items could cause EPS to differ materially from non-GAAP EPS. See "Use of Non-GAAP Measures" following the attached schedules for additional explanation.
The company's fiscal year 2018 guidance range for non-GAAP diluted EPS from continuing operations is $4.85 to $5.10. This guidance now reflects incremental discrete items of $0.16 per share, identified since the early outlook announcement provided in April.
In a further comment on the year ahead, Barrett said: "As we indicated in our April early outlook, we expected our fiscal 2018 non-GAAP EPS to be down. Our perspective and operating expectations have not meaningfully changed. We are, however, taking some discrete actions, which will affect our EPS in FY18 and will improve our trajectory for 2019 and beyond. And we are targeting fiscal 2019 non-GAAP EPS of at least $5.60."
FY17 and recent highlights
• | Completed the acquisition of Medtronic’s Patient Care, Deep Vein Thrombosis and Nutritional Insufficiency business for $6.1 billion on July 29, 2017 |
• | Acquired rights to Navidea’s Lymphoseek, a radiopharmaceutical diagnostic imaging agent |
• | Convened the 27th annual Retail Business Conference, which provided one of the industry's largest lineups of continuing education courses, buying opportunities, and access to Cardinal Health solutions that help independent pharmacists diversify and improve their business |
• | Through the Cordis business, became the exclusive U.S. distributor of the Tryton Side Branch Stent, the first dedicated bifurcation device to receive regulatory approval in the U.S. to treat significant coronary bifurcation lesions |
• | Increased quarterly dividend by 3 percent to $0.4624 per share, or $1.85 on an annualized basis |
Awards and recognition
Over the past year, Cardinal Health was recognized for its leadership and commitment to diversity and sustainability, including:
• | Named on the 2017 World's Most Admired Companies list by Fortune |
• | Recognized by the National Association for Female Executives as a Top 60 Company for Executive Women for the sixth consecutive year |
• | Included in Becker's Healthcare 150 Top Places to Work in Healthcare 2017 listing |
• | Named to the Human Rights Campaign (HRC) Best Places to Work for LGBT Equality for the fifth consecutive year based on ratings in HRC's 2017 Corporate Equality Index |
• | Included in the Dow Jones Sustainability North American Company Index for the eleventh consecutive year |
Webcast
Cardinal Health will host a webcast today at 8:30 a.m. Eastern to discuss fourth-quarter and year-end results. To access the webcast and corresponding slide presentation, go to the Investor Relations page at ir.cardinalhealth.com. No access code is required.
Presentation slides and a webcast replay will be available on the Cardinal Health website at ir.cardinalhealth.com until Aug. 1, 2018.
Cardinal Health
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Upcoming webcasted investor events
• | Robert W. Baird’s Global Healthcare Conference on Thursday, Sept. 7 at 9:05 a.m. Eastern in New York City |
• | Morgan Stanley 15th Annual Global Healthcare Conference on Monday, Sept. 11 at 8:45 a.m. Eastern in New York City |
About Cardinal Health
Cardinal Health, Inc. is a global, integrated healthcare services and products company, providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices worldwide. The company provides clinically proven medical products and pharmaceuticals and cost-effective solutions that enhance supply chain efficiency from hospital to home. Cardinal Health connects patients, providers, payers, pharmacists and manufacturers for integrated care coordination and better patient management. Because Cardinal Health helps ensure pharmacists and the consumers they serve have access to medications they need while working to help prevent prescription drug diversion, the company and its education partners created Generation Rx, a national program to help prevent the misuse of prescription medications. Backed by nearly 100 years of experience, with approximately 50,000 employees in nearly 60 countries, Cardinal Health ranks #15 on the Fortune 500. For more information, visit cardinalhealth.com, follow @CardinalHealth on Twitter and connect on LinkedIn at linkedin.com/company/cardinal-health.
1GAAP refers to U.S. generally accepted accounting principles. This news release includes GAAP financial measures as well as non-GAAP financial measures, which are financial measures not calculated in accordance with GAAP. See “Use of Non-GAAP Measures” following the attached schedules for definitions of the non-GAAP financial measures presented in this news release, and see the attached schedules for reconciliations of the differences between the non-GAAP financial measures and their most directly comparable GAAP financial measures.
Cardinal Health uses its website as a channel of distribution for material company information. Important information, including news releases, financial information, earnings and analyst presentations, and information about upcoming presentations and events is routinely posted and accessible on the Investor Relations page at ir.cardinalhealth.com. In addition, the website allows investors and other interested persons to sign up automatically to receive e-mail alerts when the company posts news releases, SEC filings and certain other information on its website.
Cautions concerning forward-looking statements
This news release contains forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. These statements may be identified by words such as "expect," "anticipate," "intend," "plan," "believe," "will," "should," "could," "would," "project," "continue," "likely," and similar expressions, and include statements reflecting future results or guidance, statements of outlook and expense accruals. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. These risks and uncertainties include competitive pressures in Cardinal Health's various lines of business; the amount or rate of pharmaceutical price appreciation or deflation and the timing of and benefit from generic pharmaceutical introductions; the ability to maintain the benefits from the generic sourcing venture with CVS Health; risks associated with the recently completed acquisition of Medtronic’s Patient Recovery Business, including the ability to retain the acquired businesses’ customers and employees, the ability to successfully integrate the acquired businesses into our operations and the ability to achieve the expected synergies as well as accretion in earnings; the risk of non-renewal or a default under one or more key customer or supplier arrangements or changes to the terms of or level of purchases under those arrangements; uncertainties due to government health care reform including proposals to modify or repeal the Affordable Care Act; uncertainties with respect to U.S. tax or trade laws, including proposals relating to a “border adjustment tax” or new import tariffs; changes in the distribution patterns or reimbursement rates for health care products and services; the effects of any investigation or action by any governmental or regulatory authority, including litigation relating to opioid distribution; and changes in foreign currency rates and the cost of commodities such as oil-based resins, cotton, latex and diesel fuel. Cardinal Health is subject to additional risks and uncertainties described in Cardinal Health's Form 10-K, Form 10-Q and Form 8-K reports and exhibits to those reports. This news release reflects management's views as of August 2, 2017. Except to the extent required by applicable law, Cardinal Health undertakes no obligation to update or revise any forward-looking statement.
Schedule 1
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
Fourth Quarter | ||||||||||
(in millions, except per common share amounts) | 2017 | 2016 | % Change | |||||||
Revenue | $ | 32,966 | $ | 31,384 | 5 | % | ||||
Cost of products sold | 31,343 | 29,719 | 5 | % | ||||||
Gross margin | 1,623 | 1,665 | (3 | )% | ||||||
Operating expenses: | ||||||||||
Distribution, selling, general and administrative expenses | 983 | 970 | 1 | % | ||||||
Restructuring and employee severance | 24 | 6 | N.M. | |||||||
Amortization and other acquisition-related costs | 163 | 132 | N.M. | |||||||
Impairments and loss on disposal of assets, net | 3 | 3 | N.M. | |||||||
Litigation (recoveries)/charges, net | 11 | (66 | ) | N.M. | ||||||
Operating earnings | 439 | 620 | (29 | )% | ||||||
Other (income)/expense, net | (3 | ) | — | N.M. | ||||||
Interest expense, net | 68 | 44 | 55 | % | ||||||
Earnings before income taxes | 374 | 576 | (35 | )% | ||||||
Provision for income taxes | 96 | 241 | (60 | )% | ||||||
Net earnings | 278 | 335 | (17 | )% | ||||||
Less: Net earnings attributable to noncontrolling interests | (4 | ) | (2 | ) | N.M. | |||||
Net earnings attributable to Cardinal Health, Inc. | $ | 274 | $ | 333 | (18 | )% | ||||
Earnings per common share attributable to Cardinal Health, Inc.: | ||||||||||
Basic | $ | 0.87 | $ | 1.03 | (16 | )% | ||||
Diluted | 0.86 | 1.02 | (16 | )% | ||||||
Weighted-average number of common shares outstanding: | ||||||||||
Basic | 316 | 324 | ||||||||
Diluted | 318 | 327 | ||||||||
Schedule 2
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
Fiscal Year | ||||||||||
(in millions, except per common share amounts) | 2017 | 2016 | % Change | |||||||
Revenue | $ | 129,976 | $ | 121,546 | 7 | % | ||||
Cost of products sold | 123,432 | 115,003 | 7 | % | ||||||
Gross margin | 6,544 | 6,543 | — | % | ||||||
Operating expenses: | ||||||||||
Distribution, selling, general and administrative expenses | 3,775 | 3,648 | 3 | % | ||||||
Restructuring and employee severance | 56 | 25 | N.M. | |||||||
Amortization and other acquisition-related costs | 527 | 459 | N.M. | |||||||
Impairments and loss on disposal of assets, net | 18 | 21 | N.M. | |||||||
Litigation (recoveries)/charges, net | 48 | (69 | ) | N.M. | ||||||
Operating earnings | 2,120 | 2,459 | (14 | )% | ||||||
Other (income)/expense, net | (5 | ) | 5 | N.M. | ||||||
Interest expense, net | 201 | 178 | 13 | % | ||||||
Earnings before income taxes | 1,924 | 2,276 | (15 | )% | ||||||
Provision for income taxes | 630 | 845 | (25 | )% | ||||||
Net earnings | 1,294 | 1,431 | (10 | )% | ||||||
Less: Net earnings attributable to noncontrolling interests | (6 | ) | (4 | ) | N.M. | |||||
Net earnings attributable to Cardinal Health, Inc. | $ | 1,288 | $ | 1,427 | (10 | )% | ||||
Earnings per common share attributable to Cardinal Health, Inc.: | ||||||||||
Basic | $ | 4.06 | $ | 4.36 | (7 | )% | ||||
Diluted | 4.03 | 4.32 | (7 | )% | ||||||
Weighted-average number of common shares outstanding: | ||||||||||
Basic | 317 | 327 | ||||||||
Diluted | 320 | 330 | ||||||||
Schedule 3
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in millions) | June 30, 2017 | June 30, 2016 | |||||
Assets | |||||||
Current assets: | |||||||
Cash and equivalents | $ | 6,879 | $ | 2,356 | |||
Trade receivables, net | 8,048 | 7,405 | |||||
Inventories, net | 11,301 | 10,615 | |||||
Prepaid expenses and other | 2,117 | 1,580 | |||||
Total current assets | 28,345 | 21,956 | |||||
Property and equipment, net | 1,879 | 1,796 | |||||
Goodwill and other intangibles, net | 9,207 | 9,426 | |||||
Other assets | 681 | 944 | |||||
Total assets | $ | 40,112 | $ | 34,122 | |||
Liabilities, Redeemable Noncontrolling Interests and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 17,906 | $ | 17,306 | |||
Current portion of long-term obligations and other short-term borrowings | 1,327 | 587 | |||||
Other accrued liabilities | 1,988 | 1,808 | |||||
Total current liabilities | 21,221 | 19,701 | |||||
Long-term obligations, less current portion | 9,068 | 4,952 | |||||
Deferred income taxes and other liabilities | 2,877 | 2,781 | |||||
Redeemable noncontrolling interests | 118 | 117 | |||||
Total Cardinal Health, Inc. shareholders' equity | 6,808 | 6,554 | |||||
Noncontrolling interests | 20 | 17 | |||||
Total shareholders’ equity | 6,828 | 6,571 | |||||
Total liabilities, redeemable noncontrolling interests and shareholders’ equity | $ | 40,112 | $ | 34,122 | |||
Schedule 4
Cardinal Health, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Fourth Quarter | Fiscal Year | ||||||||||||||
(in millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Cash flows from operating activities: | |||||||||||||||
Net earnings | $ | 278 | $ | 335 | $ | 1,294 | $ | 1,431 | |||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 192 | 176 | 717 | 641 | |||||||||||
Gain on sale of other investments | — | — | 4 | — | |||||||||||
Gain on disposal of assets, net | 3 | 4 | 18 | 21 | |||||||||||
Share-based compensation | 23 | 29 | 96 | 111 | |||||||||||
Provision for deferred income taxes | 291 | 87 | 291 | 87 | |||||||||||
Provision for bad debts | 17 | 22 | 63 | 73 | |||||||||||
Change in fair value of contingent consideration obligation | (5 | ) | — | (5 | ) | (16 | ) | ||||||||
Change in operating assets and liabilities, net of effects from acquisitions: | |||||||||||||||
Increase in trade receivables | (558 | ) | (145 | ) | (665 | ) | (866 | ) | |||||||
Decrease/(increase) in inventories | 337 | 278 | (673 | ) | (1,179 | ) | |||||||||
Increase/(decrease) in accounts payable | 329 | (24 | ) | 564 | 2,815 | ||||||||||
Other accrued liabilities and operating items, net | (183 | ) | (121 | ) | (520 | ) | (147 | ) | |||||||
Net cash provided by operating activities | 724 | 641 | 1,184 | 2,971 | |||||||||||
Cash flows from investing activities: | |||||||||||||||
Acquisition of subsidiaries, net of cash acquired | (19 | ) | (231 | ) | (132 | ) | (3,614 | ) | |||||||
Additions to property and equipment | (94 | ) | (181 | ) | (387 | ) | (465 | ) | |||||||
Purchase of available-for-sale securities and other investments | (6 | ) | (50 | ) | (194 | ) | (200 | ) | |||||||
Proceeds from sale of available-for-sale securities and other investments | 113 | 37 | 228 | 136 | |||||||||||
Proceeds from maturities of available-for-sale securities | 28 | 13 | 77 | 50 | |||||||||||
Proceeds from divestitures and disposal of property and equipment and held for sale assets | 2 | 13 | 3 | 13 | |||||||||||
Net cash provided by/(used in) investing activities | 24 | (399 | ) | (405 | ) | (4,080 | ) | ||||||||
Cash flows from financing activities: | |||||||||||||||
Payment of contingent consideration obligation | — | (2 | ) | (3 | ) | (25 | ) | ||||||||
Net change in short-term borrowings | (22 | ) | (8 | ) | 3 | 26 | |||||||||
Net purchase of noncontrolling interests | — | — | (12 | ) | (10 | ) | |||||||||
Reduction of long-term obligations | (250 | ) | (1 | ) | (310 | ) | (6 | ) | |||||||
Proceeds from interest rate swap terminations | — | — | 14 | — | |||||||||||
Proceeds from long-term obligations, net of issuance costs | 5,171 | — | 5,171 | — | |||||||||||
Net tax proceeds/(withholdings) from share-based compensation | 6 | 9 | 26 | 6 | |||||||||||
Excess tax benefits from share-based compensation | (3 | ) | — | 34 | 33 | ||||||||||
Dividends on common shares | (142 | ) | (126 | ) | (577 | ) | (512 | ) | |||||||
Purchase of treasury shares | — | (351 | ) | (600 | ) | (651 | ) | ||||||||
Net cash provided by/(used in) financing activities | 4,760 | (479 | ) | 3,746 | (1,139 | ) | |||||||||
Effect of exchange rates changes on cash and equivalents | 3 | (5 | ) | (2 | ) | (12 | ) | ||||||||
Net increase/(decrease) in cash and equivalents | 5,511 | (242 | ) | 4,523 | (2,260 | ) | |||||||||
Cash and equivalents at beginning of period | 1,368 | 2,598 | 2,356 | 4,616 | |||||||||||
Cash and equivalents at end of period | $ | 6,879 | $ | 2,356 | $ | 6,879 | $ | 2,356 | |||||||
Schedule 5
Cardinal Health, Inc. and Subsidiaries
Segment Business Analysis
Fourth Quarter | Fourth Quarter | |||||||||||||||
(in millions) | 2017 | 2016 | (in millions) | 2017 | 2016 | |||||||||||
Pharmaceutical | Medical | |||||||||||||||
Revenue | Revenue | |||||||||||||||
Amount | $ | 29,552 | $ | 28,177 | Amount | $ | 3,416 | $ | 3,210 | |||||||
Growth rate | 5 | % | 14 | % | Growth rate | 6 | % | 12 | % | |||||||
Segment profit | Segment profit | |||||||||||||||
Amount | $ | 505 | $ | 542 | Amount | $ | 138 | $ | 122 | |||||||
Growth rate | (7 | )% | 1 | % | Growth rate | 13 | % | 19 | % | |||||||
Segment profit margin | 1.71 | % | 1.93 | % | Segment profit margin | 4.03 | % | 3.81 | % | |||||||
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the three months ended June 30, 2017 was $32,966 million, which included total segment revenue of $32,968 million and Corporate revenue of $(2) million. Total consolidated revenue for the three months ended June 30, 2016 was $31,384 million, which included total segment revenue of $31,387 million and Corporate revenue of $(3) million. Corporate revenue consists primarily of elimination of inter-segment revenue and other revenue not allocated to the segments.
Total consolidated operating earnings for the three months ended June 30, 2017 were $439 million, which included total segment profit of $643 million and Corporate costs of $(204) million. Total consolidated operating earnings for the three months ended June 30, 2016 were $620 million, which included total segment profit of $664 million and Corporate costs of $(44) million. Corporate includes, among other things, LIFO charges/(credits), restructuring and employee severance, amortization and other acquisition-related costs, impairments and (gain)/loss on disposal of assets, litigation (recoveries)/charges, net and certain investment spending that are not allocated to the segments. The increase in corporate costs is primarily due to the change in ligation (recoveries)/charges, net driven by the lack of litigation recoveries from the prior period recurring in the current period and the prior year LIFO credits that did not recur in the current period.
Schedule 6
Cardinal Health, Inc. and Subsidiaries
Segment Business Analysis
Fiscal Year | Fiscal Year | |||||||||||||||
(in millions) | 2017 | 2016 | (in millions) | 2017 | 2016 | |||||||||||
Pharmaceutical | Medical | |||||||||||||||
Revenue | Revenue | |||||||||||||||
Amount | $ | 116,463 | $ | 109,131 | Amount | $ | 13,524 | $ | 12,430 | |||||||
Growth rate | 7 | % | 20 | % | Growth rate | 9 | % | 9 | % | |||||||
Segment profit | Segment profit | |||||||||||||||
Amount | $ | 2,187 | $ | 2,488 | Amount | $ | 572 | $ | 457 | |||||||
Growth rate | (12 | )% | 19 | % | Growth rate1 | 25 | % | 6 | % | |||||||
Segment profit margin | 1.88 | % | 2.28 | % | Segment profit margin | 4.23 | % | 3.68 | % | |||||||
1. | Segment profit for the fiscal year ended June 30, 2016 includes the $43 million unfavorable impact of the Cordis-related inventory fair value step-up. Excluding this step-up, year-over-year Medical segment profit growth was 14 percent and 15 percent for the fiscal years ended June 30, 2017 and 2016, respectively. |
Refer to definitions for an explanation of calculations.
Total consolidated revenue for the fiscal year ended June 30, 2017 was $129,976 million, which included total segment revenue of $129,987 million and Corporate revenue of $(11) million. Total consolidated revenue for the fiscal year ended June 30, 2016 was $121,546 million, which included total segment revenue of $121,561 million and Corporate revenue of $(15) million. Corporate revenue consists primarily of elimination of inter-segment revenue and other revenue not allocated to the segments.
Total consolidated operating earnings for the fiscal year ended June 30, 2017 were $2,120 million, which included total segment profit of $2,759 million and Corporate costs of $(639) million. Total consolidated operating earnings for the fiscal year ended June 30, 2016 were $2,459 million, which included total segment profit of $2,945 million and Corporate costs of $(486) million. Corporate includes, among other things, LIFO charges/(credits), restructuring and employee severance, amortization and other acquisition-related costs, impairments and (gain)/loss on disposal of assets, litigation (recoveries)/charges, net and certain investment spending that are not allocated to the segments.
Schedule 7
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation1
Gross | Operating | Earnings | Provision | |||||||||||||||||||||||
Margin | Earnings | Before | for | Net | Diluted | |||||||||||||||||||||
Gross | Growth | Operating | Growth | Income | Income | Net | Earnings2 | Diluted | EPS2 | |||||||||||||||||
(in millions, except per common share amounts) | Margin | Rate | Earnings | Rate | Taxes | Taxes | Earnings2 | Growth Rate | EPS2,3,4 | Growth Rate | ||||||||||||||||
Fourth Quarter 2017 | ||||||||||||||||||||||||||
GAAP | $ | 1,623 | (3 | )% | $ | 439 | (29 | )% | $ | 374 | $ | 96 | $ | 274 | (18 | )% | $ | 0.86 | (16 | )% | ||||||
Restructuring and employee severance | — | 24 | 24 | 9 | 15 | 0.05 | ||||||||||||||||||||
Amortization and other acquisition-related costs | — | 163 | 163 | 45 | 118 | 0.37 | ||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets | — | 3 | 3 | 1 | 2 | 0.01 | ||||||||||||||||||||
Litigation (recoveries)/charges, net | — | 11 | 11 | 4 | 7 | 0.02 | ||||||||||||||||||||
Non-GAAP | $ | 1,623 | 1 | % | $ | 640 | (1 | )% | $ | 575 | $ | 155 | $ | 416 | 12 | % | $ | 1.31 | 15 | % | ||||||
Fourth Quarter 2016 | ||||||||||||||||||||||||||
GAAP | $ | 1,665 | 14 | % | $ | 620 | 11 | % | $ | 576 | $ | 241 | $ | 333 | 14 | % | $ | 1.02 | 16 | % | ||||||
LIFO charges/(credits) | (51 | ) | (51 | ) | (51 | ) | (20 | ) | (31 | ) | (0.10 | ) | ||||||||||||||
Restructuring and employee severance | — | 6 | 6 | 2 | 4 | 0.01 | ||||||||||||||||||||
Amortization and other acquisition-related costs | — | 132 | 132 | 28 | 104 | 0.32 | ||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets | — | 3 | 3 | — | 3 | 0.01 | ||||||||||||||||||||
Litigation (recoveries)/charges, net | — | (66 | ) | (66 | ) | (25 | ) | (41 | ) | (0.13 | ) | |||||||||||||||
Non-GAAP | $ | 1,614 | 11 | % | $ | 643 | 5 | % | $ | 599 | $ | 226 | $ | 372 | 12 | % | $ | 1.14 | 14 | % | ||||||
Gross | Operating | Earnings | Provision | ||||||||||||||||||||||||
Margin | Earnings | Before | for | Net | Diluted | ||||||||||||||||||||||
Gross | Growth | Operating | Growth | Income | Income | Net | Earnings2 | Diluted | EPS2 | ||||||||||||||||||
(in millions, except per common share amounts) | Margin | Rate | Earnings | Rate | Taxes | Taxes | Earnings2 | Growth Rate | EPS2,3,4 | Growth Rate | |||||||||||||||||
Fiscal Year 2017 | |||||||||||||||||||||||||||
GAAP | $ | 6,544 | $ | — | $ | 2,120 | (14 | )% | $ | 1,924 | $ | 630 | $ | 1,288 | (10 | )% | $ | 4.03 | (7 | )% | |||||||
Restructuring and employee severance | — | 56 | 56 | 20 | 36 | 0.11 | |||||||||||||||||||||
Amortization and other acquisition-related costs | — | 527 | 527 | 165 | 362 | 1.13 | |||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets | — | 18 | 18 | 6 | 12 | 0.04 | |||||||||||||||||||||
Litigation (recoveries)/charges, net | — | 48 | 48 | 19 | 29 | 0.09 | |||||||||||||||||||||
Non-GAAP | $ | 6,544 | — | % | $ | 2,769 | (4 | )% | $ | 2,572 | $ | 839 | $ | 1,727 | — | % | $ | 5.40 | 3 | % | |||||||
Fiscal Year 2016 | |||||||||||||||||||||||||||
GAAP | $ | 6,543 | 15 | % | $ | 2,459 | 14 | % | $ | 2,276 | $ | 845 | $ | 1,427 | 18 | % | $ | 4.32 | 20 | % | |||||||
Restructuring and employee severance | — | 25 | 25 | 9 | 16 | 0.05 | |||||||||||||||||||||
Amortization and other acquisition-related costs | — | 459 | 459 | 143 | 316 | 0.96 | |||||||||||||||||||||
Impairments and (gain)/loss on disposal of assets | — | 21 | 21 | 6 | 15 | 0.04 | |||||||||||||||||||||
Litigation (recoveries)/charges, net | — | (69 | ) | (69 | ) | (27 | ) | (42 | ) | (0.13 | ) | ||||||||||||||||
Non-GAAP | $ | 6,543 | 15 | % | $ | 2,895 | 17 | % | $ | 2,711 | $ | 976 | $ | 1,732 | 18 | % | $ | 5.24 | 20 | % | |||||||
1For more information on these measures, refer to the Use of Non-GAAP Financial Measures and Definitions schedules.
2attributable to Cardinal Health, Inc.
3GAAP diluted EPS for the three months ended June 30, 2017 compared to the prior year period was favorably impacted by $0.21, which includes $0.19 due to change in the effective tax rate and $0.02 due to the change in weighted average shares outstanding. GAAP diluted EPS for the twelve months ended June 30, 2017 compared to the prior year period was favorably impacted by $0.39, which includes $0.26 due to change in the effective tax rate and $0.13 due to the change in weighted average shares outstanding. The change in GAAP diluted EPS due to the effective tax rate is calculated as ((GAAP Earnings before Income Taxes for the current period times (one minus the current period GAAP Effective Tax Rate)) minus (GAAP Earnings before Income Taxes for the current period times (one minus the prior period GAAP Effective Tax Rate))) divided by the current period weighted average shares outstanding. The change in GAAP diluted EPS due to the weighted average shares outstanding is calculated as (GAAP Net Earnings for the
current period divided by the current period weighted average shares outstanding) minus (GAAP Net Earnings for the current period divided by the prior period weighted average shares outstanding).
4Non-GAAP diluted EPS for the three months ended June 30, 2017 compared to the prior year period was favorably impacted by $0.22, which includes $0.19 due to change in the effective tax rate and $0.03 due to the change in weighted average shares outstanding. Non-GAAP diluted EPS for the twelve months ended June 30, 2017 compared to the prior year period was favorably impacted by $0.44, which includes $0.27 due to change in the effective tax rate and $0.17 due to the change in weighted average shares outstanding. The change in Non-GAAP diluted EPS due to the effective tax rate is calculated as ((Non-GAAP Earnings before Income Taxes for the current period times (one minus the current period Non-GAAP Effective Tax Rate)) minus (Non-GAAP Earnings before Income Tax for the current period times (one minus the prior period Non-GAAP Effective Tax Rate))) divided by the current period weighted average shares outstanding. The change in Non-GAAP diluted EPS due to the weighted average shares outstanding is calculated as (Non-GAAP Net Earnings for the current period divided by the current period weighted average shares outstanding) minus (Non-GAAP Net Earnings for the current period divided by the prior period weighted average shares outstanding).
The sum of the components may not equal the total due to rounding.
We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.
There were no losses on extinguishment of debt during the periods presented.
Schedule 8
Cardinal Health, Inc. and Subsidiaries
GAAP / Non-GAAP Reconciliation
Fourth Quarter | Fiscal Year | ||||||||||||||
(in millions) | 2017 | 2016 | 2017 | 2016 | |||||||||||
GAAP effective tax rate | 25.8 | % | 41.8 | % | 32.7 | % | 37.1 | % | |||||||
Non-GAAP effective tax rate | |||||||||||||||
Earnings before income taxes | $ | 374 | $ | 576 | $ | 1,924 | $ | 2,276 | |||||||
LIFO charges/(credits) | — | (51 | ) | — | — | ||||||||||
Restructuring and employee severance | 24 | 6 | 56 | 25 | |||||||||||
Amortization and other acquisition-related costs | 163 | 132 | 527 | 459 | |||||||||||
Impairments and loss on disposal of assets | 3 | 3 | 18 | 21 | |||||||||||
Litigation (recoveries)/charges, net | 11 | (66 | ) | 48 | (69 | ) | |||||||||
Adjusted earnings before income taxes | $ | 575 | $ | 599 | $ | 2,572 | $ | 2,711 | |||||||
Provision for income taxes | $ | 96 | $ | 241 | $ | 630 | $ | 845 | |||||||
LIFO charges/(benefits) tax benefit/(expense) | — | (20 | ) | — | — | ||||||||||
Restructuring and employee severance tax benefit | 9 | 2 | 20 | 9 | |||||||||||
Amortization and other acquisition-related costs tax benefit | 45 | 28 | 165 | 143 | |||||||||||
Impairments and loss on disposal of assets tax benefit | 1 | — | 6 | 6 | |||||||||||
Litigation (recoveries)/charges, net tax benefit/(expense) | 4 | (25 | ) | 19 | (27 | ) | |||||||||
Adjusted provision for income taxes | $ | 155 | $ | 226 | $ | 839 | $ | 976 | |||||||
Non-GAAP effective tax rate | 27.0 | % | 37.6 | % | 32.6 | % | 36.0 | % | |||||||
The sum of the components may not equal the total due to rounding.
We apply varying tax rates depending on the item's nature and tax jurisdiction where it is incurred.
Cardinal Health, Inc. and Subsidiaries
Use of Non-GAAP Measures
This earnings release contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (“GAAP").
In addition to analyzing our business based on financial information prepared in accordance with GAAP, we use these non-GAAP financial measures internally to evaluate our performance, evaluate the balance sheet, engage in financial and operational planning, and determine incentive compensation because we believe that these measures provide additional perspective on and, in some circumstances are more closely correlated to, the performance of our underlying, ongoing business. We provide these non-GAAP financial measures to investors as supplemental metrics to assist readers in assessing the effects of items and events on our financial and operating results on a year-over-year basis and in comparing our performance to that of our competitors. However, the non-GAAP financial measures that we use may be calculated differently from, and therefore may not be comparable to, similarly titled measures used by other companies. The non-GAAP financial measures disclosed by us should not be considered a substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations to those financial statements set forth below should be carefully evaluated.
Exclusions from Non-GAAP Financial Measures
Management believes it is useful to exclude the following items from the non-GAAP measures presented in this earnings release for its own and for investors’ assessment of the business for the reasons identified below:
• | LIFO charges and credits are excluded because the factors that drive last-in first-out ("LIFO") inventory charges or credits, such as pharmaceutical manufacturer price appreciation or deflation and year-end inventory levels (which can be meaningfully influenced by customer buying behavior immediately preceding our fiscal year-end), are largely out of our control and cannot be accurately predicted. The exclusion of LIFO charges from non-GAAP metrics allows for a better comparison of our current financial results to our historical financial results and to our peer group companies’ financial results. |
• | Restructuring and employee severance costs are excluded because they relate to programs in which we fundamentally change our operations and because they are not part of the ongoing operations of our underlying business. |
• | Amortization and other acquisition-related costs are excluded primarily for consistency with the presentation of the financial results of our peer group companies. Additionally, costs for amortizations of acquisition-related intangible assets are non-cash amounts, which are variable in amount and frequency and are significantly impacted by the timing and size of acquisitions, so their exclusion allows for better comparison of historical, current and forecasted financial results. We also exclude other acquisition-related costs because they are directly related to an acquisition but do not meet the criteria to be recognized on the acquired entity’s initial balance sheet as part of the purchase price allocation. They are also significantly impacted by the timing and size of acquisitions. |
• | Impairments and gains or loss on disposal of assets are excluded because they do not occur in or reflect the ordinary course of our ongoing business operations and their exclusion results in a metric that more meaningfully reflects the sustainability of our operating performance. |
• | Litigation recoveries or charges, net are excluded because they often relate to events that may have occurred in prior or multiple periods, and are inherently unpredictable in timing and amount. In the third quarter of fiscal 2017, consistent with the presentation of financial results by peer medical device companies, in litigation recoveries or charges, net we began to classify accrued losses and legal fees, net of expected recoveries, related to mass tort product liability claims, including claims for injuries allegedly caused by Cordis OptEase and TrapEase inferior vena cava (IVC) filter products. Such amounts would not have materially affected litigation recoveries or charges, net in prior periods, so have not been reclassified for those periods. |
• | Loss on extinguishment of debt is excluded because it does not typically occur in the normal course of business operations and may obscure analysis of trends and financial performance. Additionally, the amount and frequency of this type of charge is not consistent and is significantly impacted by the timing and size of debt financing transactions. |
The tax effect for each of the items listed above is determined using the tax rate and other tax attributes applicable to the item and the jurisdiction(s) in which the item is recorded. The gross, tax and net impact of each item are presented with our GAAP to non-GAAP reconciliations.
Forward Looking Non-GAAP Measures
In this earnings release, the Company presents its outlook for fiscal 2018 non-GAAP EPS. The Company does not provide EPS outlook, which is the most directly comparable GAAP measure to non-GAAP EPS, because changes in the items that the Company excludes from EPS to calculate non-GAAP EPS, described above, can be dependent on future events that are less capable of being controlled or reliably predicted by management and are not part of the Company’s routine operating activities. Additionally, due to their unpredictability, management does not forecast many of the excluded items for internal use and therefore cannot create or rely on an EPS outlook. For fiscal 2018, the Company expects the acquisition of the Patient Recovery Business to significantly increase amortization and other acquisition-related costs.
The timing and amount of any of the excluded items could significantly impact the Company’s fiscal 2018 EPS. Over the past five fiscal years, the excluded items have lowered the Company’s EPS from $0.47 to $2.76, which includes a goodwill impairment charge of $2.32 per share related to our Nuclear Pharmacy Services division that we recognized in fiscal 2013.
Definitions
Growth rate calculation: Growth rates in this earnings release are determined by dividing the difference between current period results and prior period results by prior period results.
Non-GAAP operating earnings: operating earnings excluding (1) LIFO charges/(credits), (2) restructuring and employee severance, (3) amortization and other acquisition-related costs, (4) impairments and (gain)/loss on disposal of assets and (5) litigation (recoveries)/charges, net.
Non-GAAP earnings before income taxes: earnings before income taxes excluding (1) LIFO charges/(credits), (2) restructuring and employee severance, (3) amortization and other acquisition-related costs, (4) impairments and (gain)/loss on disposal of assets, (5) litigation (recoveries)/charges, net and (6) loss on extinguishment of debt.
Non-GAAP effective tax rate: (provision for income taxes adjusted for (1) LIFO charges/(credits), (2) restructuring and employee severance, (3) amortization and other acquisition-related costs, (4) impairments and (gain)/loss on disposal of assets, (5) litigation (recoveries)/charges, net, and (6) loss on extinguishment of debt) divided by (earnings before income taxes adjusted for the same six items).
Non-GAAP net earnings attributable to Cardinal Health, Inc.: net earnings attributable to Cardinal Health, Inc. excluding (1) LIFO charges/(credits), (2) restructuring and employee severance, (3) amortization and other acquisition-related costs, (4) impairments and (gain)/loss on disposal of assets, (5) litigation (recoveries)/charges, net and (6) loss on extinguishment of debt, each net of tax.
Non-GAAP diluted EPS attributable to Cardinal Health, Inc.: non-GAAP net earnings attributable to Cardinal Health, Inc. divided by diluted weighted-average shares outstanding.