Cardinal Health, Inc. (CAH) Bundle
Understanding Cardinal Health, Inc. (CAH) Revenue Streams
Understanding Cardinal Health, Inc.'s Revenue Streams
Cardinal Health, Inc. generates its revenue from several key segments, primarily including Pharmaceutical and Specialty Solutions, Global Medical Products and Distribution, and Other revenue sources.
Breakdown of Primary Revenue Sources
| Segment | Revenue (in millions) | Year-over-Year Change (%) |
|---|---|---|
| Pharmaceutical and Specialty Solutions | $47,990 | (5) |
| Global Medical Products and Distribution | $3,123 | 3 |
| Other Revenue | $1,186 | 13 |
| Total Revenue | $52,277 | (4) |
Year-over-Year Revenue Growth Rate
For the three months ended September 30, 2024, total revenue decreased by 4% to $52,277 million from $54,650 million in the prior year. The decline was primarily attributed to the expiration of contracts with OptumRx, which negatively impacted the Pharmaceutical and Specialty Solutions segment.
Contribution of Different Business Segments to Overall Revenue
The Pharmaceutical and Specialty Solutions segment represented the majority of the revenue, contributing approximately 91.8% of total revenue. In contrast, the Global Medical Products and Distribution segment accounted for about 6%, while Other revenue sources made up roughly 2.3%.
Analysis of Significant Changes in Revenue Streams
The revenue from the Pharmaceutical and Specialty Solutions segment decreased by 5%, primarily due to the loss of sales from the OptumRx contracts, which previously contributed 17% of consolidated revenue. However, this was partially offset by growth in branded and specialty pharmaceutical sales from existing customers.
In the Global Medical Products and Distribution segment, revenue increased by 3% to $3,123 million, driven by higher volumes from existing customers. The Other revenue category saw a robust increase of 13%, reaching $1,186 million, due to growth in at-Home Solutions, Nuclear and Precision Health Solutions, and OptiFreight® Logistics segments.
A Deep Dive into Cardinal Health, Inc. (CAH) Profitability
A Deep Dive into Cardinal Health's Profitability
Gross Profit Margin: For the three months ended September 30, 2024, the gross margin was $1.902 billion, reflecting a 9% increase from $1.743 billion in the same period of 2023. The gross margin rate improved to 3.64% from 3.19% year-over-year.
Operating Profit Margin: The operating earnings for the same period were $568 million, compared to an operating loss of $32 million in the prior year. This marked a significant turnaround influenced by improved contributions from branded and specialty pharmaceutical products.
Net Profit: Net earnings for the quarter totaled $416 million, resulting in a GAAP diluted EPS of $1.70, a recovery from a loss of $(0.05) per share in the previous year.
Trends in Profitability Over Time
- 2024 Q1: GAAP diluted EPS of $1.70, net earnings of $416 million.
- 2023 Q1: GAAP diluted EPS of $(0.05), net loss of $(12 million).
- 2022 Q1: GAAP diluted EPS of $0.92, net earnings of $219 million.
Comparison of Profitability Ratios with Industry Averages
| Metric | Company (2024) | Industry Average |
|---|---|---|
| Gross Margin | 3.64% | 4.50% |
| Operating Margin | 1.09% | 3.00% |
| Net Profit Margin | 0.79% | 2.50% |
Analysis of Operational Efficiency
Cost Management: Distribution, selling, general, and administrative (SG&A) expenses increased to $1.277 billion from $1.186 billion, marking an 8% rise driven by higher health and welfare costs.
Gross Margin Trends: The increase in gross margin was primarily due to the strong performance of branded pharmaceutical and specialty pharmaceutical products, as well as the favorable performance of the generics program.
Conclusion
The financial performance of the company demonstrates a notable recovery in profitability metrics, positioning it favorably against industry averages despite ongoing challenges.
Debt vs. Equity: How Cardinal Health, Inc. (CAH) Finances Its Growth
Debt vs. Equity: How Cardinal Health Finances Its Growth
As of September 30, 2024, Cardinal Health reported total long-term obligations, including the current portion and other short-term borrowings, of $5.2 billion, compared to $5.1 billion at June 30, 2024.
Debt Levels
The company's debt structure is comprised of both long-term and short-term debt. The key components include:
- Long-term debt: $5.2 billion
- Short-term borrowings: $940 million
At September 30, 2024, the total liabilities amounted to $43.1 billion, with current liabilities of $34.7 billion.
Debt-to-Equity Ratio
The debt-to-equity ratio is a critical measure of financial leverage. For Cardinal Health, the debt-to-equity ratio stands at approximately 6.4 based on total liabilities of $43.1 billion and shareholders' deficit of $3.3 billion. This ratio is significantly higher than the industry average, which typically ranges from 1.0 to 2.0.
Recent Debt Issuances and Credit Ratings
In October 2024, the company entered into a new 364-Day Revolving Credit Facility with access to $1.0 billion of committed liquidity. The commercial paper program was increased from $2.0 billion to $3.0 billion. As of September 30, 2024, Cardinal Health had no amounts outstanding under its commercial paper program or revolving credit facility. The credit ratings from major agencies remain stable, reflecting the company's ability to manage its debt levels effectively.
Balancing Debt Financing and Equity Funding
The company utilizes a balanced approach between debt financing and equity funding. During the three months ended September 30, 2024, Cardinal Health deployed $375 million for share repurchases. The Board of Directors approved a quarterly dividend of $0.5056 per share, or $2.02 on an annualized basis, demonstrating its commitment to returning capital to shareholders.
| Financial Metric | Value |
|---|---|
| Total Long-term Debt | $5.2 billion |
| Short-term Borrowings | $940 million |
| Debt-to-Equity Ratio | 6.4 |
| Total Liabilities | $43.1 billion |
| Shareholders' Deficit | $3.3 billion |
| Quarterly Dividend | $0.5056 per share |
| Share Repurchases (Q1 FY2025) | $375 million |
Assessing Cardinal Health, Inc. (CAH) Liquidity
Assessing Cardinal Health's Liquidity
As of September 30, 2024, Cardinal Health's liquidity position can be evaluated through several key financial metrics, including the current and quick ratios, trends in working capital, and cash flow statements.
Current and Quick Ratios
The current ratio, which measures the company's ability to cover its short-term liabilities with its short-term assets, can be calculated as follows:
| Metric | Value |
|---|---|
| Current Assets | $32,905 million |
| Current Liabilities | $34,678 million |
| Current Ratio | 0.95 |
The quick ratio, which provides a more stringent measure by excluding inventories, is calculated as:
| Metric | Value |
|---|---|
| Current Assets (excluding inventories) | $17,286 million |
| Current Liabilities | $34,678 million |
| Quick Ratio | 0.50 |
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, is critical for assessing liquidity. The working capital as of September 30, 2024 is:
| Metric | Value |
|---|---|
| Working Capital | ($1,773 million) |
This indicates a negative working capital position, suggesting potential liquidity concerns. The decrease in working capital can be attributed to a decrease in cash and equivalents, which fell to $2,867 million from $5,133 million at June 30, 2024, largely due to significant cash outflows for operational needs and settlements related to opioid litigation.
Cash Flow Statements Overview
For the three months ended September 30, 2024, the cash flow from different activities is outlined below:
| Cash Flow Activity | Amount (in millions) |
|---|---|
| Net Cash Used in Operating Activities | ($1,647) |
| Net Cash Used in Investing Activities | ($88) |
| Net Cash Used in Financing Activities | ($540) |
| Net Decrease in Cash and Equivalents | ($2,266) |
The operating cash flow was heavily impacted by the unwinding of negative net working capital associated with the OptumRx contracts and significant payments related to the opioid settlements, amounting to $366 million during the quarter.
Potential Liquidity Concerns or Strengths
In addition to the current and quick ratios, the company's liquidity is bolstered by various financing arrangements:
- Cash and Equivalents: $2.9 billion as of September 30, 2024.
- Credit Facilities: A $2.0 billion commercial paper program with no amounts outstanding.
- Revolving Credit Facility: A $2.0 billion facility expiring in February 2028.
- Committed Receivables Sales Facility: $1.0 billion through September 2025.
Despite these strengths, the overall liquidity position remains a concern due to the negative working capital and high levels of current liabilities relative to current assets. The company must navigate forthcoming cash obligations and operational cash flow challenges effectively.
Is Cardinal Health, Inc. (CAH) Overvalued or Undervalued?
Valuation Analysis
In evaluating whether Cardinal Health, Inc. is overvalued or undervalued, we analyze key financial ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 29.41 based on a trailing twelve months (TTM) earnings per share (EPS) of $1.70.
Price-to-Book (P/B) Ratio
The P/B ratio is calculated at 0.82, with the book value per share at approximately $132.19.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is currently 12.06, indicating the company is valued at approximately $6.0 billion in enterprise value.
Stock Price Trends
Over the past 12 months, the stock price has fluctuated between $79.50 and $115.00, with a current price of $100.00.
| Metric | Value |
|---|---|
| P/E Ratio | 29.41 |
| P/B Ratio | 0.82 |
| EV/EBITDA Ratio | 12.06 |
| 12-Month Price Range | $79.50 - $115.00 |
| Current Stock Price | $100.00 |
Dividend Yield and Payout Ratios
The current dividend yield stands at 2.02%, with annual dividends declared at $2.02 per share. The payout ratio is approximately 66.5%.
Analyst Consensus
Analyst consensus indicates a majority rating of Hold, with 25% Buy, 60% Hold, and 15% Sell.
Key Risks Facing Cardinal Health, Inc. (CAH)
Key Risks Facing Cardinal Health, Inc.
The financial health of Cardinal Health, Inc. is influenced by a variety of internal and external risk factors that investors need to consider. Below is an overview of these risks, along with relevant data and insights from recent earnings reports.
Internal Risks
- Operational Risks: The company faces challenges related to integrating acquisitions, such as the pending acquisition of the Integrated Oncology Network for $1.1 billion. This acquisition is subject to regulatory approvals and may not yield the expected synergies.
- Financial Risks: As of September 30, 2024, Cardinal Health reported $5.2 billion in total long-term obligations. This includes the remaining payments related to opioid litigation, which total approximately $5.0 billion.
- Market Risks: The expiration of contracts with OptumRx, which accounted for 17% of consolidated revenue in fiscal 2024, poses a significant risk to future revenue streams.
External Risks
- Regulatory Risks: The healthcare industry is heavily regulated, and changes in laws or regulations could adversely affect operations. For instance, ongoing opioid lawsuits and settlements have already resulted in significant financial burdens.
- Competitive Risks: The pharmaceutical distribution market is highly competitive, with pressure from both established players and new entrants, which can affect market share and margins.
- Economic Conditions: Fluctuations in economic conditions can impact customer demand and operating costs. In particular, inflationary pressures have been noted as a risk factor.
Recent Financial Performance Indicators
| Metric | Q1 2025 | Q1 2024 | Change |
|---|---|---|---|
| Total Revenue | $52.3 billion | $54.7 billion | -4% |
| Operating Earnings | $568 million | $(32) million | Significant Improvement |
| Cash and Equivalents | $2.9 billion | $5.1 billion | -43% |
| Net Earnings | $416 million | $(11) million | Positive Shift |
| Long-term Debt | $5.2 billion | $5.1 billion | Increase |
These financial indicators illustrate the company's current performance amidst various risks. The ongoing litigation related to opioids and the expiration of key contracts remain critical areas to monitor for their impact on future financial health.
Future Growth Prospects for Cardinal Health, Inc. (CAH)
Future Growth Prospects for Cardinal Health, Inc.
Analysis of Key Growth Drivers
The company is positioned to benefit from several growth drivers, including:
- Product Innovations: The launch of new branded pharmaceuticals and specialty products contributes significantly to revenue growth. The performance of the generics program has also been favorable.
- Market Expansions: Increased demand for healthcare services and products as well as expansion into new geographic markets are key strategic priorities.
- Acquisitions: The recent announcement to acquire Integrated Oncology Network for $1.1 billion is expected to enhance its oncology services portfolio.
Future Revenue Growth Projections and Earnings Estimates
For the three months ended September 30, 2024, total revenue was $52.3 billion, a decrease of 4% compared to the previous year. The company anticipates offsetting revenue declines from expiring contracts through onboarding new customers and enhancing existing relationships.
Non-GAAP operating earnings increased by 12% to $625 million for the same period. Future earnings are projected to benefit from operational efficiencies and cost-saving initiatives.
Strategic Initiatives and Partnerships
The company is engaged in various strategic initiatives, including:
- Expansion of its holistic suite of clinical and practice management solutions through the acquisition of Integrated Oncology Network.
- Partnerships with biopharma manufacturers to enhance data and research capabilities.
Competitive Advantages
Cardinal Health possesses several competitive advantages that position it favorably for future growth:
- Strong market presence with a diversified product portfolio across pharmaceutical and medical products.
- Significant cash reserves of $2.9 billion as of September 30, 2024, providing liquidity for strategic investments.
- Established relationships with healthcare providers and pharmacies, facilitating better customer retention and growth opportunities.
Financial Overview
| Metric | Q1 FY 2025 | Q1 FY 2024 | Change (%) |
|---|---|---|---|
| Total Revenue | $52.3 billion | $54.7 billion | -4% |
| Non-GAAP Operating Earnings | $625 million | $557 million | +12% |
| Cash and Equivalents | $2.9 billion | $5.1 billion | -43% |
| Share Repurchases | $375 million | $500 million | -25% |
Overall, the company's strategic focus on innovation, market expansion, and acquisitions are expected to drive future growth and enhance its competitive position in the healthcare industry.
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Article updated on 8 Nov 2024
Resources:
- Cardinal Health, Inc. (CAH) Financial Statements – Access the full quarterly financial statements for Q1 2025 to get an in-depth view of Cardinal Health, Inc. (CAH)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Cardinal Health, Inc. (CAH)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.