Cardinal Health Inc Q4 2023 Earnings Conference Call Insights

Key highlights from Cardinal Health Inc (CAH) Q4 2023 Earnings Concall

Management Update:

• [00:02:00] CAH delivered record financial performance, including its highest non-GAAP EPS ever, reflecting 14% growth from the prior year.

Q&A Highlights:

• [00:26:35] Lisa Gill of J.P. Morgan asked if the 200 bp revenue increase from GLP-1 products, and are these products contributory to overall margin dollars despite it having lower margins, given that the profit for the Pharmaceutical segment in 2024 is being kept the same. Jason Hollar CEO replied that the primary reason for the revenue increase is GLP-1 products, which are not a meaningful contributor to segment profit.

• [00:28:33] Eric Percher at Nephron Research asked about the core performance of the Medical segment and define seasonality and onetime benefits in the quarter, and whether they are expected to recur in fiscal year 2024. Aaron Alt CFO said that the Medical segment’s core performance was $60 million in 4Q, with $20 million of seasonality and onetime benefits. The full-year profit target is $400 million, with $240 million from core performance, $100 million from incremental inflation net, and $60 million from other elements. Profit is expected to be back half-weighted in FY24.

• [00:32:04] Kevin Caliendo with UBS enquired if 1Q is likely to be down sequentially from 4Q, and then grow off that base to reach the $400 million profit target for the year. Aaron Alt CFO answered that the company expects core performance to be roughly in line from 4Q to 1Q, but there is negative seasonality in 1Q, so the jumping-off point is core performance versus 4Q results.

• [00:32:12] Kevin Caliendo with UBS also queried if the increase in Cardinal brand products in 2H is due to new product launches, manufacturing capabilities, or new contracts, and wants an explanation of the dynamics of the Cardinal brand products. Jason Hollar CEO replied that CAH expects Cardinal brand volume growth to be back half-loaded due to improving customer experience, supply chain health, and lapping prior year impact.

• [00:34:40] George Hill of Deutsche Bank asked how has CAH’s Navista offering progressed since its announcement at the Analyst Day, and how should one think about the ramp of this business in FY24 and beyond. Jason Hollar CEO said that CAH has made significant progress in developing and launching its Navista offering, including bringing in additional leadership, creating an advisory board, and listening to the needs of customers.

• [00:37:21] Elizabeth Anderson with Evercore enquired if the $60 million in corporate cost cuts in Medical expected to ramp rapidly over the course of the year, or have they already gone through and are just annualizing. Aaron Alt CFO answered that CAH expects $60 million of additional benefits from the Medical Improvement Plan in FY24, driven by the growth businesses, simplification efforts, and Cardinal Health brand work.

• [00:37:34] Elizabeth Anderson with Evercore also asked what is different about getting the next 50% of the inflation offset this year that was not the same last year. Jason Hollar CEO replied that CAH expects to mitigate the remaining 50% of inflation costs through pricing and contract renewals.

• [00:42:09] Daniel Grosslight from Citi asked how CAH sees the generics market potential shortages impacting the benefit or tailwind of generics in FY24 guidance. Jason Hollar CEO answered that CAH expects the generics market to normalize in FY24, but the company is well-positioned to participate in the growth.

• [00:46:36] A.J. Rice with Credit Suisse asked if CAH saw any evidence of an uptick in utilization from its customers in the Medical segment. Jason Hollar CEO replied that CAH sees consistent utilization in the underlying same-store sales type of growth, which is sufficient within the business model.

• [00:46:53] A.J. Rice at Credit Suisse also asked if CAH’s PPE profits will be relatively steady sequentially from here, and if there is any seasonality to call out in the PPE category. Jason Hollar CEO said that the company expects the PPE category to normalize, and the company is not expecting it to be a material driver of its financial performance.

• [00:49:23] Noor from Jefferies asked about the capital allocation priorities for fiscal year 2024. Aaron Alt CFO said that CAH will invest back into the business, maintain its investment-grade balance sheet, return capital to shareholders, and look for opportunistic M&A and incremental return of capital to shareholders.