Cardinal Health, Inc. (CAH) Earnings & Analysis

Latest quarter

Cardinal Health reported Q1 FY2027 revenue of $67.5 billion, up from $64.0 billion a year earlier and above the consensus. Adjusted earnings per share were $3.26, above the $2.92 consensus estimate, while reported diluted earnings per share rose to $2.38 from $1.88.

CFO Aaron Alt said Pharmaceutical and Specialty Solutions revenue increased 6% to $62.6 billion, driven by brand and specialty sales to existing customers. Alt said specialty revenue grew 18%, while GLP-1 medications added to segment revenue growth and wholesale acquisition cost reductions under the Inflation Reduction Act offset much of that contribution.

Alt said Global Medical Products and Distribution revenue was roughly flat at $3.2 billion, as Cardinal Health brand growth was offset by lower distribution revenue. He said revenue in the other businesses grew 7% to $1.8 billion, with all three businesses contributing revenue and profit growth.

Cardinal Health’s gross margin increased to 3.85% from 3.62%, and its operating margin rose to 1.12% from 1.04%. Alt said the company ended the quarter with $5.3 billion in cash after generating $1.6 billion of adjusted free cash flow.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Jason Hollar said Cardinal Health’s renewal of its largest customer, CVS Health, runs through June 2032 and gives the company a foundation for continued investment. Hollar said the company had renewed contracts representing nearly two-thirds of enterprise revenue over the preceding 12 months, including its two largest customers in both pharma and medical products and distribution.

Asked about pharma demand, CFO Aaron Alt pointed to unit growth in specialty and generics and demand from major customers. Alt said specialty growth came particularly from urology and oncology, while generic volumes were slightly above the company’s long-term targets. He said the Solaris integration remained on track and its quarterly results were at least as good as the acquisition business case.

On pricing, Alt said GLP-1 medications contributed approximately 500 basis points to quarterly pharma revenue growth, largely offset by a 400 basis point headwind from Inflation Reduction Act wholesale acquisition cost reductions. Alt said medical distribution revenue fell, while modest commodity pressure, principally transportation costs, was offset by tariff tailwinds. Hollar said the medical improvement plan includes network optimization, efficiency and growth of Cardinal Health brand products.

Alt said the company continues to invest in supply-chain modernization, automation, technology and AI infrastructure. Hollar said more than 100 autonomous robots had recently been deployed at the Dixon, California distribution center, and that the technology was in a dozen distribution centers.

Asked about potential shifts in patient volumes if hospitals find care less affordable, Hollar said Cardinal Health expected to participate in volumes moving to other providers, but added that it was “a little premature to predict” how much would move. Asked about acquisitions and competition, Hollar said the company would focus on its existing businesses, including specialty and at-home care, rather than add another growth business.

Alt said pharma earnings growth should moderate in the second and third quarters before strengthening in the fourth, partly because of the timing of customer renewals and the anniversary of the Solaris acquisition. For medical products and distribution, Alt expected the second quarter to be generally consistent with the first, followed by sequential growth.

Guidance

Cardinal Health raised its FY2027 non-GAAP diluted EPS outlook to $12.80 to $13.00 from $12.40 to $12.60. Alt said the company also raised its Pharmaceutical and Specialty Solutions profit growth outlook to 10% to 12% from 8% to 11%, while keeping its revenue growth expectation unchanged.

For the other businesses, Alt raised expected revenue growth to 12% to 14% from 11% to 13% and profit growth to 17% to 20% from 15% to 18%. He said the expected non-GAAP effective tax rate was lowered to 18.5% to 19.5% from 19.0% to 20.0%.