CAH - Earnings call transcript Q4 2018

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, and welcome to the Cardinal Health, Inc. Fourth Quarter Fiscal Year 2018 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Lisa Capodici. Please go ahead.

Lisa Capodici

Silvia. you, Thank welcome earnings and Health’s quarter fourth Good to XXXX call. fiscal morning, Cardinal joined CEO, I Chief by today am our Jorge Financial Mike Gomez. Officer, and Kaufmann;

and details During at initiatives strategic ir.cardinalhealth.com. our on guidance. and our will the call, release FYXX and provide press are the fourth on we and quarter website presentation full-year Today’s our IR results, update of on posted section

of forward-looking and statements. are the risks that uncertainties. The SEC addressed refer statement During be the of forward-looking these call, results statements risks will to slide the in from or beginning actual and subject cause our making to materially those uncertainties description we could the our differ for implied. presentation and at matters to filings projected Please a

today, be GAAP. as non-GAAP During on called are comments they the will a specifically discussion unless basis, out our

the found GAAP to our reconciliations can Our non-GAAP to release. be the fourth full-year schedules, attached and quarter in for press

we forward-looking the our difficulty provide per items call GAAP earnings to guidance due the not during we exclude basis, that will on do share. FYXX addition, guidance on in non-GAAP We provide non-GAAP In a basis. a from for predicting

your a may we of to portion the ask question. the to you a everyone During brief with queue Q&A ask in that one follow-up, limit give so our we call, questions that a chance

will IR available this after team the be As always, call.

additional Mike that, questions. So, feel Kaufmann. with any over out free And with reach turn us the to I’ll to call to

Mike Kaufmann

Thanks, could glad join you Lisa, us. I good am and everyone. morning,

and then Health best a have full-year start for strategic underway Cardinal with some to and few As the initiatives on spend the comments fourth I’ll future. Lisa quarter we our mentioned, minutes position on XXXX

couple I issues. we to fiscal ahead a good strengths on making. feel unexpected the addressing opportunities about industry. healthcare as those challenges a are many We ‘XX, Health’s progress encountered the and critical of are in contributor to we have Cardinal We build

and non-GAAP operating to Overall, and due enhance reached Non-GAAP for million. track up were our for our in well-positioned on all of tax a to deliver higher Revenue expected, growth rate. EPS came value We X%. billion, are $XX quarter, stakeholders. earnings the quarter of $XXX $X.XX the lower long-term for than

year, a For billion, $X.X was Non-GAAP up non-GAAP was and revenue flow $X on cash the EPS operating than $XXX X%. $X.X were of more earnings operating billion, billion.

the make to a comments. I’ll Pharma segment, few Turning

For have continued headwind a we overall. In impact, growth remained Oak saw the program quarter, Red generic both customers. revenue a existing to new from while and positive PD, our

brand quarter, to line. be strong profit top nuclear growth, businesses generating closely the work had on we manufacturing better the to As our this provide expected with this significant We to Both even during partners, them Specialty Specialty standout, bottom was the performance it growth contribution than double-digit know and again delivering value evolution. this will robust, continue continues a is and finish while line drugs, evolving relates but a an an we marketplace. to also well, stronger to and Nuclear once year. the revenue and performed

necessary address growth. we a our XXXX, the industry to taking the As on enter fiscal for long-term distribution pharma the is focus business changing to position dynamics steps

to and headwinds. some of from that generic renewals, occurred do contract and be fiscal largest our the we not earnings FYXX to PD see can expected guidance deflation You in Customer are comments expect operating XXXX. which grow in

skillful upstream changes pricing before. types at these working it dynamics, more business recognize both actively to to on are is and that industry upward likely adapting we our return typical And team to change, Our we have are they of downstream trajectory. initiatives and as We this should. several to extremely done

the affected will the specific well, segment, segment’s to discuss the that items Medical earnings. Jorge Turning

Let me share highlights. a few

the with of pleased performance business. We Patient continue Recovery the be to

Our from business the XXXX with in exiting July. and other currently move global forward regions for continued line Global North in We Latin continuing America And early on on growth. calendar in to late Cordis, Supply top track. TSAs TSAs the integration and XXXX. late of our to this Medtronic America, At see Chain the is exited team is we

effectively. report more progress levels our our have a in the previously significantly We’re great team enhanced making to improved. are implement of inventory pleased need And plan visibility executing run And to moving turnaround challenges this the business I resolve am cost with to sense the discussed. urgency we’ve that on to service and inventory we we plan. is

As us to benefit of the time we bottom these on actions the going May, it said take for some is in to see line.

to confident However, Clayton, Dubilier XXXX. & profitable path fiscal a in have by is growth now year interest the Cordis sale to remain of this end that naviHealth, of a At completed on business XX% we the we Rice.

will As larger naviHealth the provide naviHealth focus the its and you with this and strategy. trajectory structure to been support We businesses better to resources time, strong growth while know, at that our has on needed same new accelerate us believe a allowing performer.

in We future and for CD&R growth this are to excited success. have as positioning a partner business

driven our both performed their services. double by strong during earnings services at-Home Cardinal digits Finally, Both the distribution businesses and demand well. Health grew quarter, for

with in on customers focusing Giacomin us the confident segment, progress and strengthening very pleased our management his and reach value our patients. across has in growth. am go-to-market team, strategies I which to continuum So, care Jon avenues new culture of and and the Medical I changing product remain made execution the also prospects drive has expanded to our provide with to of our enhance in summary,

place, to achieve they take time, in goals. their the right he has are team While and working this some hard will

little. switch let Now, gears me a

on strategic the back look over I As five years, great progress made past priorities. we three critical

patient clinical important prescriptions best-in-class we specialty that recognizing and knew us program; a scale portfolio to in deep innovation leverage breakthroughs, and with capabilities. the with with player filled what expand insight; needed we were becoming looking our focus First, thirdly, for the more was products pharmaceuticals of generics medical saw pharmaceuticals secondly, larger, to experience distribution generic space opportunity cost that percentage this we and customers overwhelming for complement large knew we the as our excellent were a for medical efficiencies, and be to relevant

business have our today, now JV So, with a a is leader we CVS. with that generics XX-XX

We strategy have both skills. significant volume highly and a analytics team and with experienced industry-leading

of in We specialty $X providers. a have Recovery. Cardinal of competes types the $XX expansion a a that of with and and of And service finally, that products greater for manufacturers business our Cordis through many products Patient have revenue than Health the line wide specialty business grown and from mostly to additions business breadth has those a billion, billion we diversified successfully historical blood with

customers. high-quality, We we significant, effective offer to can portfolio have a our and cost

a I elements. and strategy. the you distribution we that company. squarely our indicated deployment across our the we bottom-up quarter same and now focused One, business were three, of strong focusing as Today, are undertaking portfolio our are third balance and of three on top-down, comprehensive key review our driving the mix time, business the on attractive structure; cost assets. We products this capital medical two, recall a portfolio; greatest At from both, discussion, value from

these across to three the Of course, addition board. areas, remains top in a execution priority

a of address take minute each these. to me Let

always February portfolio, addition announced make partnership, are and to examples drive would business resources. where substantial monetize need will at having June, Xst, looking take optimize transaction, designed terms and of investment These deliver portfolio of growth Then, that two greatest overall that focus how are we action our we divested the creating just our allowing and assessing, future when a and to the naviHealth the In valuable to performance growth. concluded to know, accelerate our to expenditures you as our value. we and China our on in us distribution we

to considerable relates it cost As here we structure, have too, our progress. made

have annualized will executing $XXX on more. piece at industry that reporting significant dynamics. savings This reduction mostly working are closely deliver simplifying others savings benefit which significantly on more of aligning while that is will near-term us of complete. a involves deliver our largest cost in the and current of with We the The reduction will workforce, least near-term initiatives million structure, our

and more structure go-to-market top cost detailed a growth We for savings. organic Driving working plan strategies is our priority of to additional us. elements on are deliver a other also to optimize our

we’ll investing you some expect these be of that So, savings business. can back the into

are long-term repurchases. We be emphasis limited financial This emphasizes value. Finally, very-disciplined. along for regarding approach as we approach, well growth in this being approach, flexibility, near-term believe and dividend on cash in continued the and will the business deployment future deliver to shareholders focused. returning capital will Any M&A and our with reinvestment growth, as that through share

our As well I underway is priority in hope of you see, can each areas. work

growth, to wed when perfectly the comes the Everything clear delivering and it the about driving our Let to serving I me ahead. shareholder is road customers. not am long-term returns, on table, past. be

team, in plans We place the and move have right great to are we executing. a forward,

All committed the focus being of results ahead. laser and a us in disciplined, on months are achieving with to years

Cardinal mid their with quarter. want Looking for EPS in on details we is the the This and and Health. consolidated said tax hard communicated, continued May, each of of factors expect to what in give Company XXXX. now in we’ve remarks. to in I we commitment the digits growth $X.XX impact in to year $X.XX. XXXX, Jorge In thank single rate fiscal Based will for this range to revenue closing, employees the their consistent the lower non-GAAP more adjusting his you work fiscal our of

fortunate have and to We team. talented are dedicated such a

to turn year ahead. but to to part and for financials have our outlook value me grow for and and continuing well-positioned look system. We it healthcare to we road do, the let the vital to a as forward we enhancing over further to work Jorge our that, With fiscal of our are XXXX. discuss evolve Together, business

Jorge Gomez

Mike, good cover you, I’ll Thank Today, topics. and three morning.

discuss Q&A, time these our some results; XXXX. on of additional review fourth First, will operational strategic our key elements my our on primarily and second, and comments initiatives; information I’ll will ample results share for fiscal I I’ll quarter. To on quarter for be the third, allow outlook fourth focused

found can On Our and Mike our results press revenue four, be slide release. already covered EPS. full-year in

increase So, give saw is financial laser-focused are This XXX(k) we on SG&A will commentary the this our SG&A our primarily driven to items. incremental Recovery. acquisitions by We not you anticipate in increased contribution. Patient making grew we plan continue on as additional interest later one by finance interest on on the margin will quarter, I expenses expenses was Gross due way. and quarter, initiatives the the $XXX Patient driven in primarily a million the The a expense was our I about in will quarter. cover managing years Recovery Net in to very-disciplined the prior acquisition. issued specific in presentation. other my very -- debt increase versus X% and

was substantially had modeled than which XX%, Our was effective lower what QX quarter. tax rate for the we

Let months result over Cordis. legal driven me item took was explain. moment QX that benefit a tax financial further certain rate The progress to pressure entities we derived in made was from tax mentioned address the the We QX of the decisive to actions for take was tax onetime the by three QX. tax jurisdictions. performance last related in in international Cordis onetime to This we rate a of restructuring faster-than-anticipated

fewer work puts to expect $XXX from million, this entity likely estimated. of us to Fourth XXXX. related tax continuing complete ongoing average diluted position reform to work than the about extent we restructuring, in fiscal to approximately XXXX. QX fourth are in million outstanding of originally We the shares specialties quarter fiscal most a in on and the the $X quarter front fiscal Cordis This U.S. in plan were benefit on legal shares XXXX

$XXX $XXX million. repurchases, of we share completed repurchases million to bringing our QX, During full-year

under previously. about QX, is charge from repurchase our Board We which excluded accounting standard impairment remaining our $X.X results. goodwill and process including its related discussed primarily non-GAAP In to billion Cordis recognized charge, is our also the approved we testing have we business, million noncash $XXX annual challenges program. impairment from This a resulted share operational

flow cash timing and capital on million resulted management cash generation roughly that accelerated XXXX also $XXX working focus of fiscal continued fiscal approximately operating cash $X.X of billion. and flow normalized performance in of XXXX. fiscal This subsequently in reflected in payments vendor Our were flow XXXX

end Our the of $XXX cash held million billion outside balance the at about with was June U.S. $X.X

our million add segment expectations $XXX prior for found in was in I Now, performance quarter with was five. million decrease QX will Pharmaceutical versus slide years. for second detail profit $XXX the The Specialty the highlight on in light some for we business in we are To program that mentioned dynamics. May. continuation in of a trends our the performance the like stable the to clear, saw be generic I’d quarter, generic strong. a market of during line

decreased slide positive to the growth. Industry revenue with by This Medical fundamentals contributions driven are well top increase are was as Health million this Brand Segment primarily business over by Continuing mostly driven We compensation-related commercially to from bottom-line well Segment acquisitions. was Cordis $XXX XX%. performance and XX% segment solid. of or million dynamics upset decrease the profit execute The in on continue Recovery. of This Patient primarily This products, $XX operationally well. contributions items. as Cardinal and was with by QX. strong six. as grew from

like beginning May, I’d strategy are growth. future initiative told which operational an a to XX, the that slide of Mike’s direct around to build Now, that you review. to economics implementing In we you commentary we’re connects we to

current I simply through made. progress our reduce growth. will our Here, of elements focus this have and we for phased, list walk to action plan of invest cost areas and some we business, of disciplined

we implemented cost million which fiscal $XXX structure, annualized enterprise-wide reduction in measures, savings excess recently cost ‘XX. Regarding of in provide

allow We’re discipline thoughtfully with Cordis now journey which drive business. expect implement of see urgency enhance progressing growth This mindset also The efficiency shift our base and with moving $XXX Cordis million continued leadership QX, to growth. savings future. in a initiatives profitability cost this zero the will will team well and to repositioning is topline prioritize, that in us in sense a fundamental team place. of the In The beginning we is new fiscal and will invest, more ‘XX. budgeting through by in earnings annualized deliver than

our As last be are we fiscal we dynamic mentioned the Also, Related Cordis-related goal. growth pleased to to I’m to by and accretion fiscal we with report we we on resolve the achieved Recovery, goals This good expectations path to negative to profitable end that experienced I perform progress ‘XX. fiscal said Patient expect we business Recovery in ‘XX that in will Cordis EPS tax be a of continues previously. quarter, outlined as ‘XX consistent Patient QX. with to for expect our we earlier, line making the accretion

model, downstream pharma and evaluating actually are opportunities. the Regarding upstream we multiple

discussions We continue to branded partners. with have manufacturer

also shifts some in in light the are environment. contracting models our of of bid evaluating We

and expanding strategic We’re actively established has expanded critical divested relationship partnership key for managing few and Optum. partnerships. into our decisions. This business our China portfolio We with a translated business, our a distribution naviHealth

opportunities. assessing additional We are diligently

priorities follows: and second, First, with Finally, respect long-term value disciplined focusing business into future third, investing M&A. and on to growth and to as our capital deliver returning we’re for are limited deployment, growth; cash to shareholders;

will financial As we execute priorities, these we flexibility. maintain

enterprise. With in value implement continue the right of strategies agents these the our change see team, to leadership the we global place thread and throughout

others Some give action of while have around of now each context to to to areas time. wanted we are may these address them. But, because executing take these growth, short-term some you we initiatives, some roadways plans

Next, guidance I’ll fiscal discuss XXXX. our for

slide be enterprise XX. can the found full-year financial on Our expectations

anticipate low Company digit our revenue. we XXXX, consolidated single in fiscal For percentage growth

$X.XX $X.XX. XXXX, growth we call, XXXX expectation would indicated the our EPS On $X.XX EPS modest based in would see finish the we we expect of fiscal $X.XX. between QX on non-GAAP and We range fiscal to in that

just we the discrete impact the large discussed, in QX, saw tax As we item. of one-time

item XXXX. impacts this it our view does not year-over-year change, fiscal Although percentage of change our

be the earlier. which from to as we XX% of structure While rate full entity between fluctuations, our which Cordis tax as effective prior U.S. resolution expect we tax non-GAAP see the may I quarter-to-quarter for our some fiscal legal mentioned reform, XXXX, reflects benefit issues, and XX% well year

shares. $XXX XXX between million. expense $XXX to Interest Our XXX expected and should other and shares between be average diluted million weighted million be outstanding and are

expenditures $XXX in capital million expect the million. to of to range $XXX We be

segment XX. the on for slide Now, assumptions

digit For segment, anticipate our we low Pharma single revenue growth.

a profit, high segment to renewals, digit loss to PharMerica. For headwind single, generic we percentage double customer and programs related expect low a the decline, to due of

However, growth. to our deliver expected specialty business another strong year of is

modeling inflation, to brand tampered single in we mid are the which expect We digits. be

less sales item State not to fiscal the but continue we benefit, Due did will the XXXX, opioid assessment, included the the generic anticipate but uncertainty impact around expect to from XXXX. our fiscal the a We in have environment Oak provide side stable. pattern in year-over-year York than on it assumptions. was XXXX follow this We New fiscal any to in Red deflation competitive where

segment, expect For growth, the growth. digit Medical we low percentage single revenue in market with line

made from We also XXXX. progress digit growth by in projected In for fiscal anticipate contributions have to the closing, patient mid identifying we segment high path single the driven profit year, in growth significant recovery. toward

long-term initiatives will of for We future are diligently that position Cardinal success. implementing Health a also

months. more I’d open share this the line questions. will your to continue We coming to about and that, like invite the in With

Operator

the from you, go Bank sir. Thank first Please Michael question [Operator Cherny Instructions] America. And of ahead. comes from

now Your open. line is

Michael Cherny

thanks the for and morning question. Good taking

unpack So, the call. commentary I over generic of want the the some to you’ve made course of

stabilizing about performance the talked You business. in

being of forward. You about talked going Oak a Red contributor less

are in As biggest gaining the you moving areas it And competitive dynamic, think incremental commentary basis that are that generics are market you or the forward is year-over-year where it on creating stable? about as upside piece but on of is about what competitive where areas competitive what of you’re those opportunities the against sourcing a -- are the the think the generics? how play dynamics, headwinds the

Mike Kaufmann

The Thanks is feel for about components, several know, talked very ones our say, we to Michael. that Red the to we’ve question, past, the program. would about good as as I in continue are you Oak. there generics

expect of be just year. us, then less prior this saw for positive to continue a to a we positive We that

a this as them small although a pretty see launches continue to see of We year. generic as launches positive, we set

being to generics we’ve buy customers from Then, being able offset biggest work recent see based from been the of all as see compared all wins. would which generic us that prior volumes to other continue be But, a us to expect to to market headwind. to for the be facts, this on the for was we it more we deflation, continue and to generics overall with year. generic We some the program, net growing still of our stable where the

Operator

Thank you.

Morgan comes Please go Goldwasser ahead. question from Ricky from Next Stanley.

now is open. line Your

Ricky Goldwasser

and Hi. thank the comments. all Good morning Yes. for you

little So, inflation and wanted focus I on just Mike assumptions. branded a the to Jorge, bit

assuming then it, of mid about talked Can into you now cadence second see assumption for I heard and You is and of between what you from factored we’ve the December, manufacturers, unlikely between the single mean, guide. comments year-end. branded to digit that the are seems inflation what year? of in and the clarify half for inflation from now we’re it terms much

So, question. in high for whether of you’re of second part XXXX. fiscal versus single of first you first fiscal think digit the XXXX for do to the business to obviously beyond, your return in just we you and better doing, that the I assuming second assumption year it, year? And in growth can the fiscal part everything understand But, of then, high think and guiding are year the that’s single half year think the want you’re segment? we mid -- and to half So, you of the when about distribution

Mike Kaufmann

things. step is start forgotten the for back for Great. I’ll that first and there, valuable. questions, we what with manufacturers inflation, what’s customers we do branded couple often believe incredibly say really Thanks that I’ll of and just Ricky. On different

very a transparent and of the supply where have We near industry are really as been part, chain important you a secure service XXX%. know, levels very

incredibly I So, find forward. do what think manufacturers we going and would both that customers to expect and be valuable I

comments. about few let think I you inflation, give As me just a branded

are conversations have TSA inflation, remember margins to still than of we less contingent those contingent XX% of First have all, continuing portion. active branded a with that and that to manufacturers are our

so, will it reducing second is inflation. look to said, when look to where And and that. our month, most comes specifically being we That typically continue possible branded risk at that at important on July

QX. is in said, being our it to second that far Now, a distance January

it’s the January. largest less month, than So, while significantly it’s second

light. was until is end it what branded so, And saw manufacturers again, light, July waiting heard, which what year. we we little potentially of in And heard was a you calendar

when increases. point time, at expect to our their contingent So, quarter, -- is manufacturers price in this our tend we because strongest it still to QX our that’s be take

incurred we vast happen We continue with less this them. significant be forecasting to inflation majority we slightly a expect actual and what have while an as overall year, And to in to are our discussions than QX. we branded

it’s until going it’s going of for first headwind probably tailwind January. us part what to the happens to whether So, be neutral, really honesty hard be see to we or in update

bit to -- bit which inflation few if try a far that size sense of our lower here than little current that within that, did to we the points at we this As than giving able you action incurred I said what it’s a would be branded our absorb was assumption, to if as off, last least little versus helpful we year would in year, current a percentage be just last expect range. to I guidance

single if points. if digits or few very create headwind. low guidance a be it that zero have enough it’s year, then whole we that we type might in But, Now, just a current of our think range percentage room by the off to for some continued

And talked we gave is lot continue about have a early just on that FYXX, this just process. We lot in that we underway them one time, being Moving brand are just in what point of really of your the FYXX. inflation. at to involve, to variables a question initiatives of there strategic

So, other going any at right comments the on Cardinal ‘XX for positioning to I’m focused this not on we’re point, future. make than

Next question, please?

Operator

Charles comes Please & from Rhyee ahead. Company. question go Cowen from Next

Your line open. is now

Unidentified Analyst

impact It’s of help how what you assumed us greater visibility to this was is XXXX? quarter, us Hi. for quarter, on much fiscal inventory perhaps write-down the last the quantify Could James and maybe in maybe Cordis, provide with Charles. regarding

Jorge Gomez

I’ll question. is This Jorge. Yes. take that

the inventory platform. demand we to team into in we believe improving as position not write-offs, have around has planning you in improving much XXXX, better what terms numbers we levels is our across XXXX, chain. made progress system, our And chain a provided are I specific global manage We inventory of but that fiscal supply in could fiscal tremendous global supply go our our tell

So, our I’d the the one four turnaround of it’s we The are direction. plan moving making say, elements key Cordis. right progress. trends are good in And of

Unidentified Analyst

that you that didn’t contracts, notable assumed Okay. a to Can maybe renewed customer expect XXXX? a be color of but notable noted the components us And one could of contract disparity, that a of headwind. some fiscal pricing they’ve your is peers with In some customer margin on for for contrast, provide this account Optum headwind Cardinal. recently the of any and are customer there repricing in

Mike Kaufmann

grow has Yes. multiple things unique Thanks the is question; years mix margin they’ve we’ve been other we’ve at of impact, able until ways either low mind. because for parts couple to customer of offset in to been keep Each the year-over-year minimal priced find of their we’ve over market very already been in able that customers of of to There those. very very -- or the renewed times because where time renewal, some with itself. to either been

often compare have affect and and it’s So, can that times different other contract. the generics items percentages Each hard think that contract I its in of brands very at different individual lifecycle, you mix. to that is

continue the XXXX. headwind and us for our go FY contract we to mix length at for to our see us, where are, of be ability for contracts, we customer in So to we our of look do a after renewals that, term mix when additional

Many in on points couple those renewals quick XXXX. Just occurred of that. have contract a already

which agreed longer them renewal you six-year the renewal. impact, with customer of in a what to more is is way. a went are Optum, cycle seeing a kind work So, of one a is term a notable that we’ve three-year strategic And ones to the from

we detail customer And any so, as don’t detail this some on specific far in with partner point as to time. at investments going a renewals, contract working any made like counts And as go we on other them forward. into

question? Next

Operator

Evercore comes Please question Muken from go Ross ahead. Next ISI. from

open. now is line Your

Ross Muken

everybody. Thanks,

one the just thing maybe to on quarter. understand So, trying

you So, the if on side, for at than segment the figure that corporate some margins trying and they the kind loss of underlying were to normal. net Pharma, how out, sort total to results out for I of Medical and look the and figure were out I’m for implies Is talking true just of about? and the of what it quarter? the net sort larger charges compensation those

Jorge Gomez

question. Yes. the the QX, When we look for we Thanks were in Ross. we back landed we and of actually step we pretty performance going segments at the morning, to where Good in operationally, thought much QX.

have that I my the right, to segment, related -- that contribution mentioned remarks. XXX(k) You’re in there’s amount large a expense prepared is the on corporate we

So, that’s performance quarter. what the the of in segments reconciles of Company the total the to performance the

Ross Muken

it. Got

then a against inventory charges step guess, cadence? quarter, the kind And is thinking for up so, three then, I you take little some but first quarters restructuring the Patient the stated, truly if the you last how the medical was coming are just time. bit on And we’re about of the Because part obviously, in of year, plan. going some in then, is of to Recovery

maybe normal year balance to kind then Medical I’m a more the trying And so, are next seasonality? little tuned. the cadence finely that step-up just we get a of over and expecting of bit

Jorge Gomez

Yes.

see QX we’ll is in medical year. that think of that hard look to I next as those at see and the numbers representative cadence

compensation for the enterprise-wide quarter. we element other that allocation had in Medical of happened down, The was the push entry in the QX

levels would medical expect with to So, business. QX, for the margins combine below amount QX inventory had see we brings of we when QX, in that the the write-offs that that in for that you

nature given when of So, think should we XXXX, those about some those the of we items. in margins, non-recurring see a lift

Operator

Please The ahead. Sachs. Jones, comes next question go from Goldman Robert

open. now is line Your

Robert Jones

branded I of I cost some questions. the generic bit the high I guidance for a could the in a headwinds be obviously. walked Thanks Pharma on us of But, a that and hoping to could inflation just the EBIT expiry, XXXX? maybe or breakdown, maybe digit. you headwinds rank lower down single just more you’ve just know then you’re you digit some baking double the little the low order and guide to off guess, deflation Mike, from offset about talk give If starting for of cutting? little bit the contract was expectations, expecting the into versus through

Mike Kaufmann

Yes.

why So, try which of to to don’t be that a at of captured Pharma pieces just top I’ll figure something takes puts be might this each you’ll end. able specifically order be I to helpful. just helpful, and for be or all to the go kind do and Medical, descending in are through out

outside, one be Number the us. Patient at on be growth with be third our number going us. continuing for Tax is one existing two First growth. in be is year-over-year businesses Recovery, to going to for expected to going accretion double-digit is Specialty to

the large be business year, initiatives. that reinvesting the and those XX% expect of tax in time; annualized growth. benefit I to next are net to to versus The have as point $XXX and back we into contribution, rate, Remember structure next. discretionary be which million over a XX% the that grow expect portion the Jorge in this roughly this would don’t be we then, the to cost future XXX(k) next savings range we of from XX. We told but you would expected Shares year the mentioned, at drive

and would piece. the in that. already naviHealth much then, kind ‘XX. Jorge the both obviously, program China renewals those are Customer that And second lot of of be has And generics tampered is again, would -- next. -- inflation after of the P&L of have a And naviHealth. PharMerica be would remember, be then takes And last next done be brand would been be China said. those the the gone lower would divestiture are the Those puts. year. So, those and impact of

specifically brand. PharMerica in customer it’s for and America So, to going the renewals, us be Pharma, generics,

Robert Jones

just I that doesn’t it’s your guess, sound of on like some mentioned I as the potentially manufacturers issues. But, that, appreciate you talking all point, some changing big to the as structures. about other fee Mike. of last branded brand headwind a

received the discussions how you and been their paid? that have renegotiate curious Just get to way what’s guys those willingness

Mike Kaufmann

We having manufacturers. discussions been have with

and rate. I those headwind been some those some have we’re ones bit of non-contingent little discussions, mentioned to expecting gone In as were only for inflation the year The is year, have converted. well. essentially I as fact, reasons contingent not moved that lower last And year-over-year of this a mentioned, the

is go there when some you to So, the of contingent of off timing non-contingent.

headwind going conversations are the those have driving well. Pharma. things for been the But So, year-over-year really

what such that’s higher think changes I’ve don’t would not that if need say to that to and manufacturer some able things going And the they they’re that is contingent rates. be not about to any that going about I had that is marketplace other in them I WAC have of if expected to recognized not occur. renegotiate inflation prices to talked understand being the as for if that we’re

us, that so that think we They negotiations, of way Thanks. always understand that to or work are that changed. and of those any and as the these. the manufacturers understanding they’re do get want willingness predict is the we manufacturers from having be with compensated ourselves to that’s the far to that the best we to be discussions I market, the with doubt But, work there work need needs right all any would think don’t to it’s through as get it’s us, expect to provide value attitude having how significant will -- to I right to will the there way hard thing to to and that go.

question? Next

Operator

Wright from comes Erin go Suisse. Please Credit question Next ahead. from

Your line open. is now

Erin Wright

this any how how If business do are mix the -- does guess for put guidance Thanks. you to Can Thanks. your you’re you potential guess this time, behind at speak into here? how your growing the envision you divestitures? contemplated I about that rationale evolving other in was business perspective, other exits, I there nicely And partnership/divestiture? naviHealth thinking and

Mike Kaufmann

in of Yes. of the space, be the one that And business. that naviHealth Erin. value there our as not things. really XX A that in is Thanks would impact but over next on only couple XX all that to XX the be P&L more on of Medical these drive particularly our ability to segment. for will months. investment in that were We question, is things space, important, for a significant changes on we to even knew importantly like the we look to there of the that investment needed focus couple we a and going more things impact XX, an knew to was lot But

opportunities, the we path over be And then way, us get wanted the take we had invested the if as to the potential that so, disciplined what for still able type midterm, back something to to to opportunity doing. be a worth we in if some explore could back, ownership began we retain to, might in back business with but it of

We as good to of think more the able get like XX% did we business this. all and really we who XX were had to We next and really work as that. is invested, a is in positioned to so, terms exit back partner months. we the for then, hiring to accomplish. And And well both we were and what able than a ownership XX with the talent, way do to over significantly us in business invest CD&R people retain

maximizes think So, in allows focused this and and driving the of us which and turning patient us naviHealth business. Cordis to for really we is of potential business our key big landing rest the recovery the Medical, growth really around drivers that on the stay

the behind So, reasons overall was that. that

on about as But decision other our prepared as the can now. off talk portfolio, as you we specifically imagine, in far the table. said those you nothing I there’s As my can’t remarks, right

well. with need And And will to portfolio. our we’re to we continue types advantaged perform an our owner. at we lenses, continue that We at portfolio. to those business needs feel Each a take to look look of

Erin Wright

Okay...

Mike Kaufmann

ahead, Next Erin. question go --

Erin Wright

just the goal, how of with accomplishments the the about guess, off? exiting of the transitioning I on and recovery and implications think there process should quickly can we TSAs just where accretion mention that those we financial you stand patient topic No,

Jorge Gomez

Erin. Thanks, Yes. This is Jorge.

So, be for forecasted of what XXXX. delivered that with fiscal have the respect also XXXX, we track we my and above I excess to are in on accretion indicated delivering fiscal we to in committed goals, accretion to in remarks, as prepared we

the that performance process the things So, It North TSAs have expected. last the to bring from But, With exits, exits, the are for going North processes just have complete those early is preparation everything place for indications transitions. begin that complicated the on move are couple several the is Asia weeks and we is exit the line the we’ll the Pacific. as exit those and and well positive. weeks -- in of American OUS the work exit in TSA business. will respect will about America. we TSA in that we fall, TSA in of well. part to on are also all track. ultimate exits, and in to of going to of make the began Europe working All in we feel take exits a arrangements we the that After And It the sure good of outcome

Mike Kaufmann

please? question, Next

Operator

ahead. question Next from comes Larsen Please David Leerink. from go

Your line is now open.

David Larsen

investment, Jorge Thanks. Hi. as opioid then, to tied XXXX. renewals? well? $X.XX the fiscal of complete? about tied back we are of also or cost those And client And half are through Thanks. those talked the in through were investments to higher that Are mainly you those

Jorge Gomez

were contemplated there have we of place fiscal a question. With Yes. that invest had in type completed. customer investments, that customer and respect customers. other Dave, to thanks key yes, combination And XXXX of for we in renewals the to was the with initiatives amounts

Mike Kaufmann

internally this. far have into been programs continue XX important investment XX We started really think externally. years go, various we Rx, have steadily something as years making that doing the our to we opioids us company. for is and Generation This to both As over as we be the that this, ago, and last committed -- a to

XXXX will changing. don’t because make At it’s investments to opioids be grime, forward us. in important point this to will to the I in we versus what that continue hard So, level it’s see going predict XXXX, but

David Larsen

how do renewals And renewals? Thanks. more Okay. like you XXXX, have in fiscal then new

Mike Kaufmann

you we of that has occurred And if early. that customers, on don’t those impact. give we really than go already anticipate difficult then, that have for other portion us for that XXXX. through Since A Yes. know renewal contract are expires it’s to renew specific come rest or of color to the any we up it in the

every any more portfolio entire looking just our at than detail. other us it’s as year. we do I But, can’t So, give that,

please? question, Next

Operator

Next from question comes RBC Please from go Capital George ahead. Hill Markets.

Your open. line now is

George Hill

be the give kind savings questions Hey. cost because Good getting guess, Jorge, the I ask guess, can you on you it sourcing programs my guys. you it a would to you I’ll be gloves the going like fixed like guys lot? asked. me will the for seems was, of net have been I all morning, is that And numbers, there second of that stopped I the one and kind are we timing of of and have in the gross just follow-up we’ve reinvest business track? us then, and issues -- appreciate guess, business. my seems I back about versus realization talking

Jorge Gomez

right now. savings, initiatives a important being Yes. going of process for With executed have the one on. we fiscal XXXX number most respect the in Thanks, of The is to George.

I XXX%. so, not XXXX, those And to in expect have the majority but of savings

will reduction, initiatives. the procurement as around changing There those indirect captured fiscal are majority the there savings of XXXX. policies, elements analyze into elements spending is we will XXXX. we go be around labor So, But, in are

of underway. All are those things

of implement all them. began to So, we

So, I have there fiscal the captured expect several different to that With what quarters. But, be fiscal gloves, annualize XXXX. equation be going last not to to a to in is majority piece XXXX. in in a that is going respect from this experienced is we

and multiple a implement our -- see continued initiatives So, we work cost XXXX, concerns. early don’t as that fiscal we those see team go products. that point. think, to effect this that go will back we it kind those improve we fronts to to do cost The lapping headwind costs going But, that I of into with to to began -- are has the actually see into we in as at address XXXX. make sure prior we on XXXX, to I we of be trying the positions increased

George Hill

cogs that great. Okay, follow-up Is step a on there gloves. a on Maybe a just just quick or tariff there issue? s

Jorge Gomez

Yes. for cogs most the It’s part.

George Hill

Thank Okay. you.

Mike Kaufmann

please? question, Next

Operator

go from from ahead. Percher Research. Eric Please comes question Nephron Next

open. now is line Your

Eric Percher

said mean when were on that you change things were that to see pricing, to contracts talking you and and actually way early the contracting the with way do you speaking manufacturers or contract specific evaluating risk to opportunity should change extend and we’re change. the to that? you Is that you and and Mike, you. customer should likely that about pricing Thank the environment they are to you from also did that today

Mike Kaufmann

Yes.

of it’s think directions, color. both I -- different bit probably little I’ll but

amount I decisions then, sure around agreements of think, to on going make decide to there, continue we to feel If to they that in we’re also manufacturers reductions manufacturers, inflation value those upstream WAC for with those different have we make change. the through order manufacturer, the we to work decisions they’re as get need make if see compensated contracts. are to then, with, again, contingent prices and any also going to manufacturers comfortable provide,

to going little And do, are that to so, as good from early in think manufacturers I having. those conversations about anything, what still mentioned assessing the we standpoint, areas. because themselves say feel a if we’re I they’re how It’s earlier, they’re to going go

if they and their do But, change WACs or through will then should they the contracts believe it to get And change continue so, have monitor change, they change, we’ll and to continue assumptions, I and inflation we’ll those. discussions.

the to with in as educate downstream, sense to we we’ve to differently at changing that and at down customers of pricing I bit cost mix far conversations end to have conversations, structure. have we’re the of look As with customers. all continue them the Because to them on comes the with have your to marketplace balancing it been that little of make the day, type looking a think your to types it’s we those the need that having sure those

get had in balance. to bit we’re And we’ve declines the little working more obviously in both distribution. cost side why pharma out a We’re customer balance is side that the our on which of and

Eric Percher

like or some make working transition there through was of across been If be and change heavy upstream in there in major the having X/X/XX have before, it years WAC. change? that re-contract would know needed shift of And How had last difficult because if to a once downstream stage that feels a at been to we lifting. both couple been you have you the and

Mike Kaufmann

good a question. It’s Yes.

those I that the kind of that we so the last that Head of think negotiations. this, Procurement through the gone it away was things of that I of I And part was was of was is DSA went clear overnight all the middle in was very marketplace. changed the it time the helpful of in it -- with situation

works. purchasing service their had anything things because XX, XX is I like and of this and think In system? XX, The lot lot ago the their every is I directly worked And incredibly When a manufacturer distributors what it have uncertainty, XXX% was time change system. distributors supply think we the see that near it case, most and into everybody chain secure. very you’ve and It’s everybody why vendor moved last So, counterfeit to has as all heard pharma happened. the a I hitting all has is the so, obvious prime seen current model. which think Manufacturers the did, knew likes because was transparent; Customers the there knew well. it years is really have about very love more conversation still a what you fact levels. that

think I back like well, overnight few it it’s said, through is I predict would understands as is where there as to know to. And going working know nice, all then if well. probably that something it’s them. so, being because don’t as work conversation, everybody we’d date then, little that such a working one change, was a if to going, reasons it’s really be a and quarters, what certain imagine, will. exactly needs -- you we But, be to because don’t it’s said, that we’re rocky why like that I of it’s think And where be a That is and more changed can going surprise, the it’s of for the hard we to it

a more out work little off, kind less we there through of if might we’ll date could be will. a we work that of towards. and So, just surprise that be It it’s it’s of the confident could not, that’s a them; I timing if am

question, Next please?

Operator

The comes Barclays. question from go next ahead. from Steven Valiquette Please

line Your open. now is

Steven Valiquette

everybody. Thanks. Good morning,

about bit trends your if Street guys pretty guidance good modeling. a little the expected providing are maybe a what You than quarterly basis, different on are

cadence the not now? Given and that view XXXX growth you to focused in maybe EPS just with year-over-year. about am might EPS some you your FXQ the growth I modeling FXQ growth is EPS some be comfortable relative of on are here didn’t I make showing of any the Street even Street today or quarterly modest guess, XXXX comments what curious right

Jorge Gomez

the question. Good morning. Thanks for

Let me start.

because thing want at to that about are we granular elements as estimates. you say would making too don’t some know in I point, the this guidance, is, there difficulty quarterly create First be those

For you’ve on seen, ETR, performance of EPS the the it business. therefore with as move the reflecting could could from a example, fluctuate around underlying quarter-to-quarter and little bit actually the

the if in of expect obviously will quarter one you a should the particularly remain QX you think in Pharma fiscal of year, to that to quarters seasonality, XXXX, on due So, side. the the strongest see the probably

the that we tell you of of for improvement operations Cordis, the we could to what On the side, improve the throughout year. ramping benefits transform but continue John segment, changes, this throughout the that’s overall strategies its to team And at seeing be I the probably approach, those continue point. Is Medical should and helpful? the commercial should the see year. Medical commercial

Steven Valiquette

That’s you. Thank Yes. helpful.

Mike Kaufmann

Next question?

Operator

Thank you.

question from Please ahead. William from Kreger Next comes Blair. go John

line now Your open. is

John Kreger

to a a model economics From materially smaller? the of spread that net Thanks to Mike, of work back environment changing your sort the have to sort of envision gross you discussion much. is perspective, in the within your that an business. just you where minute very about go distribution getting sort Hi. ago would pharmaceutical do

Mike Kaufmann

I time. don’t model point this specific necessarily have at a in

kind model through the we’re very look model, XX, next alternative that We we ago, at discipline. XX I make, and importance we and years is our the has of change. specific may for call own really have each think, mix each growth the that manufacture know, we may you is, value and dynamics the And created we adjustments stuff them. they went the to differs. best their what manufacturer where they as deliver

of So, work continue with to to and type the pharma see for them that work we’re right manufacturer for to structure going us. each may what’s

focused We’re the a I’d But, sure be going then WACs for model. the it’s prop early to we say, what multiple know is, we’re make on lower. be what might too to our paid But, higher exactly really value similar including do. little right rates we still what but to keeping it get having and it are discussions

So, we’re standpoint. that model a could from very simple that change be --

So, of looking continuum at a different opportunities. we’re

John Kreger

patient Great, top in for the of the organic single-digit growth thanks. for you Medical Jorge. what the And low take is say on if growth XXXX quick segment, out I guidance revenue benefit The acquisition then, fiscal you follow-up recovery, implied would line? the within

Jorge Gomez

segment, within that tell Medical the number growing haven’t down broken are of there But, organically pieces you the a are we that well. revenue growth. of Well, would I the businesses

Recovery. you have Cardinal have Patient You than other Brand at-Home,

We grow also to is have perspective. which Cordis who top -- line continues -- ramping a from

the within there’s number think are top the increment the -- line showing from segment Medical organically perspective. of a I most businesses So, of

Operator

Eric Thank Coldwell comes you. And our last Baird. question Please from from ahead. go

is now line open. Your

Eric Coldwell

on was precedent, the you Hey. this that with the there I’m good morning. State could I assessment judge’s didn’t decision opioid do considered clarify was not sure hoping much comment the York New I negative and of familiar what you’re a talking Jorge, made to? know but a very about. catch that. assessment. I’m you’re I talking end call, Thanks you at the

Jorge Gomez

sure. Yes,

me a little with Let help that. you bit

implemented. distributed XXXX the that, of because in April, be aggregate there’s calendar distribute around And initial on we it for still or all manufacturers passed uncertainty York. and distributors into would from million any So, Based the Xst due newly year during factored how York New haven’t January assessment lot in law opioids who a an our is of opioids impact created this sold sell guidance law XXXX. New or a payment on of annual state $XXX on --

Some pay. market law a a law each uncertainties of that uncertainty much that in and legal waiting of are there’s participant some law. complexities there state. And is see was way terms from There against this a lot significant written, the with is will how guidance lot challenge pending in the we that the include, frankly, actually of in the of

Eric Coldwell

Thanks helpful. much. Okay. very That’s

Mike Kaufmann

Is Great. Well, thanks, everyone. questions? there any more

Operator

the sir. time, no questions at are over There further telephone this

Mike Kaufmann

Thanks morning. Great. forward everyone join Well, I And time this some a to just taking of of want you conferences. seeing day. and thank the we have to for to many at the us good look upcoming

Operator

Thank for and Thank you. conclude that participation. you gentlemen Ladies today’s will conference call. your

You may now disconnect.

Cardinal Health (CAH) 6 Aug 182018 Q4 Earnings call transcript