CAH - Earnings call transcript Q4 2019

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Operator

Good day, and welcome to the Cardinal Health Inc. Fourth Quarter Fiscal Year 2019 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

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

During for fiscal our 'XX. details year will and year the and results guidance quarter full on provide also call, we fourth provide

of find can section release site at on the and You Web presentation ir.cardinalhealth.com. press IR today's our

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

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

relevant non-GAAP Our in schedule attached GAAP to our for the reconciliations can found release. press to be periods all

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

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

any this available always, with so feel call, As questions. to be free out IR after team us the reach to will

the call turn now Mike. will to I over

Mike Kaufmann

joining Thanks, morning, Lisa. thanks Good and us. everyone, for

for for year. some our our fiscal Jorge future outlook discuss it fiscal to commitment share by begin to and perspective 'XX thoughts providing the results before financial 'XX me a turning I’ll growth. on and on Let few to Then the over QX

various the in to In long-term XX in future. plans months, near place and the grow addressed business challenges put we and last

at 'XX, delivered of the made the Importantly, overall commitments we in fiscal on beginning year. that we the

a outlined the progress our we strategic follows. as fiscal six 'XX, priorities year highlights from ago, including of against are Some

we share. delivering EPS our $X.XX exceeded initial per Notably, guidance

Specialty, We continued these at-Home to see Medical and double-digit strategic in as advanced revenue Services profit areas. growth Cardinal Health growth and we

recent the With we our least years. Kroger, of now next at three CVS have with four customers largest and for the contracts renewals Health

been and structure, initial have work a future cost targets. optimization this our us savings Regarding engaged to delivered significant exceeded make our and cost reinvestments in $XXX we the strategic year program savings. has We positioning generate million

For of shareholders capital we We for resulted deployment, $X.X the continuing dividends our cash reinvest form financial in billion in year. focus flow flexibility business. in share generation the the and buybacks flow to our while to value strong of on our and cash operating delivered improved

portfolio In steps strategy. as management partnerships and the we portfolio of our took part area, ongoing

the During the to for the we exited underperforming the partnership growth year business. geographies accelerate finalized rationalized and and naviHealth

that are With respect Distribution Pharma our for business pleased we to met year. plan Pharma, the

plan enough. meeting not However, is the

on We future few I this, focused growth. returning works areas to when key To outlook. are that discuss cover sustainable, across a we achieve our I’ll underway have profitable

not did I’ll execution talk translating from Turning I ongoing segment cost Cardinal the brand including more during this Challenges about Health to line commodities, to chain across and supply this bottom products, we this when work fiscal we with year, our meet medical, the improved infrastructure while expectations. detail in year. prevented the from associated discuss 'XX.

with Cordis. many rates on and in line to path profitability top geographies is for update This sustained A on back and fill trends improving growth quick orders. a business

this strategic results Solutions ability includes we Medical fill improved work Overall, to future. our direction confidence in we made into strides rates which business patient our positive translate we have recovery. and our in fiscal in Additionally, 'XX in the and

color additional it turn Jorge. I’ll and to over 'XX, some fiscal on QX provide To

Jorge Gomez

review a a provide I’ll quarter and the of morning. good and Mike, overview the year. Thanks, high-level of

always, be results for can our release. in As press our found both

roughly due large segments. For for profit expected medical missed QX explain our quarter the in but a forecast segment performed charge to as which Pharma results, primarily segment I will

expected that anticipated. again due Our were the to lower than EPS multiple we items favorable in than more quarter was once

EPS result, we a a As delivered better-than-expected of QX $X.XX.

to a mix QX initiatives. program sales from contract X% customer This million, partially the a the briefly renewals. cost offset savings increasing from from and by performance the generics to segment and with Turning profit segments. $XXX higher delivered contribution Pharma reflecting Solutions, impact positive our benefits brand strong was Specialty and

an a Medical million, decline offset segment savings by of Cordis distribution $XX Cardinal brand the initiatives. of related This by agreement decreased to exclusive with driven primarily the partially benefits profit our charge reflects XX% Health supplier. Much this cost to products. was

services performed brand business expectations. line at-Home, national in our with and Our

strong in with quarter We year the cash cash continued finishing a in generation operating flow. billion $X.X the

Additionally, we sheet. balance repaid debt our to $X.X reflecting billion of commitment strong a long-term

we the decreased at established I’ll to company to overview Total billion. margin billion year. and of year, on billion. $XXX.X now X% the gross was to company prospective full a $X.X year the revenue earnings onset Transitioning operating X% the up provide to down results an $X.X of for Total commitment X% the the and were

came lower driven prior which calls. completed 'XX work the and of full legal by Fiscal we 'XX year. a last at in discussed expected QX Cordis, entity X% XX%. EPS fiscal The related year was than EPS versus in reorganization This in came we $X.XX, around primarily increase to rate on

divestiture our business. For sales X% to year. for China to we partially the billion Distribution met customers, $XXX.X segment, mentioned, a Revenue and Pharma due by Specialty the Solutions from increased Pharma growth distribution Mike expectations as the of offset

Segment generics the higher and mix negative offset Solutions Specialty renewals It expenses. from by program billion opioid-related profit contribution impact performance, savings the was initiatives. contract to customer sales brand cost a partially benefits reflecting and decreased from performance, from $X.X X% and

flat from of offset acquisitions plan. Despite divestitures. the $XX.X in at-Home delivered strong customers was which at was performance net several bright with year as year impact such Revenue of growth segment and spots results, Services, the by both all and businesses billion Medical for below existing

decreased from and benefits of offset cost Segment Cardinal the This million net divestitures. of initiatives impact profit to XX% products. was driven by acquisitions $XXX savings brand the performance by Health and partially the

total company and due X% cost work. versus our note, to optimization SG&A last dispositions Of improved year

We primarily of last XX% as a also interest balance versus expenses improved lower year, higher result balances. and debt the other and cash

effectively. and We we by throughout sheet long-term debt. the strong strategically capital and year allowed perspective. the Importantly, of a financial paying capital allocated demonstrated for allocation to of billion capital shareholders hurdle discipline return billion was deployment ensured the from $X.X $X.X and rates us balance a company to This increased strengthen to initiatives down

of I as to it I’d nearly would in incredible to grateful to Cardinal like few XX my privilege finance a been family, company Mike, gratitude remarks. the over investment community I Mike, I am and is especially of like mission. Before back and the that Cardinal share to that Health at very people with This the years team. I full rest the spent has turn to service an my work for to express It management as the Health mission. our a team, well Board fantastic incredible and

back over With to Mike. that, turn you, I’ll it

Mike Kaufmann

his take moment to his numerous a years. I’d thank last in to XX Thanks. roles partnership for over the like Jorge

pace many initiatives and thought a been continuing We has he true the he CFO, that began. our set has the leader change. for look As to forward

that last years. groundwork details who months, Giacomin passion business, the the leader contributed has to has laid countless positions XX in in for future over want him also he ways thank His I the people the for as and pharma XX and Jon propelled success. over a the the last med

all build to and best going their momentum Jon will new both forward. and their Jorge team, Both led wish teams in roles. continue we behalf the on the them of that On strong management Board the positive

some our path share on let Now, perspectives forward.

operate in of a As generics we in dynamic you industry consolidation, moving with home. delivery the increasing know, specialty significant towards growth and shifting landscape, care a demand, the

and to will trends our shape portfolio, continue strategies with in have these and priorities mind. We

In continued are focused our our in model. areas a are making regarding fueling our progress like while businesses growth also Services Distribution platforms, key and priority. Pharma Accelerating Pharma, Specialty we growth on

made these to they do its grow payers, manufacturers, pharmacies telepharmacy among own, we medication management, increase messaging can together We working services but instance, our businesses. develop investments can and patients. For and health connectivity on like of each targeted have and therapy what

are of of brand we of rate our downstream expect even models more in contracts. and role will 'XX Distribution, assets continue margin buy-side the confident supply inflation Pharmaceutical we testing non-contingent Pharma future new evaluating Regarding the and be the and we while similar long-term upstream our industry, in remain to capabilities. to chain strength Also, 'XX, fiscal we our strategies. transition the of the in Overall, fiscal to to

opioid in the deeply communities. one significant do both epidemic, the here to significant leave spend that like I minutes we Pharma our we Before about few on a our I’d in issue segment, and company and where work care a

We limited done supply have have and do in systems extensive and federal, pharmaceutical always reporting regulators. an and but chain, to local have important sophisticated the role state anti-diversion

demand with Even balance and have been lawsuits opioids, in the prescription credibility. do drive of novel well that not claims for we distributors though legal wholesale many targeted unprecedented go beyond

these continuing against same the shareholders. to for sense vigorously are We time while resolution that at our make suits, ourselves explore defending opportunities

our And a as to communities. longstanding continue always, in will difference meaningful commitment making we

the chapters which with X.X educational with country has anniversary Rx and misuse. pharmacy materials this prevent the around program, fact, marks XXX year to XXth In prescription of people Generation school than drug reached training million more

misuse Cardinal fighting government alongside For the solutions. has to supported others forward critical Health epidemic other these we drug find decade, opioid look as well. and work We over efforts prescription in continuing a foundation and ways healthcare to the as the in industry,

Medical high-quality helping in the our in believe deliver business this customers role efficient and to turning and Now, we its care. segment,

initiatives top Our growth attractive for would included successfully we market. our improve cost drive position. history growth Med and this in a has recent execute execution otherwise to be us our engine challenges as some line

we end, following. engaged that currently are the in To

results. growth will will we strong in First, both continue our Services to at-Home and to deliver continue platforms invest Medical

commercial our that capabilities focus customers and Second, on new our mix. to more better recently offerings will our us introduced enable effective. team and improve We we make are to enhancing a sales structure our

But our is improving Third, progress drive will take and our sustained and that on optimizing to our supply growth. we focused Overall, committed complicated these data team the manufacturing, portfolio. plans executing and infrastructure medical future are confident and we are transforming are we making of chain on areas time. capabilities. are Both

across disciplined with strategic us capital cost deployment businesses continuous As to the we in remain a key company, move enable reinvest leverages operating and core capabilities. close will areas and in to our management. This we way that in opportunities our committed forward multiple initiatives to

additional leverage ensure and For we and to we drive accountability results. internal automation, example, cost to technologies are leaders savings analytics deliver empowering to aligning

$XXX than or million savings more We relative less. generate our that in are confident in baseline 'XX years to five we will fiscal

will customers through for We these create fiscal balance beyond of our discipline continue initiatives employees. and and value shareholders, with urgency and to a 'XX

to We shareholders balance also returning to committed and improving remain sheet. to cash our

At of XX% the ratio this of dividend expect our until we to XX%. modest increases to lower our we end return payout to target time,

Additionally, paying we balance 'XX. long-term intend to $X further billion strengthen least down at in fiscal by of our debt sheet

in me With our XX. Slide mind, turn let on this to fiscal outlook 'XX

anticipate EPS of other to should million to we of and $X.XX expenses First, an range the $XXX be $X.XX. range million. $XXX in Interest

ETR to across expect see full discrete year the may we While range some to of XX% items, XX%. a due quarters fluctuations we in

to weighted expect XXX million for Also, diluted average outstanding the shares our XXX will year million shares. we be

thoughtfully to deliver deploy $XXX cost we fiscal year manage 'XX. $XXX than of in incremental achieved expect As million continue structure on the we of to top more million savings we our capital, and

we the our to cost million $XXX goal. these savings range we incur savings initiatives, with charges And of connection may $XXX in we expect pursue restructuring additional to charges In as million. long-term record

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

appear will outlooks, Essentially, and to mid-single recent relates segment contract growth headwinds program. we segment expect the CVS it low-double effect fiscal As our decline and was the primarily due continued digit of we renewals, digit of generics previously profit those our in revenue pharma 'XX for while Health full our 'XX. renewals high-single the to Kroger we anticipate announced fiscal customer to

Additionally, year. we $XX be expect an about opioid-related increase to the of million, litigation million for about expenses $XX

of As growth. its to expenses these our a segment. Specialty trajectory Partially we these headwinds, expect in Pharma reminder, we continue record strong offsetting

of In Medical, areas begin we key translate the transform to our to results. will business believe into work ongoing

growth, expect reflecting growth We from digit revenue property low-single Cardinal products. digit contribution low-double and positive a brand

mind that and taxes, our changes uncertainties Keep taxes. not around guidance fiscal include 'XX in regulatory the environment, of does device commodities, medical potential tariffs opioid-related

our on depends success our know people. we forward, Looking

at talent I’d remarks We wrap to developing world to are share class updates my and this levels, some area. all attracting up in and committed as I like

of global of new Chairman, and in and Directors and Dean skills, saw our Avery management approved perspectives. We am benefitting CEO further Both look Weiland, and you a C.R. with backgrounds of from our former members. Board President industry-leading John Scarborough, our yesterday, strengthen to of Board Vice As broad delighted Chairman COO forward viewpoints. two Bard. array welcome I release to to press former likely experience bring their and expertise a Dennison;

has Regarding seen management team, known I’ve may brought next in large we the up He our our including engaged who been with than as actively to will external speed more search. for this and have our our for conduct In senior on I Miracle-Gro get appreciate as Evans you to XX Battelle. are his an David experience he in interim we partnership and working organizations Dave morning. has have serve meantime, Jorge filing finance CFO as and CFO. companies we Scotts extensive leading in search years

in Also, building I’m on With every of will he business. we management, to to steady progress results the has growth. Steve his performance forward the of as the excited track and on in Medical in to empower drive this a his role new Steve long-term team the he leadership, Mason throughout CEO topic segment. the record led has of underway generate have look positive and company business senior

are mid-term our will strategic and for team enable To future we confident objectives up, plans to a we Cardinal wrap believe growth Health. near our our of that in and

for With now that, it up open questions. let’s

Operator

Thank Instructions]. you. [Operator

We will question from onto Rhyee Charles now first go Cowen. go Please our ahead. of

is line open. Your

Charles Rhyee

kind issues few shifted think right, talk here guys, it’s value Medical you been feel deliver year? now issues years, of kind into that of of in this and this of the you the some it’s struggle And expressed Obviously, I of the a want in business Can process Thanks, poised over really of in the from identified of of remind secondly, gives bit. for have last Yes. – to Thanks. confidence kind the and we all for restructuring of And growth. you of move years then rightsizing the identifying are or talk guess is you a where over to spots next I sort like here well? as of to how us much sort about different couple little Mike, of business kind the in are here assumed fiscal there. here. kind business for We’ve charge what thanks we the specify issues? And questions can for confidence here. Medical the of the last the kind going about the you here was as shareholders. guidance more Medical and charges and you you and

Mike Kaufmann

for expected that functions would the Med Pharma, any the of would all I’ll are the And guidance after by and restructuring Well, restructurings restructuring the said, we company, as our and initial be continue charges we hit. across entire said be quick. The restructuring the in that real I charges. million charges have address to covered number also I additional may ones that we $XXX those would get so as

So piece. that’s that

my as confidence far couple in a of think things. Med, I As

things through working noise were complicated all created segment more the those. of of lot agreements, the TSAs, things in like of that through a lot the Some the those through Medical getting a

team and good ton confidence self focused near all space that fact people a on great in a have I And it’s you can and little the products we lot that acquisitions space point, surrounded We kind of plan complicated of any of he’s challenges feel your we have He’s bit I been Steve. M&A the Jon that or future a the that a don’t on through we in we’re Giacomin also, lot of product the that been so in that added, by we’re in Medical transitions confidence. put execution. feel that operator do execution, in he’s that that of Also in really and we’ve focus businesses to with as why the know, to around a in run a have the that’s inflicted place.

think have We of business underlying I kind key this good the seen and at areas time. in that’s demand in the point

Charles Rhyee

I that earlier perspective maybe Thank of when give bit of can that. Medical, if the should could Maybe think up cadence a you. thoughts you that And little a think or around see something us follow from year from just in sort point we up in about a the through about modeling ramping guidance the stand we can year? is we

Mike Kaufmann

Yes, expect Medical as I as the segment for really we really normalized, And we have We good be our year. you’re Medical been guidance past. it question. more for This for right. guess, loaded this not would the year backend coming quarters to in has cadence the think a

get to, charge affected You time. in is at because reoccur that this also That was I to Cardinal mentioned it that a point obviously talked didn’t products and the charge about. earlier, Jorge brand don’t Cordis-related in we our expect

Charles Rhyee

Great. Thanks.

Operator

Ricky to Goldwasser now Please will question ahead. move on of Morgan next We our go from Stanley.

line Your open. is

Ricky Goldwasser

morning. Good Hi.

on first It contributor important the an my question seems Specialty. to quarter. be in So is

margin year-over-year? what’s and exclude So And how and growth? Distribution driving the it Specialty in about sustainable quarter would the contribution, you specific can think or you be if up we just the margin us is? share operating margin it with also if outsized products customers Is just segment

Mike Kaufmann

business performance But we’re whole well growth Yes, happen a overall. the nice is and is comments to going business. I Joe DePinto it very It’s massive that really to the believe relates Victor you good and split that. not us just proud in strong continue we the out that in continue to a forward. continue we that I’ll our Specialty to Specialty component. growth we’ll so positive types on able in be to the really a it more the growth will downstream we our have our done of things. customers. of just those those wouldn’t to I’m say growing of lot team already and and as share a at market, just couple margin segment give of is particularly those growing to it’s do there in that a items expect look changes trajectory on our and businesses growth. job items year of past this upstream and then for customers coming The in when lot the continue of new very market, the to look going too And I in Pharma, see to growth services growing and seeing progress forward from

Ricky Goldwasser

in Okay. around the And Obviously, some seen up, couple Mike, potential then one your last comments. press settlements. on of opioid follow we’ve days

your all potential for manner So earlier the in litigation existing it thinking manageable company? paying in and the not with comments that’s feasible is and down line to about that a financially about standpoint, resolve debt, from

Mike Kaufmann

to the done a where this I into – about opioids Well, commented we it’s this. we system as that lot work consideration got feel believe that and take We outstanding we’ve good there’s operate so we there, in manage an stand, we’ve early historically. to but at time on

appropriate think report would be on time. about, commenting settlements litigation feel this and but I those strongly don’t at have we that all will specifically any continue to We things always or

Lisa Capodici

next question. Operator,

Operator

Bank We question go Cherny next of Merrill ahead. America will from move Lynch. Please now onto Michael our of

open. is line Your

Michael Cherny

the morning, Good details. for thanks all and

relative it the a there charge. give quickly about or quarter? to back comment the to impact the you Mike, way to on made, of the had Just go any it size magnitude just to Is

Mike Kaufmann

our for the Yes, our missing hitting the itself difference expectations that between basically Medical charge quarter and expectations. was segment

be on So with about just over feel we two to was a making really ago. wouldn’t It delivering that comment it agreement supplier, in the to we’re Cordis give that, appropriate good the entered primary little is the specific related distribution other a an color, progress contributor that. charge on incredibly than more years still you it further supplier. Cordis. to with And of not but And exclusive a was

Michael Cherny

the little buy-side, That Pharma about Thank dynamics maybe quick more? just bit helpful. on color question very continuation the of data seeing When parse that is Mike. points talked outlook. one out the the There’s of in challenges you generics spread. program, you’re you, sell-side varying the that around you can And a then

going to more to And so maybe 'XX? you have color with that try book it’s to a of your that’s how you business or just wait seeing what impacting through especially contracting, either your think and – the whether new those outlook as around you’re bit Pharma about headwinds offset the into potentially you’re for dive in little way the

Mike Kaufmann

things. couple A Sure. the Thanks for of question, Michael.

I being First of be year-over-year Health to contract renewals for largest we’ve customers announced, and all, the CVS our that with already is customer mentioned driver down going as Pharma Kroger.

that headwind So biggest Pharma. year-over-year our is for

program. progress Our so a it smaller the is like generics FY we in headwind headwind 'XX making. It’s FY was we’re in second that our than 'XX,

to tell the drive component give our improve. generics to bit details savings, to had a us a would a generics and Red generic But as itself color a market continues that of color but some you give to the tailwinds you to I dynamics we cost seeing seeing we are of improve. continue talk deflation are look Oak we us little But be are but launches, year. some for next program, to for smaller overall, take those a it to a to net little at will that beginning beginning things I of ability headwind overall because program are the one when little give about that lot like Specifically you

Lisa Capodici

please. Operator, question next

Operator

move We of from JPMorgan. Lisa Please next ahead. Gill onto our question now will go

is open. Your line

Lisa Gill

Medical just side? with Medical of Mike, about do be savings, the on think million Good Pharma and the that will much. primarily I very starting How that? cost $XXX Thanks side the or morning. between

Mike Kaufmann

components. if it’s I on on not, proportionally pushed spread get into hitting the working segments year. our working target different of functions or functions not And segments every a business But whether side. are XXX this feel million obviously that say, their of sure I good are really a and more each committed it’s on then single wouldn’t higher. things to segments. one I’m department be across That coming incremental either our efficient. to of Yes, savings lot will the It’s both unit

Lisa Gill

then four-year you that follow as the those biggest of up, we being think period just the headwind, period time, do contracts when And talked of over a renewals about about the as the over four-year economics time? improve

Mike Kaufmann

Well, comments. a couple of

First or step isn’t next number or there to any of years unless like some downs large that the like in related in over would typical. of the some those customers wouldn’t from four all, change change there that be something be stores pricing the

program a the them. contracts those typically have of over fixed lives So

much. in So they improve don’t volumes slightly but the change mind. than typically that’s rates up can Other to one time, over just keep thing often that, the go because

aligned really on your have excited more get volumes. based be customers models may partnered dollars have CVS business and Kroger such with to line really and good bottom be with been them. historically to growing who to And You excellent excited increased we’re that we’re as

Lisa Capodici

Operator, next question.

Operator

Jones now question next from We Sachs. of Goldman ahead. go Please our take Robert will

Your line is open.

Robert Jones

I maybe does the if it exclude guidance, the seen But because on anticipated typical you I’m nothing obviously was I of what that different Kroger remember the structure correctly, obviously for it’s like additional Thanks it seems those most And have a around what had guess, a to maybe it today share were in pretty digit charges I relative high-single those to from year-over-year. correctly, – gone? shared, big far Mike, sounds contract I if profit decline little more and renewals you questions. renewal kind go previously and what for litigation seen you bit even driving reversal like declines if driving seeing past. you’re like as plus in Pharma Great. past calling this still that as the what guys you structures thought the you like that than the Could just year-over-year. in to in this saw hearing CVS looks the it of just opioid pricing you’ve it even you’re seem quarter, back comments

Mike Kaufmann

they’re of they years couple feel first with are both I that still contract would contracts longer, very that or those and fair of appropriate I accounts. a four that got say confident of all, things. bit contracts have year full very are that Yes, year-over-year Essentially full so we Remember renewals have start we was because also that a I the little than typically date. a CVS, Remember a specifically longer it been. a impact. X as July it to mentioned is impact

very So that’s a thinking impact. important component of about year-over-year the

hopefully helpful. that’s So

Robert Jones

as Okay, the guess impact, tariffs? we much potential exposed any you how thing issues the one not was had was should of other far potential is you think tariff believe just great. or portfolio about And said how I guidance exposure. kind as anything changes just of I in mentioned Is there to with you share could

Mike Kaufmann

Sure.

numbers the currently small have a of give you do sense do it’s have already I all headwind but you can to to imagine really place. that we our some in this, forecasted we in little will in related tariffs As predict hard – that color first are

this already had have we so with the to opportunity And past deal tariffs year.

We have headwind for a done in a managing so impact it was job good and 'XX. in FY far us the small

get numbers assumption in. a certain get build as certain And that we United be, tariffs on increased dollar even in because out consumers of to pricing such some and concerns have when wrangling, percentage create build what may you because after all continued oftentimes you the a the to the What So and new didn’t of so it’s States. predict. just hard we’ve products was had issues amount, medical be it carved through a to chance in could the

the folks healthcare with of on issues. And cost that to on work make we educate the constantly it products and shortages so could the have we other importance industry sure or our those system and

we so will on on at let give be. have why and That’s time. what try that know But time we when that color going some to this anything build make comes happen we they you it’s don’t you help So to each what’s up, going predict that forward. hard in could something sure those

Next question.

Operator

now We next from Caliendo question Please Kevin our UBS. to of move will ahead. go

Your line is open.

Kevin Caliendo

Great. you. couple Thank A questions. of

or quickly the the there? mentioned Can the generic talk deflation improving. that about a was You little you on dynamics buy-side? that sell-side on bit Is

Mike Kaufmann

Yes, talking about is for generic is deflation sell-side we’re always the really the how talking we’re when doing. because Red buy-side us, Oak about

sourcing the a talked I to Health on be to our what that, But overall the of deliver because the to remember, improve and very generics going saying seeing this focusing launches what Oak from what to what you’re standpoint. get year the program penetration that one still year or do you continue year-over-year deflation sell-side this well. when and operate have and deliver very there are able CVS We standpoint. just that it’s team capabilities component about look continues of to at to savings going But just Red to to is confident be it hesitant we’re going a I’m in partnership from is with I cost

looking net So year. all-in, a or headwind be for generics to still program the is

Kevin Caliendo

than be saw for the lumpy Is in year. the to for cadence that to about cadence Medical we 'XX? And Thinking to any there at that expecting in fiscal looking earnings up. follow – over fiscal so different sort quick we 'XX. should is a think $XXX 'XX EBIT drop million, what all line? just And you I’m are Thanks. fiscal should of reason

Mike Kaufmann

charge into our this some Well, off in Cardinal next the had to year. QX transitioning of was bumps we This QX we that about expect large we lumpiness Medical point talked there your some remember We branded had related products. think TSAs. I in around don’t

those that flu have during also comes pretty two so year, occurred of the or businesses. if late can earlier And you it lumpy or with affect alone items type both things can

we those things a things don’t and happen two we So cadence. flu, so coming set normal more the expect to expect – aside would other to have Medical year this

we into we will the may as some areas, all investments tracking far If As look long. at the there. for business we we decisions we’re in ahead million, make other that growth, want to $XXX see year appropriate longer-term make

that’s But with delivering million along as to over the we in always million get our the the goal so next something overall we And after move our five obviously years. on evaluate $XXX excited that $XXX of we’re will target commitments. quarter-to-quarter

question. Next

Operator

ahead. Percher from Research. our Please Nephron Eric We’ll take go question next of

line is Your open.

Eric Percher

are I’ll would you. we out with a the Medical. that charge were service to you you’re that your elements occur accomplished, bumpy. year needs in out are you have out don’t over at? When order looking expectations could that bumpy have would be levels have items meet what other there two that know be ago, looked that cost in And could the there to the next Mike, Thank or mind year been obviously you and when you’re here? stick reductions. expected to and and I then what the necessarily expected the look three have TSAs laying

Mike Kaufmann

like our gives concern would actually say our me think the know me do work great we’re jumps organization to the there good well. that question. I that and sales about I last is would we that about year. to it out And have things a on to a part we’re customers excited challenges we’ve going of really thing I of your of to should through just focus selling. we’ve out up in the recently TSAs. have around the the would way are these to spend don’t that bumpiness, say the free this I what increased I the I first our see time the anything reps commercial that say a restructured time and over working Yes, lot done time again, point question at second that

for customers to but Cardinal momentum be the get 'XX FY Health somewhat really quality with driver beyond for engine and importantly more important that’s to going could FY So sales overall. that service become going and so on the products an 'XX, we our

top that’d one ones me. of So be the for

projects term. have that network second going our team around supply be and Medical today manufacturing out list that they on their has chain of distribution our the I important think side the both and got longer lot for all, of to are mid of the laid also have on a operation

going and after going forward. manufacturing some we us We’re this to are our year for big think that get to going benefits pay efficiency again making to investments be

we our be help going that sure things that distribution components. execute making are manufacturing So to footprint important footprint on the both and our

Eric Percher

occur? there the that have Are changes chain to to any supply major network

Mike Kaufmann

Well, some of network manufacturing distribution on, of we and the be to those our on things like things that what plants. in type working we’re are have we going possibly where manufacture, automation

to and relocating and distribution. efficient be distribution of our in more footprint We’re looking changing our at in some potentially footprint

that stay and done there that to be So done to yes, like things be we of and flawlessly. and need sure make we top are on need that execute will

Lisa Capodici

Operator, next question.

Operator

our now next Ross will take go Please of We from question ahead. Evercore. Muken

Your line open. is

Ross Muken

compare to guess the across I Pharma highlighted to business, three distributors, hard the just morning, of more major getting Good folks business. other apples-to-apples obviously guys. in sort the growth sort but back of the it’s

So comparable. I guess it’s not

through in or get business, side in get some kind have think in there. early you year kind this renewals I 'XX, know you of after and or I that like-for-like period too it I back you guess more the we the about but of four as Kroger And we’ll do opioid and call charges growth on I for through only guess declines guess of the we’re think guys so to kind to get after with You these I that, of what guess if that? is versus related of you is customer happened do performance adjusting peers? feel But CVS like and

Mike Kaufmann

excite the this to focused our adjust I It but on our careful to future. and that growing be distribution that talking we competitors to business. believe mind on than absolutely things, have or executing folks, on for that very adjust are that depending to on very It’s put how we’re to every something And absolutely, want day. Pharma of comment about on on we the things confident you single to us and different standpoint. Keep I are feel not in forward committed future. competitors. in than not Yes, me have to things 'XX are mixes me performing our let very be way. across is lot very other in And comment well able a we to well compared that we I want grow hard it other going we

good Specialty, the our Specialty really that compare renewals, in Specialty in and given are than where the anybody. the we’re that business example, of But excited growth get For respective I from and size feel execution smaller other and our we businesses. is with our timing about would how tailwind but of about we very the just we

Ross Muken

just why side guess paydown just focusing maybe on more is the I back stock. allocation maybe front And thought sheet? on the given more debt balance sort of versus buying of what’s biased to more thought shoring stock the a of process capital where you’re up the the

Mike Kaufmann

commitment back Really we’re those our our we’ve it levels ratios, going leverage to to made made we’ve over commitments to certain goes that that to get timeframe. related the

we’ve to from so commitments standpoint that it’s the paydown on to focus order our that in And up we made. important feel debt live to very

as with to our leverage get repurchases. and that down payout until very around ratios. to XX% are plan we’ve continue we’ll our live although evaluate We committed we those to to made modest the dividend, to up want to also just XX% share It’s in closer we ratio to to And always, dividend increases we our continue commitments commitments.

Lisa Capodici

question. next Operator,

Operator

go Steven our Barclays. ahead. of from Valiquette take will Please next We question

Your line is open.

Steve Valiquette

Good Thanks. morning. All right, great.

summarize savings go structure a XXX if to in expected 'XX. cost excess million a Just year mentioned initiatives, the back in you cost you ago, fiscal of you overall savings

You to about by XXX savings also that in zero-based talked deliver million budgeting fiscal 'XX. than greater

the you you you million year versus got a ago with 'XX, you how ago? all the or expected in So I fiscal Thanks. fiscal tracking what million this saw it is visualized that a guess in would more characterize XXX way year XXX for 'XX, line with

Mike Kaufmann

Yes.

actually year and XXX we and We on as said XXX million this past so rate of I thought 'XX. ahead tracking think would be XXX 'XX a we fiscal in we do actually million. million it’s delivered in run

XXX do to expect at We million. least

would at on based change work this expected be just $XXX I run think prioritization our and two I put alone rate. the five thinking expenses is ahead which year way our we next over So entire and 'XX of million, years we is to why out so the those on where of the and fiscal we’re based the out target that be comment $XXX compared understanding million put team the looking in to which why is

Steve Valiquette

the question the Do if on you grow think fiscal one-liner segment. Pharma 'XX profit the quick in pricing isolation contract Okay. And just you resets excluded renewals? operating just would in in customer a

Mike Kaufmann

that point level of in this I into at Yes, get to don’t want detail time.

three year-over-year contract at and Just be largest to headwind excited we’re customer were locked customers. renewals least the us reiterate our four that the to years up for for with top

question. Next

Operator

Suisse. take will question Credit from next now We go Erin our Wright ahead. of Please

Your line is open.

Katie Tryhane

growth speak acquisition? recent the the on can Katie thinking this Can Is to low-single for should forecasting longer I term? line how you’re you Thanks. is we Erin. with medical digit associated This top segment. segment the about you Hi. synergy And be medical – that for so opportunities guess lay-in

Mike Kaufmann

has digits number a It that’s in. what industry. been flattish the kind as of line historically growth grown been has far top low-single As industry that to

our improved bottom I’m to least growth to line we see As expect exactly, execution, at continue to growth your line after and mix the I what rates sure top – we would our continue was our as and at other then become have industry what are and acceleration to cost. our a not we be improve get question further Katie?

Katie Tryhane

opportunities going acquisitions other medical with any forward? there lay-in may see Are synergy you recent associated that

Mike Kaufmann

is FY patient synergies still business track to still 'XX. it. believe on of $XXX exiting that get its We Got recovery million our

that working has sales the so teams – far. et our our have that has and working with And reflected been so thoughts in manufacturing distribution teams, together, combination our have of to and cetera, network of as continued all we

Katie Tryhane

Okay. Thanks.

Lisa Capodici

question. next Operator,

Operator

our Stephen go We’ll Baxter next Please ahead. take from question Research. Wolfe of

Your open. is line

Stephen Baxter

moving follow things. to wanted the I of on Thanks. side Hi. the of some pieces Medical up on

the on patient versus Medical about guiding $XX the think I still this it seems So XX one-time synergies It throughout recovery EBIT And and you’re continuing approximately talking of you variation were was between item like to the the ramp guidance. sounds prior XX like year. somewhere million. based

EBIT I right? when that would pieces if growth? was to I So these better. can it seems down. And hoping moving to the the Thank I’m be back moving do to core get trying understand flat so, Do have ex to understand you. pieces, maybe think Medical you like

Mike Kaufmann

standpoint so We specifically will up as there are largest also the I comment year the we be we plan expenses Medical redo for And expense in to an us investments be earlier, that and be in again or that next of for making some various but I pieces, this investments the QX. that will you components going are Medical difference between we we’ll set distribution manufacturing our some to do agreement remember you the was making of those that footprint be to that charge in and will mentioned order size from year. Yes, as that distribution had across future – expect growth I can’t all not on exclusive tell incurring making see some our our that headwind. network

about So are point confident this. on Medical you to at we and to we deliver can all get where and we together this feel net to that good have

Stephen Baxter

And big just the X% in Pharma from quarter, then been on the swing a growth where things obviously have Thanks. recently.

insight growth? any modeling give into did gross in the to the our could purposes, quarter able in segment Pharma terms for in Just you be profit what of

Mike Kaufmann

good for that Pharma to them the had we had quarter; lived up Again, the expectations for a year.

similar have As negative I the had that didn’t our generics that the a program contract wouldn’t year-over-year increased and announced bigger what say biggest driver. didn’t just would with renewal year. sales of the positive have been. already mix them renewals say of the the from been large and renewals different brand so drivers. as far I that did especially as And a we be lot said The then bit impact kind customer have driver, any July, the of been contract been they X. But last essentially We July start would most until drivers specifics, second of see I little have drivers to until large

Lisa Capodici

one more for we time question. have Operator,

Operator

ahead. our Raymond James. take now go will of Ransom final We question from Please John

Your line is open.

John Ransom

Hi, Mike.

of bit, little nuclear in where to at the then sit of some at stock at and of Just and you if year Mylan, look they the of winter margins price the think you pharma kind down we go Teva imply look would and the every the are will, about actions trading think quarter from you as of you retailers both just public your and look distress? record the to chain, how just and just it middle would pullback a see if the chains, stay customers when experiencing in partners are upstream some when upstream downstream do expect seems like of as both you kind man, financial position It and your downstream hard what about just to struggling? a the markets prosperous for

Mike Kaufmann

one. for ending easy the for an such with thanks Yes, Thanks question.

that. start And we’re of about say because that’s First than of a do. actually I that. traditional I important for with glad all, would it we to us said you talk it’s think man, middle I’m what piece more maybe Sure the I’d

technical the in When there yes, middle than more how unique really that Medical but at providing have doing We them more a of relationships it’s And take at-Home, there’s business. lot other with with with our Services areas we’re connect just what businesses, patients. supplies we our much look are a we’re and man. and with providers I so insurers

nuclear headwinds good tailwinds forward. We in continue our to or We Specialty. about going business feel good good see

a when lot business state an comes in to there’s but other of things, Pharma definitely flux. a ecosystem is the it So of itself, Distribution that it’s

good of aligned Kroger, in CVS, think of I Optum. sense – luckily very customers we’re continue I think the our all customers with

We’re aligned the for plans game with to strong in for helpful excellent us. continuing players think grow who That’s I future. have

with the in Medical or having scrappy and look with responding time hospital resilient positions providers downstream at at the our the their niches, entrepreneurs portfolio independents I get out Medical our I have all well the this. marketplace. to and Pharma expenses And with way same retail reduce like like position way other us broad been how their a the think to of in we As the into are figure acting to but

challenges this. I for important but healthcare to position to believe So an a be of manage stay there And capabilities and to lot in to and really continue able our grow through piece. sure, going are our is

if of of us think why stay Cardinal like how know I companies we do because what us not at important it’s we all every is Health day. many it

John Ransom

share same pharmacies have – So you on say glad is lower in years market a ebbs of servicing, At mentioned high higher ago? flows, five customer than you independents. base was you’re level is it and terms the your but just or that point, it independent very I’m always

Mike Kaufmann

had our years group five we growth have ago, customers that to their have said and retail definitely stores of they them therapy store, how business, of business. that we manage I would some more those to help with It’s need help management, someone in like that niches, just focus a us medication to are represented. things and and Compared seen customers as them amongst had types couple of mobile things to inventory, ago had thousand there really it a they And looking I down the a frontend to buzz technology, the and differently group drive do the on run various their a record cost conference things. the spend and was we be understanding conference out, business for as And their to and a chance time weeks couple of us.

this going base an continue to see us to going forward. to continue we So business for customer be important

last the question. that’s So

Lisa Capodici

Yes.

Operator

are conference it Mike turn time, there this like I’d further to appears to Kaufmann. the Mr. back no At questions.

Mike Kaufmann

this to us just joining everyone thank for I morning. want

pleased our 'XX forward discussing Take to we really everybody. that and We’re you look with soon. very fiscal we delivered progress in care, 'XX

Operator

call. your you gentlemen, Thank for this today’s conference and concludes Ladies participation.

may You disconnect. now

Cardinal Health (CAH) 8 Aug 192019 Q4 Earnings call transcript