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    CAH
    Earnings call· Mar 2025(Q3 FY25)

    CARDINAL HEALTH Q3 FY25 earnings call CAH

    May 1, 2025 Source

    Executive summary

    Cardinal Health Q3 FY25 — Strong Pharma Performance and Raised FY25 EPS Guidance

    Cardinal Health delivered strong Q3 FY25 results, driven by robust performance in its Pharmaceutical and Specialty Solutions segment and significant growth in its 'Other' businesses. The company raised its full-year EPS guidance and anticipates double-digit non-GAAP EPS growth in FY26, despite navigating potential tariff impacts and a dynamic macro environment. Management emphasized strategic investments and operational execution across all segments.

    Highlights

    5

    • Operating earnings grew 21% year-over-year.

    • EPS grew 13% to $2.35.

    • Pharma segment profit grew 14% year-over-year.

    • The three growth businesses in 'Other' (at-Home Solutions, OptiFreight, Nuclear) profit grew 22% year-over-year.

    • Full-year FY25 EPS guidance was raised and narrowed to $8.05 to $8.15.

    Concerns

    3

    • Anticipated $200 million to $300 million of remaining gross tariff costs for FY26 before further mitigation.

    • Interest and other expense increased by $38 million to $65 million, primarily due to acquisition-related financing costs.

    • Effective tax rate increased 2.5 points year-over-year due to the non-repetition of some positive discrete items in the prior year.

    Guidance & targets

    10
    CategoryTargetConfidence
    Full-year FY25 EPS
    $8.05 to $8.15
    high materiality
    High
    Full-year FY25 Adjusted Free Cash Flow
    approximately $1.5 billion
    medium materiality
    High
    Full-year FY25 Interest and Other
    $200 million to $215 million
    medium materiality
    High
    Full-year FY25 Pharma Segment Profit Growth
    11.5% to 12.5%
    high materiality
    High
    Full-year FY25 Other Revenue Growth
    17% to 19%
    medium materiality
    High
    Full-year FY25 Other Segment Profit Growth
    16% to 18%
    medium materiality
    High
    Full-year FY25 GMPD Segment Profit
    $130 million to $140 million
    medium materiality
    Medium
    Full-year FY25 Effective Tax Rate
    23% to 23.5%
    low materiality
    High
    FY26 Non-GAAP EPS Growth
    double-digit
    high materiality
    High
    FY26 GMPD Segment Profit
    at least consistent with fiscal '25 levels
    medium materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Pharmaceutical and Specialty Solutions
    Performance driven by brand and specialty pharmaceutical sales growth from existing and new customers, MSO platforms (GI Alliance, ION), BioPharma Solutions, and positive generics program performance. Partially offset by customer contract expiration.
    Segment profit growth: 14%GLP-1 sales contribution to revenue growth: 7%New customer revenue onboarded in FY25: $10 billion
    		$50.4 billionflat reported, +20% ex-contract expiration—$662 million
    GMPD
    Revenue growth driven by volume growth from existing customers. Segment profit increased due to net benefit from cost optimization initiatives. Team is executing simplification strategy.
    Cardinal Health Brand growth: 3% (5% normalized for billing day differences and currency fluctuations)
    		$3.2 billion+2%—$39 million
    Other
    Strong demand for products and services across at-Home Solutions, OptiFreight Logistics, and Nuclear segments, with profit growth across all three.
    Profit growth: 22%at-Home Solutions revenue growth: 12%OptiFreight Logistics revenue growth: 17%Nuclear revenue growth: 14%Theranostics revenue growth: >30%
    		$1.3 billion+13%—$134 million

    Operational metrics

    19
    Total company operating earnings growth
    21%YoY
    Q3 FY25

    Overall operating earnings growth.

    Total company gross profit dollars growth
    10%YoY
    Q3 FY25

    Total company gross profit dollars increased.

    Total company SG&A growth
    4%YoY
    Q3 FY25

    SG&A increased, but decreased slightly year-over-year when normalizing out the additions of GI Alliance and ION.

    Interest and other expense
    $65 millionincreased by $38 million YoY
    Q3 FY25

    Primarily due to previously anticipated acquisition-related financing costs.

    Effective tax rate
    22.4%2.5 point increase YoY
    Q3 FY25

    Due to the non-repetition of some positive discrete items in the prior year.

    Average diluted shares outstanding
    240 million2% lower YoY
    Q3 FY25

    Lower due to share repurchase efforts.

    Investment in business
    $315 million
    YTD

    Amount invested back into the business year-to-date.

    Share repurchases
    $750 million
    YTD

    Amount of shares repurchased year-to-date, including $375 million of accelerated share repurchases in March.

    Average price of share repurchases
    $117
    YTD

    Average price of year-to-date share repurchases.

    Deployment for GI Alliance
    $2.8 billion
    Q3 FY25

    Deployed for the closing of majority position in GI Alliance.

    New customer revenue onboarded
    $10 billion
    FY25

    New customer revenue onboarded in fiscal year '25, including Publix.

    GMPD gross tariff costs
    $200 million to $300 million
    FY26

    Anticipated remaining gross tariff costs in fiscal '26 before further mitigation, with the majority expected to be mitigated through continued operational actions and price adjustments.

    GMPD tariff costs already mitigated
    several hundred million dollars
    to date

    Mitigated through proactive and aggressive actions.

    US manufacturing capacity
    1/3
    current

    Proportion of underlying value of production coming out of the U.S.

    North America production
    >50%
    current

    Proportion of underlying value of production coming out of North America (U.S. and Mexico).

    China product sourcing
    ~10%
    current

    Proportion of GMPD product sourced from China.

    Inventory level growth
    ~8%YoY
    Q3 FY25

    Inventory level growth, considered fairly normal and in line with overall business growth.

    Q4 Interest and Other
    $75 million
    Q4 FY25

    Implied interest and other for the next quarter after completion of acquisitions.

    Q4 Other Income from ASC positions
    $10 million
    Q4 FY25

    Expected income from GI Alliance's minority equity positions in ambulatory surgery centers.

    Industry KPIs

    5
    MetricValueDetails
    Utilization trendsstrong
    Client retention new wins$10 billionUSD
    Pharmacy scripts specialty7%%
    Segment revenue operating income$50.4 billionUSD
    Adjusted EPS EBITDA leverage guidance$8.05 to $8.15USD

    Product announcements

    1
    ProductTypeDetails
    Flyrcadolaunch

    Deals & partnerships

    7
    Advanced Diabetes Supply Group (ADSG)Acquisition to expand at-Home Solutions business in the diabetes care market.

    Completed the acquisition of Advanced Diabetes Supply Group at the beginning of April, integrating it into at-Home Solutions to create value for patients and grow profitably in the diabetes care market.

    GI AllianceAcquisition of a majority position in GI Alliance to expand MSO platforms.$2.8 billion

    Closed the acquisition of a majority position in GI Alliance on January 30. The business is performing consistent with expectations and expanding into new specialties like urology through its own recent acquisitions (Urology America, Potomac Urology).

    Integrated Oncology Network (ION)Acquisition to expand MSO platforms.

    Closed the acquisition of ION in Q2 FY25. The business is performing consistent with expectations and contributing positively to Pharma segment profit.

    Urology AmericaAcquisition by GI Alliance to expand into urology.

    GI Alliance's recent acquisition, marking its expansion into urology and reinforcing its commitment to building a comprehensive multi-specialty model.

    Potomac UrologyAcquisition by GI Alliance to expand into urology.

    GI Alliance's recent acquisition, marking its expansion into urology and reinforcing its commitment to building a comprehensive multi-specialty model.

    a notable health systemNew long-term distribution agreement.long-term

    GMPD secured a new long-term distribution agreement with a notable health system, reflecting recent commercial progress.

    GE HealthcareAgreement to manufacture and distribute Flyrcado.

    Cardinal Health entered into an agreement with GE Healthcare to manufacture and distribute Flyrcado, a first-of-its-kind PET agent for enhanced diagnosis of coronary artery disease.

    Risks & headwinds

    5
    Customer contract expirationQ3 FY25

    Revenue was flat on a reported basis, but increased 19% when adjusting for the contract expiration.

    Mitigation: Successfully onboarded new customers, including Publix, contributing $10 billion of new customer revenue in FY25.

    Acquisition-related financing costsQ3 FY25

    Interest and other increased by $38 million to $65 million.

    Mitigation: Strong cash flows allowed for less borrowing than anticipated for the ADSG transaction, narrowing full-year interest and other guidance.

    Non-repetition of prior-year discrete tax itemsQ3 FY25

    Effective tax rate increased 2.5 points to 22.4%.

    Tariff costs in GMPDFY26

    Anticipated $200 million to $300 million of remaining gross tariff costs in FY26 before further mitigation.

    Mitigation: Proactive and aggressive mitigation actions include increasing U.S. manufacturing capacity (e.g., syringes, incontinence), diversifying supplier network away from higher-risk jurisdictions, identifying alternate sources of supply, pre-stocking inventory, deploying AI for tariff planning, and further reducing internal cost structure. Majority of remaining costs expected to be mitigated through operational actions and price adjustments.

    Higher-than-usual investment-related costs in PharmaQ4 FY25

    Expected to contain a higher-than-usual amount of investment-related costs.

    Mitigation: Investments are for near completion of Consumer Health Logistics Center, technology, and scaling MSO platforms, supporting future growth.

    What to watch in Q4 FY25

    5

    GMPD Segment Profit

    Q4 FY25
    Current$39 million in Q3 FY25
    TargetMeaningful step-up in profitability

    Why it matters

    Indicates progress in the GMPD turnaround and the effectiveness of cost-saving actions and tariff management.

    Even with this narrowing of guidance for GMPD, the team is making good progress, and the fourth quarter should reflect a meaningful step-up in profitability as a result of the actions taken in the last several quarters.

    Q&A highlights

    7

    What are the drivers of strong brand and specialty sales growth, and how sustainable is this trend, especially considering potential IRA impacts?

    Jason Hollar and Aaron Alt explained that the strength is broad-based across brand, specialty, generics, and consumer health, with new customer onboarding (Publix) and MSO platforms (GIA, ION) contributing. GLP-1 sales added 7% to revenue growth. They anticipate continued positive utilization, consistent market dynamics, and strong specialty growth in FY26, with IRA impacts being difficult to quantify but not seen as a primary driver.

    “It really is broad-based, both organic and inorganic within the quarter. And we are quite consistent with what we've seen in the prior quarters in that regard as well.”

    asked by Lisa Gill · answered by Jason Hollar

    2 min read5 chapters

    Detailed Narrative

    01

    Strategic Investments & Acquisitions Drive Growth

    Cardinal Health has invested approximately $7 billion in the United States over the last two years, focusing on expanded domestic manufacturing, new distribution nodes, technology, and automation. Recent acquisitions, including GI Alliance, Integrated Oncology Network (ION), and Advanced Diabetes Supply Group (ADSG), are performing consistent with expectations and are anticipated to contribute significantly to future growth. The ADSG acquisition, completed in early April, is expected to be immediately accretive to EPS.

    02

    Pharmaceutical Segment Sustains Strong Momentum

    The Pharmaceutical and Specialty Solutions segment demonstrated robust performance, driven by broad-based demand across brand, specialty, generics, and consumer health. The successful onboarding of Publix as a new customer contributed to approximately $10 billion of new customer revenue in FY25. MSO platforms like GI Alliance and BioPharma Solutions, including Specialty Networks, also provided significant tailwinds, with GLP-1 sales contributing 7 percentage points to revenue growth.

    03

    GMPD Turnaround Progress Amidst Tariff Headwinds

    The GMPD segment showed progress in its turnaround, with revenue increasing 2% and segment profit improving to $39 million, driven by cost optimization initiatives. Cardinal Health Brand growth was 3%, or 5% normalized for📎 billing day differences and currency. The company is proactively implementing mitigation actions for anticipated FY26 tariff costs, including increasing U.S. manufacturing capacity, diversifying suppliers, and utilizing AI for compliance, aiming to mitigate the majority of the $200 million to $300 million gross tariff exposure.

    04

    Accelerated Growth in 'Other' Businesses

    The businesses reported in 'Other' (at-Home Solutions, OptiFreight Logistics, and Nuclear) continued their strong performance, with revenue growth of 13% and profit growth of 22%. Nuclear's Theranostics business saw over 30% revenue growth, reflecting increased demand for oncology and urology products. A new agreement with GE Healthcare to manufacture and distribute Flyrcado highlights Cardinal Health's positioning as a partner for radiopharmaceutical innovators.

    05

    Confident FY26 Outlook and Capital Allocation Strategy

    Cardinal Health expressed confidence in achieving double-digit non-GAAP EPS growth in FY26, supported by resilient business models and strategic investments. The company expects robust cash flow generation in FY26, following the unwinding of negative working capital from a customer contract expiration. Capital allocation priorities include internal investments, debt paydown, returning capital to shareholders through buybacks, and strategic tuck-in acquisitions.

    AI-generated summary of the company’s earnings call. Not investment advice.