Cardinal reveals higher profits, and new SEC probe

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Related tags: Cent, Generally accepted accounting principles, Income statement, Cardinal

Cardinal Health reported its long-delayed fourth-quarter financial
results yesterday, revealing a hike in profit and revenues for the
three months to end June, but lowered guidance for the first half
of this fiscal year.

Cardinal - which has operations spanning drug distribution, pharmacy automation and packaging and formulation services for drugmakers - had been scheduled to release its fourth-quarter results in late July. But it delayed them twice in the face of a US federal probe into how the company classifies revenue from its pharmaceutical distribution business.

The company's chief financial officer Richard Miller resigned in the wake of the Securities and Exchanges Commission investigation.

The SEC has already subpoenaed documents relating to Cardinal's revenue classification, and Cardinal revealed yesterday it had received a second demand for information on the compensation of 'current and former employees'.

In the fourth quarter, operating profit rose 11 per cent to $397 million, or 91 cents a share, on revenues also up 11 per cent to $16.9 billion. Full-year figures saw revenues climb 15 per cent to $65.1 billion, with operating profit up 10 points to $1.5 billion.

CEO Robert Walter said that certain businesses performed below historic standards, but others, notably Medical Products and Services, did well.

Revenues in the Pharmaceutical Technologies and Services (PTS) segment rose 4 per cent during the quarter, while operating earnings improved 14 percent, led by recently-acquired sterile manufacturing and injectables business Intercare. Growth was partially offset by declines in oral products and a slower-than-expected ramp up of production in certain sterile manufacturing projects with associated start up costs.

For the full year, PTS revenue increased 25 per cent to $2.8 billion, and operating earnings grew 26 percent to $465 million.

Strong pharmaceutical demand drove a revenue increase within Cardinal's drug distribution business (Pharmaceutical Distribution and Provider Services), with sales up 12 per cent for the quarter, but operating earnings were flat as Cardinal implemented new payment procedures for the services.

Meanwhile, the Medical Products and Services segment reported above- market revenue and earnings growth for the quarter and full year, with revenues for the year at $7.3 billion, an increase of 11 per cent over the prior year. Operating earnings were up 13 per cent to $666 million.

But capital spending pressure on hospital customers and the effect of product mix issues during the quarter contributed to a decline in revenues and earnings within the Automation and Information Services segment, said Cardinal. For the year, revenues increased 2 per cent to $681 million, though operating earnings grew 2 per cent to $270 million.

The difficulties at its distribution business will cause earnings per share to decline by 10 to 15 per cent for the first half of fiscal 2005, with a decline of approximately 25 per cent in the first quarter, according to Cardinal.

It said it has initiated strategic and operational actions to improve long-term results, including a restructuring program targeting cost structure improvements of $125 million in fiscal 2005, with greater annual savings over a three-year period.

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