The operator introduces the First Quarter Financial Year 2024 Cardinal Health Earnings Conference Call and hands the call over to Matt Sims, Vice President of Investor Relations. Matt introduces the participants and reminds listeners that forward-looking statements will be made. He also mentions that the comments will be on a non-GAAP basis, unless specified otherwise. Jason Hollar, Chief Executive Officer, then discusses the strong first quarter results and improved outlook for the year, with significant profit growth in both segments. He also mentions the positive performance of the generics program in the Pharma segment.

The company had a successful first quarter, with strong performance in their core distribution business and growth in their specialty nuclear businesses. The Medical segment, which was previously unprofitable, showed improvement due to the implementation of their Medical Improvement Plan. The company also saw operating leverage and favorable capital structure, leading to an increase in fiscal 2024 EPS guidance. The team is focused on executing their three strategic imperatives and creating value for shareholders. The first quarter also saw record highs in revenue and EPS, as well as strong cash flow and a large cash reserve.

The consolidated enterprise results for the company showed a 10% increase in total revenue and gross margin, driven by the Pharma segment. SG&A expenses were in line with the previous year, and total operating earnings grew by 35%. Interest and Other decreased due to increased interest income, and the effective tax rate increased by 5.5 percentage points. First quarter EPS reached an all-time high of $1.73, reflecting a 44% growth. In the Pharma segment, revenue increased by 11%, driven by brand and specialty pharmaceutical sales. GLP-1 medications provided a revenue boost, and segment profit grew by 18% due to higher contributions from brand and specialty products, including distribution of COVID-19 vaccines.

In the first quarter, the company saw positive performance in its generics program and consistent growth in the Medical segment. Revenue for Medical was largely flat, but exceeded expectations and delivered a profit of $71 million. The company also saw improvement in trends for its Cardinal Health brand products. However, a non-cash goodwill impairment charge of $581 million was recorded for the Medical segment. The company generated $1 billion in adjusted free cash flow and ended the quarter with $3.9 billion in cash on hand. They remain focused on deploying capital in a balanced and disciplined manner, including investing in CapEx and making payments on their national opioid settlement obligation.

In Q2, we did not use our credit facilities and received a positive outlook on our investment-grade rating. We returned over $630 million to shareholders and have raised our fiscal 2024 EPS guidance to a range of $6.75 to $7. This increase is primarily due to an improved outlook for our Pharma segment and some improvements below the line. We are also pleased with the momentum in our Pharma business and are expecting 7% to 9% growth for the year. Our updated guidance reflects strong performance in the first quarter and higher than expected contributions from COVID-19 vaccine distribution. In the Medical segment, we are reiterating our outlook of $400 million in segment profit for the year and expect it to be significantly back-half weighted. This is driven by progress on Cardinal Health brand volume growth, inflation mitigation, and seasonal factors.

The business overperformed in Q1 due to execution and cost management efforts, but Q2 profit expectations remain unchanged. Progress is expected from Medical Improvement Plan initiatives, and interest and tax rates are reduced. The shares outlook has also been lowered. The company is confident in their plans and excited for future opportunities. The CEO then hands it back to the presenter to discuss updates on the company's three strategic priorities, starting with building upon the resiliency of the Pharma segment.

The success of the pharma business is attributed to the team's prioritization of operational execution and leveraging their scale and capabilities. The generics program, anchored by Red Oak Sourcing, has been critical in managing costs and supply for customers. The team has also demonstrated their customer-focused mindset by successfully preparing for the distribution of COVID-19 vaccines while maintaining service for other specialty products. They are committed to supporting customers and manufacturers, as seen in their annual business partners' conference. The company is confident in their ability to be a strategic partner in emerging areas such as biosimilars and cell and gene therapies. Strong momentum has been seen in their specialty business, both downstream and upstream.

The company has experienced significant growth in specialty and nuclear businesses, with a focus on building out the Navista network and driving practice growth while maintaining independence. The nuclear business is on track to double profits by 2026. The medical business has also seen improved profitability and is taking action to address challenges in core products and distribution, with a focus on mitigating supply chain inflation.

The company is on track to address the impact of inflation and supply chain constraints by the end of fiscal year 2024. They have seen lower international freight costs and are executing mitigation initiatives to offset inflation. They are also making investments in new product development and have recently launched two notable products, the Kangaroo OMNI Enteral Feeding Pump and the NTrainer System 2.0. The company is focused on growing their Cardinal Health brand portfolio.

The company is seeing positive results from their actions, with improved customer experience metrics and reduced product back orders. They are also focusing on accelerating growth in their at-Home Solutions business and simplifying and reducing costs. They are committed to maximizing shareholder value through operational performance, cash flow generation, and responsible allocation of capital, including potential share repurchases and M&A opportunities.

The company is actively seeking partners and acquisition candidates for their specialty strategy, but their long-term growth targets do not rely on inorganic investment. They are making progress with their ongoing business and portfolio review in the Medical segment. The team has been working on realigning operations for focus and simplicity, and is collaborating with the Business Review Committee to evaluate value creation initiatives. The first quarter was successful, thanks to the team's efforts as health care's most trusted partner. In regards to COVID-19 vaccines, the company sees it as a valuable opportunity and will not disclose specific details. They are also considering other potential vaccine opportunities.

The Pharma segment saw a third of its growth this quarter coming from vaccines, but it was not the majority driver of the business. The core part of the business remained strong and is expected to continue in the second quarter. The Medical segment over-delivered this quarter, but it is unclear how much of that is due to core medical and mitigation efforts that will carry through to the future. There were no one-time items in Q1 to note. The factors driving Q2 to Q4, including oil price and commodity pressure, are still uncertain at this time.

Aaron Alt and Jason Hollar discuss the Q1 results for the medical improvement plan and how they exceeded expectations. They attribute this success to the team's execution and optimization efforts. They also mention that there were no notable one-time items that complicated the results. They expect this trend to continue and have not changed their guidance for the year. They plan to continue executing the Medical Improvement Plan and mitigating inflation. They also mention that there was no significant impact from commodities.

The speaker is discussing the change in guidance for the pharmaceutical sector and how much of it was influenced by the COVID-19 vaccine. They also mention a 5 basis point improvement in the pharma margin and question how much of that improvement was due to the vaccine. They suggest that GLP-1s may have had a negative impact on the margin, but there was likely something else that improved it on a year-over-year basis.

Aaron Alt explains that the company had a strong start to the year and expects 7-9% growth in the pharma business. This is due to a strong Q1, contribution from COVID vaccine distribution, and ongoing strength in the business. The company also expects low single-digit growth in the core pharma business, stability in generics, double-digit growth in Specialty and Nuclear, and brand inflation in line with fiscal 2022. In response to a question about the generics environment, Alt mentions consistent market dynamics and no significant changes in generic drug pricing.

In this paragraph, Erin asks Jason Hollar about the material impact of guidance raise across a certain segment and whether consistent pricing trends will continue throughout the year. Jason responds that the market dynamics and utilization are strong, and they are seeing consistent performance in their joint venture with a focus on cost control and customer service. He also mentions that there has been no significant change in the underlying dynamics of this part of their business. George Hill then asks a question.

The speaker is interested in the changes happening in the generic drug business and asks for more information on profitability. The company's CFO, Jason Hollar, explains that the balance of brand and generic products is always evolving and that there may be more separation between elements in the future. He also mentions that margin rates are not a significant metric for the company, and that products like GLP-1s are important to patients, customers, and the company.

The speaker mentions that innovation is important for patients and the industry, and that it brings economic value in various ways. They also discuss the impact of GLP-1s on revenue and earnings, and mention the resilience of their model in adapting to changes in the industry. They also address the question of inflation and how it may not have the same effect as it did last year.

The speaker is asked to address their thoughts on the company's performance in the first half of the year versus the second half. They then discuss the distribution of COVID-19 vaccines and their market share, as well as the potential impact of therapeutics entering the commercial channel. The speaker also mentions that the company has been operating above their long-term guidance and attributes this to their strong customer relationships. They believe that the majority of vaccine distribution will follow the existing distribution network.

The speaker discusses the differences between the rollout of COVID vaccines and therapeutics, noting that therapeutics do not face the same challenges due to existing stockpiles. They also mention the potential for long-term growth through innovation and the uncertainty surrounding the future volume of innovative products.

The company had a strong performance in the quarter with growth in gross margin and flat SG&A. The company is able to efficiently leverage their team and distribution channels for new product categories, such as vaccines. The underlying growth is expected to meet the long-term target of 4-6%, but there may be opportunities for growth through innovation. The company's guidance for the Medical segment is a profit of $400 million for this year, leading to $650 million in 2026.

The company is pleased with the progress of Pharma, raising their guidance for the year. Their long-term algorithm remains the same, with a 4% to 6% profit growth and 12% to 14% adjusted EPS growth. The raise is slightly less than expected due to above-the-line and below-the-line benefits. The next question is about commodity prices, and the company says they are seeing less volatility than before. The question asks about the increase in oil and if it is within their expectations of volatility and if it will affect other input costs.

The speaker reflects on the root issue that caused an increase in commodity costs 18 months ago, which was a combination of international freight and supply-demand factors. They explain that these costs have now normalized due to a muted demand environment. The speaker reassures that as long as there is no significant change, the costs should remain within normal bounds and the company will continue to monitor and provide updates. They also acknowledge that their contracting structure may not be perfect.

The speaker explains that the company's offset strategy is not meant to be one-for-one, but rather to have a significant impact on extraordinary impacts that compound over time. The next question is about the margin growth in the Pharma segment, and the speaker clarifies that they have not provided quarterly guidance for this, but notes that there will be consistent market dynamics from a generic perspective and they are not assuming benefits from a brand perspective in Q3. The final question is from Elizabeth Anderson who apologizes for previous audio issues.

The speaker was asking about the non-operating items, specifically interest expense and share count. The company has been conservative in both these areas due to high cash balances and fixed rates. They plan to refinance a maturity in 2024 and have completed a $500 million share repurchase program. Their guide reflects the impact of this program.

The paragraph discusses the company's plans for share repurchase and its financial performance in the first quarter. The company has a strong cash balance and plans to invest in the business, make progress on its investment grade rating, and continue paying dividends. The company also plans to consider M&A opportunities and potentially increase share repurchase in the future. The CEO thanks the participants and concludes the call.

This summary was generated with AI and may contain some inaccuracies.