The operator welcomes participants to the Cardinal Health Incorporated earnings conference call and explains the procedures for asking questions. The call will be recorded and participants can ask one question each by pressing a specific key on their telephone keypad. The host, Matt Sims, introduces the CEO and CFO and reminds participants that the information discussed may contain forward-looking statements. The discussion will be on a non-GAAP basis, unless specified, and reconciliations can be found in the press release.

The second paragraph of the article provides an overview of the key headlines for Cardinal Health's fiscal year '24 results. These include strong operational execution, record financial results, and significant strategic progress. The company exceeded its guidance and delivered a 29% increase in EPS. They also managed through a customer transition and are raising their guidance for fiscal year '25. The company is focused on executing their growth strategy and optimizing their portfolio to maximize shareholder value. They also reflect on their actions to simplify their business and drive performance, including reorganizing their operating and segment reporting structure.

In fiscal year '24, the company saw stability in pharmaceutical demand, strong performance from generics, and growth in the specialty business. They prioritized growth areas and made acquisitions. They also improved the GMPD business and achieved their inflation mitigation target. Other operating businesses also saw growth. The company is confident about the future and is taking actions to optimize performance and financial strength. An update on the business and portfolio review, which began in September 2022, was provided, highlighting the company's decision to retain and invest in their nuclear and precision health solutions business.

In January, the company completed a review of their growth businesses and decided to invest in at-home solutions and OptiFreight for long term growth. They also conducted a thorough review of GMPD and have concluded that they will continue to focus on executing their improvement plan for the business. They have also identified opportunities for further value creation through simplification and working capital improvements, which will generate at least $500 million in cash over the next two years. As a result, the company plans to increase their share repurchase expectations for fiscal year '25 to $750 million.

The business review committee of the board has been dissolved and the board as a whole is now overseeing value creation efforts. The company is focused on maximizing long-term shareholder value while investing in the business to maintain customer satisfaction. The company has identified and corrected an accounting error, resulting in slight increases to non-GAAP EPS in prior periods. The fourth quarter was successful and the company made significant progress towards its financial and strategic goals.

In the fourth quarter, the company's EPS reached a historical high due to strong operating profit growth in the pharmaceutical, GMPD, and other segments. This was supported by improvements in interest costs, tax rates, and share count. Revenue increased 12%, with gross margin growing 5% and SG&A well controlled. Operating earnings were $605 million, up 14% from the previous year. Interest and other expenses improved by $6 million and the effective tax rate was 4.5 percentage points lower. Diluted shares outstanding were 4% lower due to share repurchases. In the pharmaceutical segment, revenue increased 13% driven by brand and specialty pharmaceutical sales growth. Segment profit increased 8% due to positive generics program performance.

The company's generics program saw volume growth and consistent market dynamics, with strong performance from Red Oak. Pharma segment profit grew 8%, despite a $15 million margin headwind from a large customer transition. The impact of the contract loss was offset by new customers, specialty networks, and cost controls. The GMPD segment also showed progress, with a 2% increase in revenue and a $40 million year-over-year increase in Q4 segment profit. The team is focused on driving improved execution and identifying opportunities for optimization.

In the fourth quarter, the company's revenue increased by 15% to $1.2 billion, with growth in all three businesses. Segment profit also grew by 11%, driven by the strong performance of the OptiFreight logistics business. The company plans to continue investing in its nuclear and at-home solutions businesses to drive growth. Overall, the company had an excellent year, with total operating earnings growing by 16%. Interest and other expenses decreased, resulting in a 52% decrease in net income. The company's effective tax rate was 21.7% and they saw a 6% decrease in diluted shares outstanding due to share repurchases. The company ended the year with a cash balance of $5.1 billion, including funds earmarked for a debt maturity in November 2024.

In fiscal year '24, the company was able to generate strong adjusted free cash flow of nearly $4 billion, largely due to the team's efforts to optimize working capital. The company also achieved its targeted leverage ratio and received positive outlook updates from credit rating agencies. Shareholders were also rewarded through share repurchases, dividend payments, and a 35th consecutive dividend increase. Moving forward, the company has increased its fiscal year '25 EPS guidance and expects a decline in pharma revenue due to a large customer contract expiration. However, without this impact, revenue growth would be between 15% and 18%.

The pharmaceutical segment is expected to experience growth of 1-3% due to strong demand and the addition of new customers and expansions. The distribution of COVID-19 vaccines may have a slight impact, but overall the segment is expected to show resilience. The growth in segment profit will be more back-half weighted, with the third quarter being the highest profit quarter. The GMPD segment is expected to see 3-5% growth and reach $175 million in segment profit by fiscal year '25, with a goal of $300 million by fiscal year '26 through the GMPD improvement plan.

In fiscal year '25, Cardinal Health expects to see benefits from offsetting inflation, continued growth of the Cardinal brand, simplification and cost optimization efforts, and improvements in their nuclear, at-home solution, and OptiFreight businesses. They anticipate profit growth in all operating segments and interest and other expenses in the range of $140 million to $170 million.

The company's large year-over-year increase is attributed to various factors, and they expect their fiscal year '25 effective tax rate to be in the range of 23% to 24%. They have increased their share repurchase expectations and expect adjusted free cash flow of approximately $1 billion in fiscal year '25. The company had a successful fiscal year '24 and is confident in their team and strategy for fiscal year '25. Their strategic priorities include expanding in specialty and focusing on their customers. They recently hosted a large retail business conference with 5,000 attendees.

The company values and supports retail independent pharmacies, investing in solutions and forming partnerships to help them expand their services and provide better care for their communities. They are opening a consumer health logistics center and have formed a joint venture to source biosimilars, providing more therapy options at a lower cost. They are also leveraging the expertise of their specialty networks to enhance their offerings in neurology and oncology.

The fully integrated specialty networks market offering is aligned with the strategy for Navista, the company's oncology practice alliance. The Navista team has been built and is engaging with customers. The company's specialty 3PL has shown significant growth and is being leveraged to facilitate the commercialization and delivery of cell and gene therapies. The company's new advanced therapy solutions innovation center is equipped to handle logistical challenges and improve processes. The company's commitment to service and solutions has been well-received by customers, resulting in committed customer wins and expansions. The company expects over $10 billion in incremental revenue from these wins and expansions in fiscal year '25. The company is also addressing inflation and global supply chain constraints to turn around the performance of its GMPD business.

The team worked urgently to mitigate operating losses and after two years, the GMPD business is now on solid ground with significant improvements in profit and revenue growth. There are still opportunities to capture, including continued inflation mitigation and positive leading indicators for growth. The company's simplification strategy has also led to improved operational performance.

The company has stabilized its business and plans to drive targeted working capital improvements and continue simplification efforts. They are excited about the opportunities in nuclear and precision health solutions, particularly in theranostics and precision medicine. They expect continued growth in theranostics and are investing in expanding their support for novel therapies, increasing cyclotron capacity, and PET manufacturing. Fiscal year '24 was a foundational year for their at-home solutions business.

The business is experiencing strong revenue growth due to its focus on home care and effective commercial execution. Investments in technology, such as new warehouses with advanced automation, have resulted in high fill rates and improved customer satisfaction. The OptiFreight logistics team and TotalVue insights platform have also contributed to customer loyalty and efficiency. The company is confident in its ability to continue this momentum and meet growth targets in the future. Additionally, the company has made significant progress in cash flow and is on track to exceed expectations, providing financial flexibility for continued investment and shareholder returns.

The company had a successful fiscal year ’24 and is looking forward to continuing its growth in healthcare. The CEO thanks the employees for their hard work and dedication. The first question in the Q&A session is from Lisa Gill from JP Morgan, who asks about the company's improved margin guidance for fiscal year ’25. The CFO attributes the increase to various factors, including the specialty network, new customer, and cost mitigation. He also mentions that the company's revenue guidance is down due to a $40 million loss from a non-renewed contract, but is still up 15% to 18% on an adjusted basis.

The company has seen an increase in revenue due to new customers and expansions with existing customers. They are confident in their plans moving forward and have recently announced a new customer win. They do not comment on the profitability of specific customers, but have mentioned the low margin nature of some of their lost business. In regards to concerns about increased freight and input costs, the company has been able to offset them and pass along the costs to their customers.

The speaker discusses the increase in freight costs over the past year and how it has affected their business. They mention that while there have been some increases, it is not as bad as it was a couple of years ago and they are managing it well. They also mention that other inflationary factors, such as oil and petroleum-based products, have been more manageable. Overall, they feel confident in their ability to navigate these challenges.

The speaker discusses the growth of the pharmaceutical business and the factors contributing to it. They mention that they have not had to increase prices as much as in the past, and then address a question about the expected profit streams and growth rate for the specialty sector. They also mention investments in advanced therapy solutions and a new venture with CVS for biosimilars.

The company expects its specialty business to continue growing in fiscal year 2025, even though it will face a revenue reduction due to a contract non-renewal. This growth will be consistent with the company's long-term profit algorithm, with low single-digit profit growth for its core business and double-digit growth for specialty. The company will continue to invest organically and inorganically to sustain this growth. There may be some changes in the Optum unwind and stranded costs, but the building contributions from specialty networks and new customer wins will help offset this. The company did not provide specific guidance on the split of first half versus second half earnings per share.

In this paragraph, Jason Hollar and Aaron Alt discuss the cadence of the company's plan and how it has remained relatively unchanged from last quarter. They mention the impact of the non-renewal of a large, low margin customer and how the company has planned for it with offsetting actions such as new customer wins, expansion with existing customers, and cost optimization opportunities. They also mention that the guidance provided for the upcoming quarter is consistent with the previous one, but with an additional degree of confidence.

The company is closely monitoring their cash flow in the first quarter due to the unwind of their negative working capital position. However, they are pleased with their strong adjusted free cash flow and cash balance at the end of Q4. The cost optimization and specialty networks are already in play, and they are working on customer expansions and on-boarding new customers. The next question was about gross profit performance and any impact from insulin pricing changes or Humira share shifts. The company's gross margin progression went as expected and there were no surprises. In terms of insulin pricing, there was a similar offset to the GLP-1 growth, but they anticipate this to continue until the second quarter of fiscal '25.

The speaker discusses the increasing penetration of biosimilars in the industry, particularly in relation to Humira. They mention their focus on biosimilars and increasing access for patients through a joint venture. The next question is from an analyst asking about the company's performance in the GMPD business. The speaker mentions winning more share of pocket and investments in domestic plants, and notes that other companies in the industry have had mixed results. They suggest that there may be a trend of companies moving downstream to capture more business in the health system, and mention that their investments in domestic manufacturing may be driven by higher shipping costs and tariffs.

Jason Hollar, CFO of Cardinal Health, discusses the company's focus on acute care customers and their benefit from the trend towards ambulatory surgery centers (ASCs). He notes that while they do not have a significant presence in physician offices, they have seen consistent low single-digit growth in same store sales. Hollar also mentions the company's investments in diversifying their supply chain, including increasing domestic investments and reducing exposure to China. They believe a diversified supply base is important for improving resiliency.

The speaker discusses the company's investments in syringe production and the consideration of costs and freight. They mention that Medicaid disenrollment may have an impact on consumer behavior, but they do not have specific information on the matter. They state that overall, there has not been a significant change in sales and growth rates.

The speaker, Aaron Alt, is discussing the company's earnings cadence expectations for the year. He mentions that the first half of the year will be slightly down to flat due to customer changes, but the second half will see an increase due to branded inflation. He also mentions that they are focused on executing their plan and being transparent about their progress.

The company has had a successful fiscal year and plans to continue investing in the business. They expect some short-term drivers in Q1 that will contribute to their goal of up to $20 million. The plan and cadence for improvement is consistent with previous descriptions. They also mention the impact of inflation mitigation and seasonality. In response to a question about competition, the company states that they are in a stable but competitive industry and the majority of contracts do not change hands. They feel confident in their competitive positioning and focus on providing value to customers.

Anna Grasinsky from Barclays asks about the company's AI roadmap and how it will improve efficiency and cost savings. Jason Hollar explains that AI is integrated throughout the company's operations, giving examples such as PPS analytics and automation in distribution. He also mentions partnerships with Palantir and focuses on the company's drive to go beyond buzzwords and create real value. The operator then moves on to the next question.

Elizabeth Anderson from Evercore asked the operators about customer expansions and cost cutting during the call. The operators explained that customer expansions refer to existing relationships where the company is already a primary distributor and the customers are expanding their business, such as with BioPlus. They also mentioned that the team has been assessing opportunities in light of customer non-renewal, but emphasized the importance of maintaining a low cost structure while prioritizing customer service.

The company is pleased with the actions they have taken to offset customer loss and create a more efficient operational structure. These changes have already been implemented and are expected to improve customer service. The company is also considering new opportunities for improvement. The restatement of GMPD does not affect the $175 million target and there is no comparability issue. The revisions provided in the financials only impact the three-year period.

The speaker emphasizes the importance of building a strong financial environment and discloses a revenue recognition issue in the Edgepark division, which only makes up a small portion of the company's overall revenue. They have taken steps to address this issue and will have a clean set of financials for the next fiscal year. In terms of growth, the speaker expresses enthusiasm for the opportunities in the other segment, including OptiFreight, nuclear, and at-home businesses, which are all being invested in. However, specific growth targets are not provided for each individual business.

The speaker discusses the growth potential of the nuclear business and the investments being made in expanding the PET network and pursuing theranostic opportunities. They clarify that all three businesses are expected to contribute to growth in fiscal year 2025 and that significant investments are being made in the nuclear and precision health solutions business. This includes investments in distribution centers and at-home solutions. The speaker emphasizes their belief in the potential of these businesses and their leadership position in each.

During a quarterly earnings call, Daniel Grosslight asked for more details on Averon, a partnership between CVS and Cordavis. He asked if Averon would only serve CVS, how it would interact with Cordavis, and if there were any payment obligations or renewals. Jason Hollar, the CFO of Cordavis, answered that Averon would not only serve CVS and would operate similarly to Red Oak Sourcing. The payment structure is different and there is no renewal for CVS as the contract goes through 2027. Hollar also mentioned that Averon is an example of the type of partnerships Cordavis looks to have with all of their customers to better serve patients. The operator then ended the call.

Jason Hollar, during a call discussing the company's year-end results and guidance, emphasized three key points. First, the company had strong momentum and saw a 29% increase in earnings per share for the quarter and fiscal year. Second, the company's largest business, the pharma segment, showed strong performance despite some impacts from contract unwind. Third, the company's other businesses also saw robust demand and double digit growth, while continuing to invest in the business. Additionally, the company's cash flow was strong, with a total of $7 billion over the past two years, providing financial flexibility for the future.

The speaker discusses three main points: the company's confidence in their fiscal '25, their operational and cash flow focus, and their commitment to driving their strategy forward. They mention partnerships with customers and acquisitions as well as prioritizing shareholder value creation. The speaker thanks the audience and concludes the conference.

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