The paragraph is an introduction to the Cardinal Health Inc. Second Quarter Fiscal Year 2025 Earnings Conference Call. The operator, George, introduces the event and the speakers, including Matt Sims, Vice President of Investor Relations, who then introduces the CEO, Jason Hollar, and CFO, Aaron Alt. Matt Sims mentions the availability of the earnings press release and investor presentation online and advises that forward-looking statements will be made, which are subject to risks. He notes that the discussion will primarily be on a non-GAAP basis and asks participants to limit questions during the Q&A. Jason Hollar then remarks on the company's strong second quarter results and ongoing momentum.

The performance was driven by strong demand in Pharmaceutical and Specialty Solutions and the execution of a simplification strategy, with notable growth in brand, specialty, generics, and consumer health. Confident in their strategic direction, the company has raised its fiscal '25 guidance. The acquisition of a majority stake in GI Alliance, alongside a recent oncology network transaction, aims to enhance growth and value in key therapeutic areas. Despite below-expectation Q2 results in GMPD, progress is being made on cost optimization. Additionally, robust demand and growth potential are seen in other high-margin businesses like Nuclear, at-Home, and OptiFreight, with plans for continued investment.

The company reported strong financial results for the quarter, with a 9% increase in operating earnings, despite challenges like a prior customer contract expiration and COVID-19 timing issues. Earnings per share exceeded expectations at $1.93, leading to an upward revision of EPS guidance to $7.85 to $8. Total revenue decreased by 4% to $55 billion, but adjusted for the contract expiration, it actually increased by 16% due to strong demand in the pharma segment and other businesses. Gross margin improved by 5% thanks to efficient cost management, with SG&A costs rising only modestly. Financing costs increased due to recent acquisitions and proactive debt issuance. The effective tax rate remained stable at 21.4%.

In the second quarter, average diluted shares outstanding decreased by 1% due to share repurchases, resulting in an EPS growth of 2% to $1.93. Pharmaceutical and Specialty Solutions saw a 4% revenue decrease to $51 billion due to a customer transition, but excluding this, revenue rose by 17%, driven by brand and specialty sales growth, including 6.5 percentage points from GLP-1 sales. Segment profit increased by 7% to $531 million, supported by biopharma solutions and specialty product contributions, despite a customer contract expiration. Specialty distribution performed well and progress in integrating specialty networks is on track. COVID-19 vaccine distribution declined compared to last year's peak, and no significant contribution is expected for the rest of the fiscal year. The generics program showed strong volume growth and market stability, and customer onboardings are proceeding well, positioning the pharma business favorably for the future.

The GMPD segment experienced a 1% revenue increase in Q2 to $3.2 billion, driven by volume growth from existing customers, despite softer volumes, particularly in respiratory products. Segment profit rose to $18 million but was slightly below expectations due to volume challenges and a $15 million write-off in the WaveMark business. However, cost optimization and SG&A management helped offset some of the shortfalls. Second quarter revenue for other businesses rose 13% to $1.3 billion, with strong growth in at-Home Solutions, Nuclear and Precision Health Solutions, and OptiFreight Logistics. These sectors collectively increased segment profit by 11%. The nuclear business performed well despite a Moly-99 shortage, and future updates on at-Home's automation efforts are anticipated.

The paragraph reports on the company's financial activities and updates for the quarter. It ends with a cash position of $3.8 billion after a $2.8 billion acquisition of GI Alliance. Adjusted free cash flow used was around $250 million due to timing issues. The company invested $100 million in CapEx for growth and returned $125 million to shareholders through dividends. It completed the ION acquisition and secured financing for the GI Alliance acquisition. The second half of the year will focus on customer onboarding and expansions amid completed acquisitions. While ION and GI Alliance are profitable, they will not significantly impact fiscal '25 EPS due to several factors. The fiscal '25 EPS guidance is raised to $7.85-$8, a midpoint increase of $0.10 from previous guidance. Details for fiscal year 2026 will be provided later.

The paragraph discusses financial updates and forecasts for a company's Pharma segment. It highlights strong growth in the Pharma segment, offset by increased costs due to acquisitions and new debt financing. The company revises its revenue outlook for Pharma, anticipating a decline of 1% to 3% but with an underlying growth trend once accounting for acquisitions. The Pharma segment's profit guidance is improved to a growth of 10% to 12% for the year. There are nuances involving GIA's equity stakes, affecting income categorization. Expectations for increased volume and profits are laid out for the latter half of the year due to market dynamics. The GMPD segment maintains a steady revenue growth outlook of 2% to 4%, and progress is being made on an improvement plan.

The paragraph discusses adjustments to GMPD segment profit guidance due to healthcare costs, a WaveMark write-off, and Q2 volume headwinds, projecting a profit range of $130 million to $150 million for the year. Improvements in profit are expected in the latter half of the year, especially in Q4. The company is monitoring volume trends and the tariff situation between Mexico and the U.S., which may impact the industry. Meanwhile, a 10%-12% revenue growth and approximately 10% segment profit are anticipated in another segment, with stronger profit growth in Q4. The company remains committed to its capital deployment strategy, focusing on investment, maintaining its credit rating, and exploring M&A opportunities, while planning to reduce debt after closing deals.

The paragraph discusses Cardinal Health's strategic focus and financial performance. The company aims to maintain its investment-grade rating by aligning with Moody's leverage targets and plans to execute $375 million in share repurchases for fiscal year 2025. While focusing on integrating recent acquisitions in multi-specialty and oncology platforms, Cardinal Health remains open to evaluating high-quality assets for potential acquisition. The company highlights its disciplined approach to core operations, leading to positive performance and commercial gains in its Pharmaceutical and Specialty Solutions segment. This includes successful onboarding of acute health systems and improved service levels, despite challenges from severe storms. The overall confidence in growth and shareholder value creation has led to raised guidance for the remainder of the year.

The paragraph outlines a company's strategy to drive growth by focusing on specialty areas, particularly non-oncology therapeutic markets like gastroenterology. It highlights the acquisition of GI Alliance, the largest gastroenterology managed services platform in the U.S., which will serve as a foundation for the company's multi-specialty platform and facilitate national expansion. The company aims to deliver clinical and economic value to specialty physicians and is building beyond its traditional distribution and contracting services. The paragraph also mentions integration efforts in oncology with the ION team into the Navista platform.

The combined leadership team has optimized a structure uniting Navista's clinical expertise with ION's operational strengths, aiming to benefit community oncologists. They have defined a go-to-market strategy, integrated processes from Specialty Networks and Cardinal Health, and are extending specialty network capabilities to enhance patient care across platforms. The team is leveraging data analytics to improve clinical outcomes and research. BioPharma Solutions, including Specialty Networks, specialty 3PL, and Sonexus, continue to perform strongly with significant revenue growth and new product implementations. The company's Advanced Therapy Solutions supports numerous cell and gene therapy manufacturers and has launched Advanced Therapy Connect to streamline ordering processes.

The business is partnering with biopharma innovators and academic medical centers to efficiently deliver cell and gene therapy products to patients. They are implementing a GMPD Improvement Plan, which has led to nearly $300 million in profit improvement for fiscal '23 by mitigating inflation and reducing costs. The company is modernizing its distribution network, including opening a new distribution center in Massachusetts, and planning to sell an old facility to support value creation initiatives. They aim to ensure timely product delivery and are managing challenges in the trade environment. Investments have been made to expand domestic syringe production, with 90% now manufactured in the U.S., enhancing supply resiliency and service.

The paragraph discusses the company's focus on growth and innovation in various business areas. They highlight their leadership in offering actinium-225 for cancer treatment, which could revolutionize therapy due to its less invasive nature. Additionally, they report significant growth in the production of Vizamyl, an Alzheimer's diagnostic, and plan to expand manufacturing sites by 2025. The company is also developing a new distribution center in Fort Worth, Texas, to enhance their at-home healthcare services. This expansion, in conjunction with the acquisition of Advanced Diabetes Supply Group, aims to improve efficiency, diversify their diabetes business, and provide more value to patients.

The article paragraph discusses CMS policies that support CGM access, highlighting an expectation for future market growth in CGM utilization and innovations in OptiFreight Logistics that aid healthcare systems with shipping needs through technology-driven solutions. The company announced enhancements to their TotalVue Insights portfolio for improved customer reporting and decision-making. They have plans for at least three product launches over fiscal '25 and '26, focusing on expanding capabilities and penetrating clinical departments in hospitals. The company is satisfied with their quarterly achievements and expresses gratitude for their team's dedication. Following this summary, the Q&A session with John Stansel from JPMorgan begins, where he asks about high single-digit operating profit growth in Pharma, excluding M&A, and seeks clarification on growth expectations for the second half of fiscal '25.

The paragraph highlights the positive performance of the enterprise, particularly the Pharma segment, with increased full-year guidance of 10% to 12% in operating income (OI), boosted by a merger and acquisition (M&A) activity that adds about 300 basis points to the Pharma raise. The expectation for high single-digit OI growth remains without these deals. Additionally, $15 million more is expected to positively impact other income due to equity treatment on minority ASCs. The first half of the year saw strong utilization, which is anticipated to normalize in the latter half. Onboarding costs for new customers are included in the updated guidance, considering the Specialty Networks acquisition. The guidance is seen as prudent given the success so far and the ongoing initiatives. The paragraph ends with a transition to a question from Erin Wright of Morgan Stanley.

The paragraph discusses the growth and strategic initiatives in the specialty category, which has been a significant driver of revenue and profit. Despite a large customer's non-renewal, the category continues to experience mid-teens growth. The company is confident in investing further into this area, highlighting recent acquisitions like ION and GI Alliance as part of their broader strategy. The focus is on supporting community specialty physicians by offering comprehensive services beyond contracting, including data management and administrative support, positioning these physicians as central partners and customers to drive continued growth.

In the provided paragraph, the speaker discusses their company's strategy of differentiating their market approach using two distinct platforms: one focusing on Oncology with ION and Navista, and the other on GI Alliance, addressing the multi-specialty part of the business. They express satisfaction with the strategy and underlying momentum in their specialty business, emphasizing the importance of investing in this market segment for both financial reasons and for customer and patient benefits. The conversation then shifts as Matt Sims requests the next question, which is directed to Aaron Alt from Allen Lutz of Bank of America, inquiring about COVID vaccine volumes in the second quarter compared to expectations. Aaron responds that while no specific number is provided, the impact was as expected and overcome by strong results from the previous business, describing it as a modest headwind. The question session continues with Elizabeth Anderson from Evercore asking about GMPD.

The paragraph discusses the company's financial outlook and investments, focusing on the WaveMark business and its impact on guidance. Initially, the company had set a GMPD guidance of $175 million, but unexpected healthcare costs in Q1 and a $15 million charge in Q2 due to uncollectible receivables from WaveMark led to adjustments. Despite these setbacks and softer-than-expected volumes in Q2, the core business continues to perform as expected. The company anticipates sequential profitability improvements throughout the year, with Q4 projected to surpass Q3.

The paragraph discusses the approach of GMPD's leadership in investing in and improving business operations and customer service to meet their plans. Despite facing challenges like international freight, supply chain complexities, and tariffs in China, Mexico, and the United States, they have not adjusted their current or long-term financial guidance. The new guidance of $130 million to $150 million accounts for non-recurring items, reflecting their current situation. The team emphasizes their ability to manage through difficult conditions without altering their projections.

The team has successfully reduced risks in their business model, but still faces challenges with tariffs. They've improved the resilience of their supply sources, with only a third of their $12 billion revenue being from Cardinal brand products, where most of their work is needed. Half of the Cardinal brand sourcing is from North America, primarily the U.S. and Mexico, while they have significantly reduced manufacturing in China. Instead, they have shifted production to Latin America and the U.S., notably producing 90% of their syringe categories domestically. They aim to minimize tariff impacts, but widespread tariffs may necessitate price increases, given their low profit margins. Despite this, their diverse global supply chain positions them to handle these challenges competitively.

In this paragraph, Michael Cherny from Leerink Partners asks Jason Hollar about the impact of recent specialty-oriented acquisitions and service expansion on market integration and competitive advantage. Hollar responds that while these investments help demonstrate competitiveness and an understanding of customer needs, their importance varies across different market segments such as retail independent and large chains. For specialty physicians, it's crucial to address their wide range of needs, with distribution being just one aspect. Overall, Hollar emphasizes that customer decisions involve multiple factors, and service quality remains a key consideration.

The paragraph discusses a company's financial performance and growth strategies. They attribute part of their success to a "flywheel effect" and partnerships, noting a 16% growth in specialty revenue for the quarter. Eric Percher asks about the impact of macroeconomic weakness on their medical segment, specifically the Cardinal brand and at-Home products. Jason Hollar responds, indicating slight overall growth, including Cardinal Health brand products, without significant differences. He mentions double-digit growth in other business areas but highlights some weakness in respiratory and lab products within the GMPD business, which do not impact the at-Home business significantly due to different product groupings.

The paragraph discusses the company's growth, noting a decrease from 3% to 1% growth in the overall market, with potential influences from respiratory lab trends related to cough, cold, and flu. They're closely monitoring these trends to determine their impact and future adjustments. Despite the slower growth, their at-home segment saw a 13% revenue increase driven by investments in new diabetes and urology categories. These investments in automation and efficiency have led to record levels of productivity and quality. They expect this segment to contribute significantly to profits in the future, viewing it as a promising area for the business. Kevin Caliendo from UBS then asks about expectations for utilization normalization.

The paragraph contains a question and response about the company's utilization, profitability, and growth trends. The question asks if higher utilization observed in the first half of the fiscal year, which contributed to EBIT, is expected to continue in the second half. Jason Hollar responds by noting that growth in the second quarter mirrors that of the first quarter. He explains that, although there have been headwinds like COVID-19 and a large customer non-renewal, the company's strength in the Pharma sector was driven by underlying business performance rather than the absence of negative events. Hollar emphasizes that utilization was a factor, with a 4% revenue reduction related to the large customer non-renewal translating to a 17% effect, and further adjustments for GLP-1s contributing an additional 6-7% impact.

The paragraph discusses a 10% to 11% revenue growth, primarily driven by strength in specialty products, despite no significant headwinds affecting growth. Specialty products contributed a strong margin and good product mix, with notable progress in retail independent segments within generics. New customer onboarding and robust productivity also contributed to strong earnings. The company's BioPharma Solutions business, including Specialty Networks and 3PL services, experienced significant growth, with 3PL growing over 20%. These factors reflect the effectiveness of strategic actions implemented after learning of a major customer non-renewal.

The paragraph discusses the company's anticipated growth, highlighting that while growth will continue, it will be more normalized across different areas such as specialty, generics, and retail independent. Aaron Alt mentions that adjusted profit growth in the second half of the year is expected to exceed the company's long-term target of 4% to 6%. Eric Coldwell asks about the potential for med-surg opportunities related to an MSO deal in the drug distribution industry. Jason Hollar acknowledges such opportunities but emphasizes the need to prioritize physician needs over their own profit, noting that med-surg items represent a relatively small part of the industry's overall challenges.

The paragraph discusses the company's focus on partnering with the GI Alliance and its emphasis on non-oncology therapeutic areas, which lack investment and support compared to oncology. The company believes that Dr. Jim Weber and the GI Alliance team are the best partners to address these areas. The conversation shifts to Aaron Alt, who emphasizes the importance of GI Alliance and ION as platforms for future growth, offering high-margin service opportunities. Daniel Grosslight from Citi asks about the impact of tariffs on the company's manufacturing and onshoring strategy, specifically inquiring about the geographical distribution of Cardinal-branded product manufacturing in North America, Central, and South America.

The paragraph discusses the diversity and manufacturing capabilities of Cardinal brand products, which make up one-third of the company's offerings, with equal distribution between North America and international markets. The company has the capacity to manufacture 50% of its Cardinal brand products in the United States, although this transition is not immediate. The text also touches on the potential impact of tariffs and the absence of exclusions for medical products, which may incentivize quicker onshore production despite cost considerations.

The paragraph discusses the challenges and considerations involved in transitioning product manufacturing to the United States, emphasizing cost differences and the need for rigorous testing before changing suppliers or manufacturing sites. This is important to ensure patient safety. The conversation then shifts to a question from Steven Valiquette regarding the impact of flu and illness season on company revenue, noting that the flu season was initially soft but picked up in January, which could positively affect the company's fiscal third quarter. Jason Hollar responds by highlighting the complexity of the situation, with varying levels of utilization across different segments, particularly focusing on cough, cold, and flu illnesses.

The paragraph discusses the state of a pharma business in which treatment rates have remained consistent, though testing has decreased slightly. The company is not seeing significant changes in its pharma segment, which isn't a major margin driver, unlike its higher-margin GMPD products. There is speculation that January might see an uptick due to a resurgence, though this has not been confirmed yet. The conversation shifts as Charles Rhyee from TD Cowen asks about onshoring products and the impact of the new administration's policies, such as yielding tariffs, on accelerating domestic manufacturing plans. Rhyee also mentions a stable environment for generics, observing consistent data moderation in deflation for the second quarter.

The paragraph discusses the complexities and considerations involved in sourcing products, particularly with regard to regulatory requirements, FDA approvals, and cost differences between domestic manufacturing and low-cost countries. Jason Hollar mentions constraints like tariffs, specifically a 50% tariff on PPE from China, which led to relocating production to Southeast Asia. Despite such tariffs, there's skepticism about products returning to the U.S. due to cost advantages elsewhere. He highlights the decision-making process for more complex products requiring significant manufacturing investments and the impact of potential changes in administration policies. Aaron Alt briefly agrees that there is a consistent market dynamic environment.

The paragraph is a discussion during an earnings call about the company's approach to managing cash flow and capital allocation, particularly in relation to its credit rating and financial strategies for the upcoming six quarters. Jack Slevin from Jefferies inquires about the implications of acquisitions, dividends, and buybacks on the company's cash flow, noting a potential $1.5 to $2 billion gap. He asks if paying down debt is the priority until this gap is resolved, before focusing excess capital on buybacks and smaller acquisitions. Aaron Alt responds by emphasizing the company's consistent and disciplined capital allocation strategy, which remains unchanged after mergers and acquisitions.

The company plans to invest over $500 million in capital expenditures this year and maintain its investment-grade rating. It aims to return $750 million to shareholders through share repurchases and is open to additional M&A opportunities. The company's debt, related to recent acquisitions, has resulted in a revised leverage ratio of 2.75 to 3.25 times. They plan to gradually reduce this ratio, aligning with Moody's new guidelines, by fiscal year 2025. Despite not meeting the target this year, the company assures flexibility in managing debt and fulfilling its investment and shareholder return commitments.

The paragraph discusses an upcoming Investor Day scheduled for June 12, where the focus will be on long-term strategies for creating shareholder value, including detailed discussions on income statements and cash flow projections through 2026 and beyond. Jason Hollar expresses satisfaction with Cardinal Health's strong second-quarter performance, particularly noting 7% growth in their largest pharma business despite challenges. This success has led to a raised guidance of $775 million to $790 million. Hollar highlights ongoing strategic progress bolstered by recent significant investments, such as the ION and GI Alliance closures, and anticipates further elaboration of these strategies at the Investor Day. The paragraph ends with a note of confidence in continuing business growth and future discussions.

The paragraph expresses gratitude for attendance and extends good wishes for the day.

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