Cardinal Health Inc (CAH)

Margin Improvement in Pharma
Q: What's driving the margin improvement in fiscal '25?
A: We're pleased to raise our guidance for the pharma business in fiscal '25, reflecting confidence in our team and the resiliency of the business despite some challenges. We've increased profitability guidance to 1%-3% growth, supported by consistent market dynamics, low single-digit growth in core generic volumes, high single-digit growth in specialty, and strong overall prescription demand. We've added $10 billion in new revenue from new customers and expanded services with existing customers, offsetting the $40 million headwind from a low-margin contract nonrenewal. We also announced the Publix win, which won't hurt us as we carry forward. -

Specialty Pharma Growth
Q: How will specialty impact pharma growth amid contract loss?
A: Specialty is key to our continued growth next year. In fiscal '24, we saw another year of 14% growth in specialty, consistent with our prior 14% CAGR. Growth drivers include our Advanced Therapy Solutions, the new venture with CVS for Averon focused on biosimilars, and the acquisition of Specialty Networks. Despite the revenue reduction from the contract nonrenewal, we expect our specialty business to grow in fiscal '25, aligning with our long-term expectation of low single-digit profit growth in core pharma distribution and double-digit growth in specialty. -

Earnings Cadence and Customer Unwind
Q: How will the Optum unwind affect earnings cadence?
A: The nonrenewal of the Optum contract will impact our Q1, as they were a large low-margin customer. New customers are mostly back-half loaded, so we'll see a timing difference in revenue and profitability over the year. We're implementing cost optimizations and benefiting from contributions of Specialty Networks and new customer wins. - -

Cost Cutting and Structural Changes
Q: What's the long-term benefit of cost cuts?
A: Operating in a 1% operating margin business, we're always mindful of our cost structure while ensuring customer service. Actions identified in Q4 help offset the near-term impact of customer loss and create a more efficient operational structure. Changes are broad-ranging and many have already been implemented, leading to long-term benefits as we support existing and new customers. -

Competitive Landscape in Drug Distribution
Q: Has the competitive environment changed?
A: The drug distribution industry remains competitive but stable—it's a 1% industry. The vast majority of contracts don't change hands period-to-period. We feel good about our competitive positioning, focusing on customer experience, service levels, value propositions, and tools like Interlogix and Atrix platforms. We're not just competing on price but offering value, which has helped us offset challenges. -

Freight Costs and Input Inflation
Q: Are rising freight costs affecting you materially?
A: While freight costs have increased, they're still much lower than during the peak a couple of years ago. The supply chain is functioning more efficiently now. We monitor and manage these increases tightly and haven't needed widespread price adjustments yet. Overall, we're managing better than before, with puts and takes being manageable. -

Supply Chain and Domestic Investments
Q: Are you investing in domestic manufacturing due to tariffs?
A: We're investing in a diversified, competitive geographic footprint, not limited to domestic. We have low exposure to China, sourcing less than 10% of our branded products from there. By enhancing supply chain resiliency across various regions, including nearshore and domestic, we're ensuring customers get the products they need. Investments are driven by volume opportunities and customer needs rather than just cost considerations. -

Growth in Other Segments
Q: What are growth expectations for OptiFreight, Nuclear, at-Home?
A: All three businesses are expected to contribute to double-digit 10% growth in fiscal '25. We're investing in each: At-Home has opened two new distribution points and is automating; OptiFreight is investing in digital platforms; Nuclear is expanding the PET network and exploring Theranostics, with about $100 million invested from fiscal '24 to '26. We believe in their ability to grow and benefit from secular trends. -

Averon and CVS Partnership
Q: Will Averon only serve CVS?
A: No, Averon won't just serve CVS. Similar to our Red Oak Sourcing model, we both have different needs and customers but can jointly benefit patients by combining capabilities. The structure is different, without the same payment schedules as Red Oak. Our distribution contract with CVS goes through 2027, and Red Oak agreement through 2029; Averon is outside of these agreements and exemplifies partnerships we seek with customers. -

Impact of Insulin and Biosimilars
Q: How do insulin pricing and HUMIRA shifts affect gross profit?
A: We've seen offsets due to insulin pricing changes from WACC adjustments at the beginning of the calendar year, impacting us until Q2 of fiscal '25. HUMIRA biosimilar penetration is starting but remains low industry-wide. Actions by companies like CVS are moving things along. We're focused on biosimilars and our joint venture with Averon to increase patient access to affordable therapies. -

AI and Efficiency Improvements
Q: What's your AI strategy for efficiency and savings?
A: AI is integrated into our operations broadly. Examples include Specialty Networks' PPS analytics, which synthesizes electronic medical records for actionable insights, and automation in our at-Home Solutions network, now at over 25% of sites. Platforms like Interlogix and Atrix, in partnership with companies like Palantir, enhance value. We focus on meaningful applications beyond buzzwords to drive our business forward. -

Restatement Impact on GMPD
Q: Does the restatement affect GMPD targets?
A: There's no comparability issue; the $175 million target is unimpacted by the revisions. Adjustments over the three-year period involved shifting income or expenses into prior periods. We've addressed a revenue recognition issue in our at-Home business, which is less than 0.5% of our revenue. Now, we have clean financials entering fiscal '25 to discuss our progress moving forward. -

Medicaid Disenrollment Effects
Q: Has Medicaid disenrollment impacted your business?
A: We haven't seen meaningful impacts from Medicaid disenrollment. Our broad customer base and payers make it hard to pinpoint reimbursement sources. Same-store sales show consistent utilization without significant fluctuations. Currently, these trends aren't driving our business materially. -