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CARDINAL HEALTH INC (CAH)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 FY25 revenue was $55.3B, down 4% year over year, but up 16% excluding the OptumRx contract expiration; non-GAAP diluted EPS was $1.93 (+2% y/y), and GAAP diluted EPS was $1.65 (+10% y/y) .
  • The company raised FY25 non-GAAP EPS guidance to $7.85–$8.00 from $7.75–$7.90; Pharmaceutical & Specialty Solutions (Pharma) segment profit growth guidance rose to 10%–12% (from 4%–6%), while GMPD segment profit guidance was lowered to $130–$150M (from $140–$175M) .
  • Interest & other expense guidance increased to $200–$230M due to $2.9B of new debt financing and foregone interest income tied to acquisitions; GI Alliance majority stake (73%) closed on Jan 30, 2025, and ION closed in December, bolstering specialty strategy .
  • Management flagged Q3 as expected to be the highest profit quarter of FY25 on manufacturer price increase timing; COVID vaccine distribution is now a modest headwind with no meaningful contribution expected for the remainder of FY25 .
  • Stock reaction catalysts: raised FY25 EPS and Pharma segment guidance, specialty growth momentum (GI Alliance/ION), and explicit Q3 profit cadence commentary .

What Went Well and What Went Wrong

What Went Well

  • Specialty momentum and execution: “robust demand across our largest and most significant business Pharmaceutical and Specialty Solutions” and confidence to raise FY25 guidance .
  • EPS performance: CFO highlighted a “much better-than-expected EPS of $1.93,” with operating earnings up 9% on disciplined SG&A (+3%) and gross margin +5% .
  • Specialty platform build-out: Closed 73% of GI Alliance and completed ION acquisition; 3PL revenue growth >20%; launched Advanced Therapy Connect; began routine commercial-scale production of Actinium-225 with TerraPower .

What Went Wrong

  • GMPD headwinds: Segment profit was $18M, below initial expectations, pressured by softer volumes (respiratory/lab) and a $15M WaveMark write-off of uncollectible receivables .
  • Higher financing costs: Interest and other rose on acquisition-related financing; FY25 Interest & Other guidance increased to $200–$230M from $140–$170M .
  • Revenue optics: Reported revenue down 4% y/y due to OptumRx expiration; while ex-OptumRx growth was strong (+16%), headline decline can concern some investors .

Financial Results

Headline Metrics by Quarter

MetricQ4 FY24Q1 FY25Q2 FY25
Revenue ($USD Billions)$59.9 $52.3 $55.3
GAAP Operating Earnings ($USD Millions)$401 $568 $549
Gross Margin ($USD Millions)$1,882 $1,902 $1,941
GAAP Diluted EPS ($USD)$0.96 $1.70 $1.65
Non-GAAP Diluted EPS ($USD)$1.84 $1.88 $1.93
Effective Tax Rate (%)40.4% 23.0% 21.4%

Notes: Q2 FY25 revenue increased 16% excluding OptumRx expiration; Pharma revenue ex-OptumRx rose 17% .

Segment Breakdown (Revenue and Profit)

SegmentQ4 FY24 Revenue ($MM)Q4 FY24 Profit ($MM)Q1 FY25 Revenue ($MM)Q1 FY25 Profit ($MM)Q2 FY25 Revenue ($MM)Q2 FY25 Profit ($MM)
Pharmaceutical & Specialty Solutions$55,608 $482 $47,990 $530 $50,849 $531
Global Medical Products & Distribution (GMPD)$3,109 $47 $3,123 $8 $3,154 $18
Other (At-Home, NPHS, OptiFreight)$1,172 $111 $1,186 $104 $1,283 $118

KPIs and Cash Flow

KPIQ4 FY24Q1 FY25Q2 FY25
Cash & Equivalents ($USD Billions)$5.133 $2.867 $3.810
Net Cash from Operating Activities ($USD Millions)$2,082 $(1,647) $(400)
Adjusted Free Cash Flow (Non-GAAP, $USD Millions)N/A quarterly; FY24 $3,942 $(1,361) $(254)
Interest Expense, Net ($USD Millions)$9 $32 $35
Diluted Weighted-Average Shares (MM)245 245 243

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Non-GAAP EPSFY25$7.75–$7.90 $7.85–$8.00 Raised
Pharma Segment Profit GrowthFY254%–6% 10%–12% Raised
GMPD Segment ProfitFY25$140–$175M $130–$150M Lowered
Interest & Other ExpenseFY25$140–$170M $200–$230M Raised (expense)
Pharma Segment RevenueFY25Decline 4%–6% Decline 1%–3% Improved
Non-GAAP Effective Tax RateFY2523.0%–24.0% No update provided in Q2 materialsMaintained prior
Share RepurchasesFY25$750M Reaffirmed execution; additional $375M previously committed Maintained
Dividend per ShareQ2N/A prior quarter$0.5056 (payable Apr 15, 2025) Declared

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24 and Q1 FY25)Current Period (Q2 FY25)Trend
Specialty growth & platformsFY24 highlighted specialty momentum; announced ION acquisition; Advanced Therapy Solutions Innovation Center Closed GI Alliance (73%); ION closed; specialty distribution strong; 3PL >20% growth; launched Advanced Therapy Connect Strengthening
Service levels & supply chainNew distribution centers in MA/Canada; operational improvements in GMPD Service levels up >10% over 2 years; handled severe storms while maintaining on-time delivery Improving
Tariffs & sourcingLimited prior commentaryDetailed tariff exposure; ~50% of Cardinal brand sourced in North America; <10% sourced from China; price increases likely if broad tariffs (10%–25%) Heightened risk, proactive mitigation
COVID-19 vaccinesEarlier seasonal launch benefited Q1 Q2 headwind; no meaningful contribution expected for rest of FY25 Fading
Nuclear/TheranosticsAdvanced therapy center noted Commercial-scale Actinium-225 production; expanding GE Visimyl sites ~2x by end FY25 Expanding
GMPD turnaroundFY24 improvement plan; FY26 ~$300M target Profit $18M; $15M WaveMark write-off; costs and soft volumes; FY25 guidance to $130–$150M Progress with setbacks
Capital allocation & leverageRecord FY24 FCF; buybacks raised to $750M New debt $2.869B; target Moody’s leverage 2.75x–3.25x; executing $375M additional repurchases Leverage elevated, disciplined paydown

Management Commentary

  • CEO: “We delivered strong second quarter financial results… Led by robust demand across our Pharmaceutical and Specialty Solutions segment, we are again pleased to raise our fiscal 2025 enterprise guidance.”
  • CEO on specialty: GI Alliance “will serve as the foundation of our multi-specialty platform, enabling further national expansion in GI… urology, rheumatology and neurology” .
  • CFO: “We grew operating earnings by 9%… pleased to report… much better-than-expected EPS of $1.93. We are raising our EPS guidance to a range of $7.85 to $8.” .
  • CFO on cadence: “We continue to expect Q3 to be the highest profit dollar quarter of the year, driven by the timing of manufacturer price increases” .
  • CEO on tariffs: “If there are widespread tariffs… anywhere from the 10% to 25% range, I anticipate there will be corresponding price increases… with 1% to 2% margins, we will not absorb whatever impacts are left.” .

Q&A Highlights

  • Pharma growth ex-M&A: Underlying OI high single digits; M&A adds ~300 bps; strong utilization first half, more normalized second half assumed .
  • Specialty integration: Strategy centers on community physician; broader MSO services beyond distribution; momentum stronger than mid-teens growth in Q2 .
  • GMPD clarity: Sequential profitability improvement expected; guidance trimmed for health care costs (Q1) and WaveMark write-off (Q2), midpoint reflects removing these nonrecurring items .
  • Tariffs & sourcing mix: ~2/3 National brand pass-through; ~1/3 Cardinal brand—half sourced in North America (U.S./Mexico); <10% from China; potential onshoring over time constrained by FDA and economics .
  • Capital allocation: Maintain BBB/Baa2 investment-grade; return baseline capital; debt paydown priorities; June 12 Investor Day for long-term algorithm update .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 FY25 EPS and revenue was unavailable at the time of analysis due to access limits, so formal beat/miss vs consensus cannot be assessed. Management characterized non-GAAP EPS of $1.93 as “much better-than-expected” versus internal expectations .

Key Takeaways for Investors

  • Guidance momentum: FY25 non-GAAP EPS and Pharma segment profit guidance both raised; GMPD guidance trimmed but still up meaningfully vs FY24—net positive across enterprise guidance mix .
  • Specialty as growth engine: GI Alliance and ION expand multi-specialty and oncology platforms; biopharma solutions and 3PL are contributing; expect continued specialty-led mix benefits .
  • Near-term profit cadence: Q3 flagged as peak profit quarter on manufacturer price dynamics; watch sequential operating leverage and onboarding costs as large customer ramp progresses .
  • Tariff risk management: Diverse sourcing, reduced China exposure (<10%), and price pass-through where needed; potential volatility if exclusions are limited—monitor policy developments .
  • Cash flow optics: Q2 adjusted FCF was $(254)M and operating cash flow $(400)M, largely timing-related; debt financing elevates interest, with explicit leverage targets guiding paydown .
  • Dividend and buybacks: Quarterly dividend of $0.5056 declared; FY25 repurchases reaffirmed, with additional $375M execution noted—supports total shareholder return .
  • GMPD watch items: Soft respiratory/lab volumes and WaveMark receivable write-off; still expecting back-half profit improvement with cost optimization .