cardinal health 2008 Earnings Presentation

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cardinal health 2008 Earnings Presentation

  1. 1. Q4FY2008 and FY2009E Investor/Analyst Call Essential to care August 7, 2008
  2. 2. Forward-looking statements and GAAP reconciliation This presentation contains forward-looking statements addressing expectations, prospects, estimates and other matters that are dependent upon future events or developments. These matters are subject to risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. The most significant of these uncertainties are described in Cardinal Health's Form 10-K, Form 10-Q and Form 8-K reports (including all amendments to those reports) and exhibits to those reports, and include (but are not limited to) the following: uncertainties regarding the decision to explore the separation of the company’s clinical and medical products businesses and the impacts of such decision if the separation is accomplished; competitive pressures in Cardinal Health's various lines of business; the loss of one or more key customer or supplier relationships or changes to the terms of those relationships; uncertainties relating to the timing of generic or branded pharmaceutical introductions and the frequency or rate of branded pharmaceutical price appreciation or generic pharmaceutical price deflation; changes in the distribution patterns or reimbursement rates for healthcare products and/or services; the results, consequences, effects or timing of any inquiry or investigation by any regulatory authority or any legal or administrative proceedings; future actions of regulatory bodies or government authorities relating to Cardinal Health's manufacturing or sale of products and other costs or claims that could arise from its manufacturing, compounding or repackaging operations or from its other services; difficulties, delays or additional costs in implementing the restructuring program announced on July 8, 2008; the costs, difficulties and uncertainties related to the integration of acquired businesses; conditions in the pharmaceutical market and general economic and market conditions. This presentation reflects management’s views as of August 7, 2008. Except to the extent required by applicable law, Cardinal Health undertakes no obligation to update or revise any forward-looking statement. In addition, this presentation includes non-GAAP financial measures. Cardinal Health provides definitions and reconciling information at the end of this presentation and on its investor relations page at www.cardinalhealth.com. A transcript of the conference call will be available on the investor relations page at www.cardinalhealth.com. 2
  3. 3. Agenda Opening remarks Kerry Clark Chairman and Chief Executive Officer Financial overview Jeff Henderson Chief Financial Officer HSCS Comments George Barrett Vice Chairman and CEO Healthcare Supply Chain Services CMP Comments Dave Schlotterbeck Vice Chairman and CEO Clinical and Medical Products Q&A 3
  4. 4. Q4 and YEFY08 Results 4
  5. 5. Q4 FY2008 Financial Review GAAP Basis Non-GAAP Basis % % Change1 Change1 ($M) ($M) $22,926 3% Revenue $543 29% $568 6% Operating earnings $330 39% $348 1% Earnings from continuing ops $0.92 51% $0.97 9% Diluted EPS from continuing ops $247 Operating cash flow 17% 18% Return on equity 1% change over prior year quarter 5
  6. 6. Q4 FY2008 Operating Earnings and EPS Q4 FY 2008 Q4 FY 2007 Operating Diluted EPS from Operating Diluted EPS from Earnings/(Loss) Continuing Earnings/(Loss) Continuing ($M) Operations ($M) Operations GAAP Consolidated $543 $0.92 $421 $0.61 Special Items $35 $0.06 $118 $0.28 Impairment Charges & Other ($10) ($0.01) ($1) -- Non-GAAP Consolidated $568 $0.97 $538 $0.89 6
  7. 7. Healthcare Supply Chain Services Analysis Pharmaceutical % Q4 FY08 Q4 FY07 FY08 FY07 % Change ($M) ($M) ($M) ($M) Change 19,819 1% 79,284 Revenue 19,556 76,573 4% 258 (15%) 1,122 Segment Profit 303 1,300 (14%) Medical/Surgical Q4 FY08 Q4 FY07 % FY08 FY07 % ($M) ($M) Change ($M) ($M) Change Revenue 2,082 1,929 8% 8,084 7,514 8% Segment Profit 81 83 (3)% 303 318 (5%) 7
  8. 8. Clinical and Medical Products Analysis CTS Q4 FY08 Q4 FY07 % FY08 FY07 % ($M) ($M) Change ($M) ($M) Change 2,890 2,687 8% 780 Revenue 756 3% 497 386 29% 156 Segment Profit 144 8% MPT Q4 FY08 Q4 FY07 % FY08 FY07 % ($M) ($M) Change ($M) ($M) Change 2,696 1,836 47% 727 Revenue 500 46% 300 198 52% 95 Segment Profit 58 63% 8
  9. 9. Full Year FY08 Financial Review GAAP Basis Non-GAAP Basis % % Change1 Change1 ($M) ($M) $91,091 5% Revenue $2,129 55% $2,219 3% Operating earnings $1,325 58% $1,385 -- Earnings from continuing ops $3.64 76% $3.80 11% Diluted EPS from continuing ops $1,559 Operating cash flow 18% 19% Return on equity 1% change over prior year quarter 9
  10. 10. Full Year FY08 Operating Earnings and EPS FY 2008 FY 2007 Operating Diluted EPS from Operating Diluted EPS from Earnings/(Loss) Continuing Earnings/(Loss) Continuing ($M) Operations ($M) Operations GAAP Consolidated $2,129 $3.64 $1,374 $2.07 Special Items $123 $0.21 $772 $1.31 Impairment Charges & Other ($32) ($0.05) $17 $0.04 Non-GAAP Consolidated $2,219 $3.80 $2,163 $3.42 10
  11. 11. Key Financial Value Drivers FY2008 Balance sheet management – Days of inventory declined from 28 to 25 days Q4FY07 vs. Q4FY08 – FY08 non-GAAP ROIC of 8.1% Capital deployment – Repurchased $1.1B in FY08 – Increased dividend by 17% to $0.14 per quarter in June 2008 Capital structure – Debt to total capital increased from 32% in Q4 FY07 to 33% in Q4 FY08 – Net debt to capital1 increased from 22% in Q4FY07 to 25% in Q4FY08 FY08 non-GAAP return on equity of approximately 19% 1Non-GAAP financial measure 11
  12. 12. FY2009 Estimates / Assumptions 12
  13. 13. FY09 Financial Goals August 7, 2008 Total revenue growth: 6-7% Non-GAAP EPS1: $3.80 - $3.95 Revenue Profit Segment Growth Growth Healthcare Supply Chain Services (HSCS) >6% Flat to (5%) Clinical and Medical Products (CMP) >10% >20% 1 Non-GAAP diluted earnings per share from continuing operations 13
  14. 14. FY09 Total Corporate Assumptions August 7, 2008 Non-GAAP effective tax rate Approximately 34% Interest and other $180M - $190M Diluted weighted average shares outstanding 361M – 362M NOTE: This outlook assumes that the potential separation of the Company’s clinical and medical products businesses does not occur during fiscal 2009 and excludes any charges or significant expenses associated with the potential separation. 14
  15. 15. FY09 Segment-Related Assumptions August 7, 2008 Healthcare Supply Chain Services Bulk revenue growth likely Risk-adjusted “basket” of generic to exceed non-bulk launches IT investments Expect recent pharma margin erosion to moderate Nuclear: assumes generic event; DEA settlement discussions participation as distributor, not as ongoing in H1 manufacturer Borschow accretive 15
  16. 16. FY09 Segment-Related Assumptions August 7, 2008 Clinical and Medical Products Enturia accretive Viasys synergy goals ahead of schedule R&D investments Fully reserved for Alaris remediation, resolved by CalYE08 16
  17. 17. FY09(E) Revenue Product Information HSCS • Distribution of pharmaceutical, radiopharmaceutical & OTC products • Distribution of medical, surgical and laboratory products & medical procedure kits • Bulk v. non-bulk CMP • Intravenous medication safety & infusion delivery systems • Medication & medical supply dispensing systems • Respiratory care products • Infection prevention products • Medical specialty products • Clinical intelligence solutions ALL OTHER • Franchising and operating apothecary-style retail pharmacies • Pharmacy services • Medical access & specialty products 17
  18. 18. Healthcare Supply Chain Services (HSCS) 18
  19. 19. HSCS: Turnaround Plan • Focus on execution • More effectively segment our business to target the right opportunities • Improve and simplify our generic programs and better integrate them into overall offerings • Re-invigorate our value proposition 19
  20. 20. HSCS: Deep Customer Segmentation Aligning offerings Suppliers Customers Retail Ind. Branded Generic Chains/ Hospital Warehousing & • Pharmaceutical/ • Inventory mgt • Market share • Patient Safety/ Distribution services Clinical Non • Data reporting • Launch speed Solutions • Pharmacy brands • High service • Contract mgt • Distribute / • Pharma • Rx Purchasing levels operational • Efficient reach to Distribution. Programs excellence • Contract mgt every COT • Medication • FirstScript – • Ordering / inventory • AR / returns mgt • AR / returns mgt Packaging Customized management • Special handling • Centralized Autoshipment to stock • Cardinal • Purchasing Solutions shipping • Centralized new Brand or Generic Assist • SOURCE generics shipping • Data reporting items fast • Ready Scan (primary and back-up • Efficient reach • Front-end Purchasing • Pharmacy formulary) to every COT & Merchandising Automation • Home Health Care, • Managed Care (Pyxis) packaging, Programs FirstScript • Ordering / Inventory • Managed Care Management 20
  21. 21. Clinical and Medical Products (CMP) 21
  22. 22. CMP: Competitive Advantages • Global leader in medication safety and infusion systems • Largest U.S. hospital footprint in dispensing systems • Largest acute-care respiratory company worldwide • Leading provider of disposables used in surgical suite • Industry’s only enterprise-wide medication management solution • Leader in hospital-acquired infection prevention • Leader in positive patient identification 22
  23. 23. CMP: Winning Vision Aligning with top hospital concerns to be a leading provider of products and services for hospital safety & productivity Improve • Integrating our offers and knowledge to manage all medications Medication • Uniquely positioned to improve safety & productivity Management • Established role and presence in the surgical suite Enhance Infection • Expansion into the large respiratory market Prevention • Focus on protocol compliance and clinically differentiated products • Expanding our capability with high impact procedures Minimize risk and cost of procedures • Tackling our customers latest concerns Help hospitals • Leading market offering in infection detection identify patients at • Building our data to address top hospital concerns risk 23
  24. 24. Summary 24
  25. 25. FY 2009 Priorities • Resolve outstanding regulatory issues • Continue to invest in enhancing quality and regulatory systems • Return HSCS to steady growth • Continue to invest in CMP growth • Complete integrations (Viasys, Enturia, Borschow) Mission: to make healthcare safer and more productive 25
  26. 26. Q&A
  27. 27. Q4FY08 Trailing Five Quarters 28
  28. 28. Healthcare Supply Chain Services Analysis: Q4FY08 Healthcare Supply Chain Services – Pharmaceutical Q4FY07 Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q4FY08/ Q4FY07 % change Revenue $19,556 19,221 $20,351 $19,894 $19,819 1% ($M) Segment $303 $305 $258 $300 $258 (15)% Profit ($M) Healthcare Supply Chain Services – Medical Q4FY07 Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q4FY08/ Q4FY07 % change Revenue $1,929 $1,921 $2,015 $2,066 $2,082 8% ($M) Segment $83 $58 $72 $93 $81 (3)% Profit ($M) 29
  29. 29. Clinical and Medical Products Analysis: Q4FY08 Medical Products and Technologies Q4FY07 Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q4FY08/ Q4FY07 % change Revenue $500 $623 $667 $679 $727 46% ($M) Segment $58 $57 $69 $80 $95 63% Profit ($M) Clinical Technologies and Services Q4FY07 Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q4FY08/ Q4FY07 % change Revenue $756 $649 $715 $747 $780 3% ($M) Segment $144 $98 $116 $127 $156 8% Profit ($M) 30
  30. 30. The following slides contain historical segment information that reflect a change in the Company’s reportable segments effective July 1, 2008. Certain costs held at corporate have been allocated to the segments under the new segment structure. Further information regarding the new segments will be included in the Company’s Form 10-Q for the quarter ending September 30, 2008 and subsequent periods. 3-Year, Quarterly, Historical Financial Data Recast in Current, Revised Structure 31
  31. 31. Healthcare Supply Chain Services Segment Analysis: FY06 - 08 Q1FY06 Q2FY06 Q3FY06 Q4FY06 FY06 Revenue $18,260 $18,713 $19,579 $20,555 $77,108 ($M) Segment $273 $329 $407 $382 $1,392 Profit ($M) Q1FY07 Q2FY07 Q3FY07 Q4FY07 FY07 Revenue $20,305 $21,079 $21,120 $21,444 $83,948 ($M) Segment $335 $394 $452 $366 $1,548 Profit ($M) Q1FY08 Q2FY08 Q3FY08 Q4FY08 FY08 Revenue $21,093 $22,346 $21,923 $21,863 $87,226 ($M) Segment $347 $315 $377 $324 $1,363 Profit ($M) 32
  32. 32. Clinical and Medical Products Segment Analysis: FY06 - 08 Q1FY06 Q2FY06 Q3FY06 Q4FY06 FY06 Revenue $726 $756 $769 $850 $3,102 ($M) Segment $79 $108 $116 $126 $429 Profit ($M) Q1FY07 Q2FY07 Q3FY07 Q4FY07 FY07 Revenue $779 $862 $883 $1,017 $3,542 ($M) Segment $86 $127 $132 $191 $535 Profit ($M) Q1FY08 Q2FY08 Q3FY08 Q4FY08 FY08 Revenue $1,032 $1,133 $1,170 $1,270 $4,606 ($M) Segment $145 $171 $190 $229 $735 Profit ($M) 33
  33. 33. All Other Segment Analysis: FY06 - 08 Q1FY06 Q2FY06 Q3FY06 Q4FY06 FY06 Revenue $278 $288 $291 $282 $1,138 ($M) Segment $28 $28 $28 $26 $110 Profit ($M) Q1FY07 Q2FY07 Q3FY07 Q4FY07 FY07 Revenue $280 $295 $290 $286 $1,151 ($M) Segment $28 $27 $26 $25 $107 Profit ($M) Q1FY08 Q2FY08 Q3FY08 Q4FY08 FY08 Revenue $294 $301 $308 $288 $1,190 ($M) Segment $22 $25 $26 $27 $101 Profit ($M) 34
  34. 34. GAAP to Non-GAAP Reconciliation Statements 35

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