Cardinal’s bottom line hit by lost Walgreen contract

  • Adam Cairns | Dispatch file photo
    Under Chairman and CEO George S. Barrett, left, Cardinal Health has diversified its business.
By

May 2, 2014

The absence of its $22 billion-a-year contract with Walgreen was evident in Cardinal Health’s sales and earnings report yesterday, but company officials remain optimistic that its plans to diversify are beginning to pay off.

Revenue at the Dublin-based pharmaceutical and medical-supply company was $21.4 billion for its third fiscal quarter, a 13 percent drop from the previous year. The drop was attributed primarily to the absence of that Walgreen contract, which ended on Aug. 31.

Net income also fell, down 9 percent from the year-ago quarter, to $315 million.

Cardinal stock closed yesterday at $65.12, down $4.39 or 6.3 percent.

These results were “somewhat messy,” said Ross Muken, an analyst with ISI Group. “Ultimately, we think that investors have overreacted to a sloppy quarter ... and we believe shares should be bought here at current levels.”

He thinks recent acquisitions “continue to push Cardinal deeper into the medical segment” and have begun to offset the loss of the Walgreen contract.

In recent months, Cardinal acquired AccessClosure, a California company that makes sealants used to close blood vessels during surgery for $320 million. It also has purchased home-health provider AssuraMed for $2.1 billion and expanded its operations in China.

Cardinal recently announced a venture with CVS Caremark, its largest customer, to buy generic drugs worldwide to sell in the U.S. market. This partnership is expected to be up and running in early July, will be called Red Oak Sourcing, and will be based in Foxborough, Mass.

The strategy of expansions and acquisitions is “not so much diversification as it is a program to improve our business balance and make sure we’re staying in front of the key trends in the health-care market,” said Cardinal CEO George S. Barrett.

These trends, he said, include an aging population, a rise in chronic illnesses and the need to deliver more health-care services in non-hospital settings.

“That’s why we acquired AssuraMed, to have more of a presence in the home health-care setting,” Barrett said. “When you look at all of the things we’re working on, we feel pretty good about the direction we’re headed in.”

swartenberg@dispatch.com

@stevewartenberg