Cardinal Health Raises FY2027 EPS Outlook After Q1 Profit Growth

Cardinal Health Inc. (NYSE: CAH) raised its fiscal 2027 non-GAAP earnings outlook after first-quarter profit grew faster than revenue, supported by Pharmaceutical and Specialty Solutions and broad growth across its three smaller operating segments.

The healthcare distributor now expects fiscal-year non-GAAP diluted earnings per share of $12.80 to $13.00, up from its previous range of $12.40 to $12.60. It also increased its profit-growth forecasts for Pharmaceutical and Specialty Solutions and its group of other businesses, while maintaining its outlook for Global Medical Products and Distribution.

For the quarter, Cardinal Health reported revenue of $67.51 billion, up 5% year over year. GAAP operating earnings rose 13% to $753 million, while non-GAAP operating earnings increased 17% to $1.00 billion. GAAP net earnings attributable to Cardinal Health climbed 23% to $554 million, and diluted GAAP EPS rose 27% to $2.38.

On a non-GAAP basis, net earnings advanced 24% to $759 million and diluted EPS increased 28% to $3.26. Gross margin rose 12% to $2.60 billion, outpacing a 9% increase in selling, general and administrative expenses to $1.60 billion.

Pharmaceutical and Specialty Solutions drives profit growth

Pharmaceutical and Specialty Solutions, Cardinal Health’s largest segment, generated first-quarter revenue of $62.58 billion, a 6% increase from $59.21 billion a year earlier. The company attributed the revenue growth to higher brand and specialty pharmaceutical sales to existing customers.

Segment profit increased 17% to $783 million, helped by brand and specialty products and the company’s generics program. The segment’s profit margin expanded by 12 basis points to 1.25% from 1.13%.

Cardinal Health now expects the business to deliver fiscal 2027 segment profit growth of 10% to 12%, compared with its previous forecast of 8% to 11%. Revenue is still expected to grow 3% to 5%.

The company continues to focus on expanding its specialty capabilities, including distribution, group purchasing offerings, management-services platforms, analytics, real-world data and nuclear and precision health solutions for community-based physicians.

Medical products profit declines

Global Medical Products and Distribution reported revenue of $3.19 billion, essentially unchanged from the prior-year period. Growth in Cardinal Health-branded products was offset by lower distribution revenue and unfavorable foreign-exchange effects.

Segment profit fell 28% to $33 million, while the profit margin contracted by 41 basis points to 1.03%. The presentation identified distribution as a drag on profit, partly offset by Cardinal Health-branded products.

For fiscal 2027, the company continues to expect the segment to produce revenue growth of 2% to 4% and profit of $200 million to $220 million. Execution of the segment’s improvement plan remains one of management’s strategic priorities.

Cardinal Health’s other businesses—Nuclear and Precision Health Solutions, at-Home Solutions and OptiFreight Logistics—reported combined revenue growth of 7% to $1.76 billion. Segment profit rose 16% to $193 million, and the profit margin expanded by 82 basis points to 10.94%. The company said all three operating segments contributed to the growth.

Cardinal Health raised its fiscal 2027 outlook for these businesses to revenue growth of 12% to 14%, from 11% to 13%, and segment profit growth of 17% to 20%, from 15% to 18%.

Cash flow and capital allocation

Net cash provided by operating activities increased to $1.40 billion from $973 million in the prior-year quarter. Non-GAAP adjusted free cash flow rose to $1.58 billion from $1.29 billion.

The company expects full-year adjusted free cash flow of $3.5 billion to $4.0 billion and capital expenditures of about $700 million. First-quarter capital spending totaled $157 million. Planned investments include nuclear capacity, specialty and management-services capabilities, automation and supply-chain technology, new customer solutions, and distribution centers serving Pharmaceutical and Specialty Solutions and at-Home Solutions.

Cardinal Health returned $625 million to shareholders during the quarter, including $500 million of share repurchases and $125 million of dividends. Its full-year outlook calls for approximately $1 billion of share buybacks. The company also lowered its expected diluted weighted-average share count to 231 million to 232 million from about 233 million.

During the quarter, Cardinal Health closed its acquisition of Strive Medical, a multispecialty supply provider focused on urology. It also announced an agreement to acquire AdaptHealth’s Diabetes Health business, with closing expected in the third quarter.

In addition to the higher EPS forecast, Cardinal Health narrowed its expected non-GAAP effective tax rate to 18.5% to 19.5%, compared with the previous range of 19% to 20%. It continues to forecast interest and other expense of $240 million to $290 million.

The company does not provide a GAAP earnings outlook because certain excluded items depend on future events that management said cannot be reasonably estimated. Cardinal Health identified risks including branded-pharmaceutical pricing and regulatory changes, execution at recently acquired businesses, its medical-segment improvement initiatives, tariffs, potential supply disruptions and cost increases related to the conflict with Iran, litigation and government investigations, and the performance of its generics program.