Cardinal Health profit falls, mulls spin-off

Cardinal profit declines due to $680 million sale of its former pharmaceutical technologies segment. Source: CNN Money

Cardinal Health has reported that its net income fell to $326.6 million for the fourth quarter, which ended June 30, from $902.2 million in the year-ago period.

The company attributed the decline largely to a $680 million gain in 2007 from the sale of its former pharmaceutical technologies segment. However, the company said that its consolidated revenue for fiscal 2008 grew 5 percent to $91 billion and based on generally accepted accounting principles, earnings from continuing operations rose 58 percent to $1.3 billion.

For revenue for its Healthcare Supply Chain Services – Pharmaceutical segment, Cardinal reported an increase of 1 percent to $19.8 billion for the quarter, with sales to bulk customers increasing by 9 percent, compared with year-ago results. Segment profit declined 15 percent to $258 million, “driven by previously disclosed customer re-pricings, and direct-store-door customer losses, including the impact of anti-diversion efforts,” Cardinal said.

For the Healthcare Supply Chain Services – Medical segment, the Dublin, Ohio-based company said profits increased 8 percent to $2.1 billion, driven by increased sales to existing hospital, laboratory and ambulatory customers. Segment profit for the quarter decreased 3 percent to $81 million, but included a previously disclosed corporate allocation adjustment that reduced profit by 6 percentage points, according to the company.

For the Medical Products and Technologies segment, Cardinal reported a 46 percent increase in fourth-quarter revenue to $727 million, compared to the fourth quarter of 2007, “primarily driven by the acquisitions of VIASYS Healthcare and Enturia, but also organic growth in the core infection prevention and respiratory businesses.” Segment profit increased 63 percent to $95 million and included a favorable impact of 38 percentage points from acquisitions, the company said.

“For two years, we have been taking steps to sharpen our focus on healthcare supply chain services and clinical and medical products, culminating with our announcement in July to operate these businesses in two distinct segments that reflect the unique characteristics and requirements of each,” said R. Kerry Clark, chairman and CEO of Cardinal.

“As we now consider a spin-off of our clinical and medical products businesses, our goal is simple: to have two thriving businesses, delivering maximum value to customers and shareholders over the long term,” according to Clark.

In July, Cardinal consolidated its four operating units into two, and its board of directors has since supported a management recommendation to consider a tax-free spinoff of the clinical and medical products division into a separate publicly traded company, according to the company. The company plans to make a decision on the proposal in 60 to 90 days.

A spinoff would leave Cardinal with its original business of distributing pharmaceuticals and medical supplies, which accounts for 94 percent of revenue and 57 percent of profit.