Share prices for Dublin, Ohio-based Cardinal Health Inc. jumped on Monday after the company's fourth-quarter earnings report beat analysts' expectations.
Cardinal, a $137 billion healthcare services company, which specializes in the distribution of pharmaceuticals and medical products, reported revenues of $35 billion for fourth-quarter fiscal 2018, up 7% from the fourth quarter last year.
Its 2018 revenues were up 5% from fiscal 2017.
The company reported a fourth-quarter loss of $1.1 billion primarily due to a $1.4 billion charge it took to write down the performance of its cardiovascular products subsidiary Cordis Corp. "We encountered a couple of unexpected challenges in fiscal 18 and we are addressing those issues," said Cardinal CEO Mike Kaufmann.
Officials said they expect to see a turnaround in the Cordis segment.
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"As we go into fiscal 19 we believe we are in a much better position to manage our inventory levels across our global supply chain," said Cardinal's Chief Financial Officer Jorge Gomez. "We are making good progress, the trends are moving in the right direction and it is one of the key elements of our turnaround plan.
The company reported operating earnings of $126 million for fiscal year 2018.
During the call, officials addressed the divestiture in Nashville-based bundled-payment startup NaviHealth, which Cardinal acquired in 2015. Kaufmann said the company got back more than it had invested in the post-acute care management company.
"We really like the NaviHealth business," Kaufmann said. But, "there are a lot of changes in that space and we knew there was going to be significant investment needed in that space in the next 18 to 24 months. We knew that investment would not only have an impact on the P&L, but more importantly, it would have an impact on our ability to focus on the things that will drive even more value in our medical segment."
So, Kaufmann said, Cardinal ultimately decided to sell the majority stake of NaviHealth to New York City-based equity firm Clayton, Dubilier & Rice, while still retaining the right to buy the business back after five years. "We really think this maximizes the growth potential of NaviHealth and really allows us to stay focused on the key drivers for us in medical which is turning around Cordis and landing the patient recovery business."
Opioid accountability
During its call, Cardinal addressed briefly how it was managing potential financial and reputational risks related to the U.S. opioid crisis since it is an opioid distributor. It came after it became subject to one of several opioid risk shareholder proposals filed by the Investors for Opioid Accountability this proxy season, reported Pensions & Investments.
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"We continue to be committed to this. This is something that is really important to us as a company," Kaufmann said. He pointed to a partnership between Cardinal and Ohio State University called GenerationRX that started in 2009 and focused on prescription misuse prevention.
"[We] have been making investments steadily over the last 10 years internally and externally. I don't see that changing that," Kaufmann said. "At this point in time, it's hard to see the level it will be in [fiscal] 19 versus 18, but we will continue making investments in opioids going forward because it is important to us."
Financially, the company acknowledged uncertainty regarding a New York law passed in April requiring opioid manufacturers and distributors in the state to contribute to an aggregate $100 million annual assessment.
That means Cardinal will have to make its initial payment toward the assessment on Jan. 1, Gomez said.
"We haven't factored any impact from the newly passed law into our guidance because there is still a lot of uncertainty for how it will be implemented," Gomez said. "Some of the uncertainty we see is there is a significant legal challenge pending against that law, there is a lot of complexity with which the law was written and we're awaiting some guidance from the state and there's still a lot of uncertainty frankly in how much each participant in that market will actually pay."