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Cardinal Health quarterly profit rises

By Wai Lang Chu , 28-Oct-2005

Cardinal Health reported a varied first quarter, with sales and income receiving substantial gains due to across-the-board improvement in pharmaceutical distribution, medical products and services and clinical technologies.

During the quarter ended Sept. 30, operating earnings increased to $19.4 billion (€16 billion) from $17.8 billion in the prior year. Operating earnings grew 3 per cent to $372 million from $362 million.

Since September of this year, Cardinal has been in the throes of a major restructuring effort, which is particularly affecting its Pharmaceutical Distribution and Provider Services division.

 

This strategy is adopting a fee-for-service structure to reduce the company's exposure to speculative inventory stocking and make its finances more stable and predictable.

 

This quarter has certainly seen a hive of activity as Cardinal signed a two-year, dual-source agreement with HealthTrust Purchasing Group (HPG) for Alaris products.

 

This first-time agreement will provide Cardinal Health access to more than 750 HPG member acute care facilities with its Alaris products.

 

Addiitonally, the company has the creation of the Healthcare Supply Chain Services business to boast about.

 

This has combined Cardinal Health's pharmaceutical distribution, medical products distribution and nuclear pharmacy services businesses into a single operating unit with the most comprehensive supply chain offerings in health care.

 

By organising around logistics and supply-chain management, Cardinal Health expects to become more efficient and better serve a market that is approximately $300 billion in the US alone.

 

Cardinal is by no means alone in its efforts to revitalise the distribution business, which is only just returning to form after a difficult period.

 

Arch rivals AmeriSourceBergen and McKesson Corp are also shifting their business models, trying to set up fees for handling inventory, instead of the older practice of buying product and re-selling it, making profit as prices increase.

 

Revenue for the Pharmaceutical Technologies and Services segment grew 2 per cent during the quarter to $713 million, while operating earnings declined 42 per cent to $45 million.

 

The earnings decline was attributed to previously identified issues in sterile manufacturing, combined with weakness in the company's contract sales business and the calendarisation of certain non-product revenues in the oral technologies business.

 

"While we are disappointed in the results of our Pharmaceutical Technologies and Services segment, the actions we have taken will result in substantial improvements to that segment during the second quarter and for the balance of the year," said Robert Walter, chairman and chief executive officer of Cardinal Health.

 

"Across the company, we also continued to be disciplined in expense control while making necessary investments to strengthen and integrate our businesses for the long term," he added.

 

Cardinal's Pharmaceutical Distribution and Provider Services (PDPS) division saw revenues rise 9 percent during the quarter to $15.8 billion and operating earnings rose 25 per cent to $199 million.

 

Cardinal's Medical Products and Services revenue increased 7 per cent during the quarter to $2.6 billion and operating earnings rose 21 per cent to $151 million.

 

Revenue and earnings from infection-prevention products, medical specialties and PreSource surgical packs, all increased during the quarter, and distribution margins remained stable, primarily due to growth in private-label products.

 

Cardinal commented on its plans to improve operating earnings by at least 50 per cent from the first quarter to the second quarter.

 

Actions included completing a planned upgrade of the company's Albuquerque sterile-manufacturing facility that is expected to double production.

 

The company have had recent troubles over the recent issue of sterile manufacturing. Earnings during the last quarter were affected by an $8 million write-down of sterile inventory and nearly $7 million in costs to operate a sterile manufacturing facility in Humacao, Puerto Rico, that the company previously announced would close later this year.

 

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