Update: Adds share movement
Cardinal Health (NYSE:CAH) shares fell 5% on Monday after the company said its pharmaceutical distribution contracts with UnitedHealth Group’s (NYSE:UNH) OptumRx unit will not be renewed, after they expire at the end of June 2024.
Sales to OptumRx generated 16% of Cardinal’s (CAH) consolidated revenue in fiscal year 2023. The majority (~90%) of these sales were serviced by the company’s Pharmaceutical Distribution business.
The company hopes to partially offset the impact of losing OptumRx deal through a combination of new customer wins, specialty growth and other actions.
Despite the non-renewal, the drug distributor reaffirmed its earnings guidance for the year, while also reiterating long-term targets for its Pharmaceutical and Specialty Solutions segment.
Cardinal (CAH) still expects to earn $7.20 to $7.35 on an adjusted basis in fiscal year 2024, compared to analysts’ consensus estimate of $7.29.
It also reiterated both its Pharmaceutical and Specialty Solutions segment profit growth target of 4% to 6% (compound annual growth rate) and its consolidated non-GAAP EPS target of 12% to 14% for fiscal years 2024 to 2026, relative to a fiscal 2023 baseline. The segment is expected to see growth in both profit and non-GAAP diluted EPS in fiscal 2025.
Furthermore, Cardinal Health (CAH) still expects to generate adjusted free cash flow of ~$2B on average from fiscal 2024 to 2026, but “anticipates lower-than-average adjusted free cash flow in fiscal 2025 due to the unwinding of negative net working capital associated with the OptumRx contract and day-of-the-week timing.”
