Q1 2024 Cardinal Health Inc Earnings Call

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Speaker 1: You know.

Speaker 1: someone

Speaker 2: Good day and welcome to today's first quarter financial year 2020-24 Cardinal Health Earnings Conference call. This meeting is being recorded. At this time I'd like to hand the call over to Matt Seams, vice president of Investor Relations. Please go ahead sir.

Good day and welcome to today's first quarter financial year 2024 to a 24 Cardinal Health earnings Conference call. This meeting is being recorded at this time I'd like to hand, the call over to Matt seems Vice President of Investor Relations. Please go ahead Sir.

Speaker 3: Good morning, and thank you for joining us for Cardinal Health First Quarter, fiscal 24, earnings conference call. On the call with me today, our Jason Holler, Chief Executive Officer, and Aaron Alt, Chief Financial Officer.

Good morning, and thank you for joining us for Cardinal Health first quarter fiscal 'twenty four earnings conference call.

On the call with me today are Jason Hollar, Chief Executive Officer, and Aaron All Chief Financial Officer, you can find today's press release and earnings presentation on the IR section of our website at IR Dot Cardinal health Dot com.

Speaker 3: You can find today's press release and earnings presentation on the IR section of our website at ir.cordinalhealth.com.

Speaker 3: As a reminder, during the call, we will be making forward looking statements. The matters addressed in the statement are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied. Please refer to our SEC filings and the forward looking statement slide at the beginning of our presentation for description of these risks and uncertainties.

As a reminder, during the call we will be making forward looking statements.

The matters addressed in the statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied.

Please refer to our SEC filings and the forward looking statements slide at the beginning of our presentation for a description of these risks and uncertainties.

Speaker 3: Please note that during the discussion today, our comments will be on a non-gap basis, unless they are specifically called out as gap. Gap to non-gap reconciliation for all relevant periods can be found in the schedules attached to our press release.

Please note that during the discussion today, our comments will be on a non-GAAP basis, unless they are specifically called out as GAAP GAAP to non-GAAP reconciliations for all relevant periods can be found in the schedules attached to our press release.

Speaker 3: For the Q&A portion of today's call, we kindly ask that you limit questions to one, to participate, so that we can try and give everyone an opportunity. With that, I will now turn the call over to Jason.

For the Q&A portion of today's call. We kindly ask that you limit questions to one per participant so that we can try and give everyone an opportunity with that I will now turn the call over to Jason.

Speaker 4: Thanks Matt, good morning everyone. Overall, it was a great start to our fiscal year. With strong first quarter results and an improved outlook for the year, we are continuing our operating momentum into fiscal 24.

Thanks, Matt and good morning, everyone.

Overall, it was a great start to our fiscal year with strong first quarter results and an improved outlook for the year, we are continuing our operating momentum into fiscal 'twenty four.

Speaker 4: In the first quarter, we delivered significant profit growth in both seconds.

In the first quarter, we delivered significant profit growth in both segments.

Speaker 4: In Pharma, the results were driven by the strength across our business, including continued positive performance from our generic program. We also benefited from our role distributing the recently commercialized COVID-19 vaccines, which I'll elaborate on later in my remarks.

In pharma the results were driven by the strength across our business, including continued positive performance from our generics program.

We also benefited from our role distributing the recently commercialized COVID-19, vaccines, which I will elaborate on later in my remarks.

Speaker 4: macro trends in the core distribution business remains stable. And we continue to see strong pharmaceutical demand, including the GLP-1 medication.

Macro trends in the core distribution business remains stable and we continue to see strong pharmaceutical demand, including the GOP, one medications and both are higher growth specialty and nuclear businesses tracked ahead of plan in the quarter.

Speaker 4: and both our higher growth specialty nuclear businesses track the head of the plan in the quarter.

Speaker 4: In medical, the first quarter was another proof point of the inflection we began to see last due to in this business. Recall, the second...

The medical the first quarter was another proof point of the inflection we began to see last few two in this business.

Recall the segment was unprofitable only a year ago.

Speaker 4: Overall, the results track slightly ahead of our expectations and we continue to execute our medical pre-medicine plan initiatives to drive better and more predictable financial performance. In particular, we may notable progress on inflation mitigation in the-

Overall results tracked slightly ahead of our expectations and we continue to execute our medical improvement plan initiatives to drive better and more predictable financial performance in particular, we made notable progress on inflation mitigation in the quarter.

Speaker 4: At enterprise level, we realize notable operating leverage from our efforts to manage costs across the segments. And below the operating line, our fairble capital structure and responsible capital deployment provided tailwinds enabled by our strong casual generation. In short, the broad base performance today gives us confidence to raise fiscal 24 EPS guides only a quarter into the year. Our team continues to prioritize focus execution, to best serve our customers and create value for sure.

At an enterprise level, we realize notable operating leverage from our efforts to manage costs across the segments and below the operating line are favorable capital structure and responsible capital deployment provided tailwind enabled by our strong cash flow generation in short the broad based performance to date gives us confidence to raise fiscal 'twenty four EPS guidance only a quarter inch.

For the year, our team continues to prioritize focused execution to best serve our customers and create value for shareholders.

Speaker 4: I will update you on our progress in advancing our three key strategic comparative shortly. But first, let me turn it over to Aaron to review our results and update a guidance and more.

We'll update you on our progress in advancing our three key strategic imperatives, shortly but first let me turn it over to Aaron to review our results and updated guidance in more detail.

Speaker 3: Thanks Jason and good morning. Q1 delivered a strong financial start to the year with EPS of $1.73, surpassing our expectations in Pharma and medical...

Thanks, Jason and good morning, Q1 delivered a strong financial start to the year with EPS of $1 73.

Surpassing our expectations and pharma and medical the strength of our pharma business the progress on our medical turnaround efforts and our disciplined approach to capital allocation contributed to new first quarter highs for the enterprise on both revenue and EPS.

Speaker 3: Strength of our farm and business, the progress on our medical turnaround efforts, and our disciplined approach to capital allocation, contributed to new first quarter highs for the enterprise on both revenue and EPS.

Speaker 3: We also delivered strong cash flow and ended the quarter with $3.9 billion of cash.

We also delivered strong cash flow and ended the quarter with $3 $9 billion of cash let's.

Speaker 3: Let's start with the consolidated enterprise results as seen on slide 4.

Let's start with the consolidated enterprise results as seen on slide four.

Speaker 3: Total revenue increased 10% to $54.8 billion driven by the pharmaceutical.

Total revenue increased 10% to $54 8 billion driven by the pharma segment.

Speaker 3: Ross Margin also increased 10% to $1.8 billion driven by both the medical and pharmaceuticals.

Gross margin also increased 10% to $1 8 billion driven.

Driven by both the medical and pharma segments Consol.

Speaker 3: Consolidated SGNA was generally in line with the prior year at $1.2 billion Reflecting our Disciplined Cost Management across the inter-

Consolidated SG&A was generally in line with the prior year at $1 2 billion.

Afflicting, our disciplined cost management across the enterprise.

Speaker 3: With the significant profit growth in both segments, we deliver total operating earnings of $571 million growth of 35%.

With the significant profit growth in both segments, we delivered total operating earnings of $571 million growth of 35%.

Speaker 3: Moving below the line, interest in other decreased by $15 million to $12 million due to increased interest income from cash and inappropriate and illegal entry. would be a good idea.

Moving below the line interest and other decreased by $15 million to $12 million due to increased interest income from cash and equivalents as a reminder, our debt is largely fixed rate, resulting in a net benefit from rising interest rates in the near term.

Speaker 3: As a reminder, our debt is largely fixed rate, resulting in a net benefit from rising interest rates in the near term.

Speaker 3: Our first quarter effective tax rate finished at 22.5% in increase of approximately 5.5% points. We saw positive discrete items in both the current and prior year periods, which were more beneficial a year ago.

Our first quarter effective tax rate finished at 22, 5% an increase of approximately five five percentage points. We saw positive discrete items in both the current and prior year periods, which were more beneficial a year ago.

Speaker 3: First quarter average diluted shares outstanding were 250 million 8% lower than a year ago due to share reports

First quarter average diluted shares outstanding were $250 million, 8% lower than a year ago due to share repurchases and as I mentioned earlier. The net result was first quarter EPS of $1 73, an all time first quarter high point, reflecting growth of 44%.

Speaker 3: And as I mentioned earlier, the net result was first quarter EPS of $1.73, and all time first quarter high point reflecting growth of 44%. Let's turn to the pharmaceutical segment on slide five. First quarter revenue increased 11% to $51 billion, driven by brand and specialty pharmaceutical sales growth from existing customers.

Let's turn to the pharma segment on slide five first quarter revenue increased 11% to $51 billion, driven by brand and specialty pharmaceutical sales growth from existing customers.

Speaker 3: We continue to see broad-based strength in pharmaceutical demand, spanning across product categories, brand, specialty, consumer health, and genetics, and from our largest customers.

We continued to see broad based strength in pharmaceutical demand spanning across product categories brand specialty consumer health and generics and from our largest customers similar trends last year GOP, one medications provided a revenue tailwind in the quarter.

Speaker 3: Similar to trends last year, GLP-1 medications provided a revenue tailwind in the quarter.

Speaker 3: Segment profit increased 18% to $507 million in the first quarter, driven by a higher contribution from brand and specialty products, including distribution of COVID-19 vaccines, which provided a modest contribution as customers stocked up in preparation for the fall vaccination season.

Segment profit increased 18% to $507 million in the first quarter driven by a higher contribution from brand and specialty products, including distribution of COVID-19, vaccines, which provided a modest contribution as customers stocked up in preparation for the fall vaccination season.

Speaker 3: We also saw positive generics program performance with continued volume growth and consistent market dynamics.

We also saw positive generics program performance with continued volume growth and consistent market dynamics.

Turning to medical on slide six.

Speaker 3: First quarter revenue at $3.8 billion was largely flat to prior year and prior quarter.

First quarter revenue at $3 $8 billion was largely flat to prior year and prior quarter.

Speaker 3: In the first quarter, we saw lower PPNE volume and pricing, including the impact from the prior year exit of our non-health care gloves portfolio, offset by growth in at-home solutions and inflationary impacts, including mitigation initiatives.

In the first quarter, we saw lower <unk> volume and pricing, including the impact from the prior year exit of our non health care gloves portfolio offset by growth in at home solutions, and inflationary impacts including mitigation initiatives.

Speaker 3: Medical slightly exceeded our expectations in Q1 and delivered segment profit of $71 million, which represents an approximate $80 million increase from the prior year's first quarter loss.

Medical slightly exceeded our expectations in Q1 and delivered segment profit of $71 million, which represents an approximate $80 million increase from the prior year's first quarter loss.

Speaker 3: Consistent with the expectations communicated yesterday and last quarter, we continue to be encouraged by the indicators of improvement in trends with respect to our Cardinal Health brand product sales.

Consistent with the extra patients communicated in Investor day, and last quarter, we continue to be encouraged by the indicators of improvement in trends with respect to our Cardinal health brand product sales.

Speaker 3: In Q1, we saw slight year over year volume growth. As expected, we saw an improvement in net inflationary impacts, including our mitigation initials.

In Q1, we saw a slight year over year volume growth as expected we saw an improvement in net inflationary impacts, including our mitigation initiatives. We also continued to see normalized <unk> margins, which were impacted by unfavorable price cost timing in the prior year.

Speaker 3: We also continue to see normalized P P and E margins, which were impacted by unfavorable price cost timing in the prior year. In the quarter, we also recorded a $581 million non cash pre-tax goodwill and payment charge related to the medical segment, which is excluded from our non-gap results. This key one accounting charge is due to an increase in the discount rate used in our goodwill impairment analysis.

In the quarter. We also recorded a $581 million noncash pretax goodwill impairment charge related to the medical segment, which is excluded from our non-GAAP results. This Q1 accounting charges due to an increase in the discount rate used in our goodwill impairment analysis now.

Now turning to the balance sheet as I alluded to earlier in the first quarter, we generated robust adjusted free cash flow of $1 billion and ended the quarter with $3 9 billion of cash on hand.

Speaker 3: As I alluded to earlier in the first quarter, we generated robust adjusted pre-cash flow of $1 billion and ended the quarter with 3.9 billion of cash on hand.

Speaker 3: We remain focused on doing what we said we would, and deploying capital in a balanced, disciplined, and shareholder-friendly manner. In the first quarter, we continue to invest against our highest priorities, including investing $92 million of CapEx back into the business to drive organic growth. We made our third annual payment on our national opioid settlement obligation.

We remain focused on doing what we said, we would and deploying capital in a balanced disciplined and shareholder friendly manner.

In the first quarter, we continued to invest against our highest priorities, including investing $92 million of capex back into the business to drive organic growth.

We made our third annual payments on our national opioid settlements obligation.

Speaker 3: We did not draw on our credit facilities and received a positive change to the outlook on our investment grade rating from Fitch as well as from S&P in Q2. We returned over $630 million to shareholders through payments of our quarterly dividend and the launch of a new $500 million accelerated share repurchase program which completed in October . Now for our updated fiscal 24 guidance on slide 8.

We did not draw on our credit facilities and received a positive change to the outlook on our investment grade rating from Fitch as well as from S&P in Q2, we.

We returned over $630 million to shareholders through payment of our quarterly dividend and the launch of a new $500 million accelerated share repurchase program, which completed in October now for our updated fiscal 'twenty four guidance on slide eight.

Speaker 3: Today we are raising our fiscal 24 EPS guidance to a range of $6.75 to $7. The midpoint of which is 19% above our fiscal 23 EPS results.

Today, we are raising our fiscal 2000 and for EPS guidance to a range of $6 75 to.

To $7, the midpoint of which is 19% above our fiscal 'twenty three EPS results.

Speaker 3: This 25 cent increase to our EPS range primarily reflects an improvement to our pharma outlook, as well as some improvement below the line.

This 25 increase to our EPS range, primarily reflects an improvement to our pharma outlook as well as some improvement below the line.

Speaker 3: We are raising our pharma segment profit guide to seven to nine percent growth for the year and are pleased with the momentum in the business.

We are raising our pharma segment profit guide to 7% to 9% growth for the year and are pleased with the momentum in the business. Our updated guidance reflects the strong first quarter performance.

Speaker 3: Our updated guidance reflects the strong first quarter performance.

Speaker 3: higher than originally assumed contributions from COVID-19 vaccine distribution, which continued into October . The ongoing strength of our business, consistent with a 4% to 6% growth trajectory for the segment on a normalized basis.

Higher than originally assumed contributions from COVID-19 vaccine distribution, which continued into October.

Ongoing strength of our business consistent with a 4% to 6% growth trajectory for the segment on a normalized basis.

Speaker 3: Finally, as a reminder on the pharma quarterly cadence, we continue to assume Q3 branded inflation will not repeat at fiscal 23 levels.

Finally, as a reminder, on the farmer quarterly cadence, we continue to assume Q3 branded inflation will not repeat that fiscal 'twenty three levels.

Speaker 3: In medical, we are reiterating our outlook of $400 million of segment profit for the year.

In medical we are reiterating our outlook of $400 million of segment profit for the year.

Speaker 3: Recall that we previously guided that medical segment profit would be significantly back half-weighted. That assumption remains unchanged.

Recall that we previously guided that medical segment profit would be significantly back half weighted that assumption.

<unk> remains unchanged.

Speaker 3: The first half, second half cadence continues to be driven by progress and Cardinal Health brand volume growth, the cumulative impact of inflation mitigation, and some business specific seasonality. While we are encouraged that the business slightly overperformed relative to our expectation in Q1 due to execution against our plans and our cost management.

The first half second half cadence continues to be driven by progress in Cardinal health brand volume growth.

The impact of inflation mitigation and some business specific seasonality, while we are encouraged that the business slightly over performed relative to our expectation in Q1.

Due to execution against our plans and our cost management efforts our expectation for Q2 segment profit is unchanged from our original guidance, which reflected some seasonality in Q2 specific expenses like health and wellness.

Speaker 3: Our expectation for Q2 segment profit is unchanged from our original guidance, which reflected some seasonality in Q2 specific expenses like health and wellness.

Speaker 3: Altogether, Q2 segment profit should be slightly higher than Q1. Which benefit?

Altogether Q2 segment profit should be slightly higher than Q1.

Which benefited from over delivery.

Speaker 3: We expect continued progress from our medical improvement plan initiatives over the course of the year.

We expect continued progress from our medical improvement plan initiatives over the course of the year.

Speaker 3: Below the line, interest and other is reduced to a range of 100 million to 120 million, while we are maintaining an effective tax rate in the range of 23% to 25%. We do expect the tax favorability we saw in the 1st quarter to be offset in Q2.

Below the line interest and other is reduced to a range of $100 million to $120 million.

While we are maintaining an effective tax rate in the range of 23% to 25%.

We do expect the tax favorability, we saw in the first quarter to be offset in Q2.

Speaker 3: We are also lowering our shares out to approximately 249 million, which reflects the already completed $500 million of our baseline share report.

We are also lowering our shares outlook to approximately $249 million, which reflects the already completed $500 million of RF baseline share repurchase.

Speaker 3: I want to reiterate that as we shared in investor day, neither are fiscal 24 guidance, nor are long-term targets reflect M&A, which is difficult to predict in timing or magnitude.

I want to reiterate that as we shared at Investor day, Neither our fiscal 'twenty four guidance, nor our long term targets reflect M&A, which is difficult to predict in timing or magnitude or additional opportunistic deployments of capital to share repurchases beyond our baseline repurchase we.

Speaker 3: or additional opportunistic deployments of capital to share repurchases beyond our baseline repurchase.

Speaker 3: We will continue to evaluate both opportunistically to drive long-term value.

We will continue to evaluate both opportunistically to drive long term value.

Speaker 3: So, an overall successful 1st quarter, the cardinal team has a lot to be proud of with respect to our accomplishments. We are confident in the plans we have in place and we are excited for our team to realize the significant value creation opportunities still in front of us. With that, I will turn it back over to.

So an overall successful first quarter. The Cardinal team has a lot to be proud of with respect to our accomplishments. We are confident in the plans we have in place and we are excited for our team to realize the significant value creation opportunities still in front of us with that I will turn it back over to Jason.

Speaker 4: Thanks, Aaron. Now for a few updates regarding our recent progress on our three key strategic priorities, beginning with priority number one, and building upon the resiliency of the pharmacy.

Thanks, Erin now for a few updates regarding our recent progress on our three key strategic priorities beginning with priority number one and building upon the resiliency of our pharma segment.

Speaker 4: The key enabler to the farm of businesses outstanding performance over a number of quarters now is in the team's consistent prioritization of what matters most operational execution in the core. We're leveraging our scale efficiency and breadth of essential products and service capabilities to deliver for our customers and their patients within the core our generic program remains.

The key enabler to the pharma business is outstanding performance over a number of quarters now has been the team's consistent prioritization of what matters most operational execution in the quarter, we're leveraging our scale efficiency and breadth of essential products and service capabilities to deliver for our customers and their patients within the core of our generics program remains a critical.

Components are performance is anchored by Red Oak sourcing, which continues to do a fantastic job fulfilling its dual mandate managing both cost and supply to help maximize service delivery for our customers.

Speaker 4: Performance is anchored by Red Oak sourcing, which continues to do a fantastic job fulfilling its dual mandate, managing both cost and supply to help maximize service delivery for customers.

Speaker 4: I recently saw our customer focus mindset on display when I visited our specialty pharmaceutical distribution facility in LeBern, Tennessee, or teamwork extensively to prepare for commercial distribution of COVID-19 vaccines while maintaining the terrific service for our other specialty products.

I recently saw a customer focused mindset on display when I visited our specialty pharmaceutical distribution facility in La Verne, Tennessee or team worked extensively to prepare for commercial distribution of COVID-19 vaccines, while maintaining the terrific service for our other specialty products.

Speaker 4: Our team successfully navigated complex cold chain requirements for the vaccines enabling us to quickly meet demand and begin making shipments immediately following FDA approval in time for the fall immunization.

Our team successfully navigated complex cold chain requirements for the vaccines, enabling us to quickly meet demand and begin making shipments immediately following FDA approval in time for the fall immunization season, we're pleased to support our customers in this manner, which patients rely upon for care convenience and accessibility.

Speaker 4: We're pleased to support our customers in this manner, which patients rely upon for care convenience and accessibility. We're committed to supporting.

We're committed to supporting customers and manufacturers and our strategic sourcing and manufacturer services team recently hosted hundreds of our supplier partners for our annual business Partners Conference.

Speaker 4: And our strategic sourcing and manufacturer services team recently hosted hundreds of our supplier partners for our annual business partners conference.

Speaker 4: It was energizing to hear the excitement around various industry opportunities, such as bile similars and emerging areas like Selenji.

It was energizing to hear the excitement around various industry opportunities such as biosimilars in emerging areas like cell and gene.

Speaker 4: We are confident about our ability to continue to be a strategic partner for manufacturers, investing in the important drugs being developed and commercialized in this.

We are confident about our ability to continue to be a strategic partner for manufacturers investing in the important drugs being developed and commercialized in this space.

Speaker 4: We continue to see strong momentum across our specialty business, both downstream and upstream, and have reiterated our focus on this.

We've continued to see strong momentum across our specialty business, both downstream and upstream and have reiterated our focus on this space.

Speaker 4: We are very sizable today in specialty with over $30 billion in fiscal 23 revenue, which we noted at investor day is grown at a 14% tager over the last three years.

We are very sizable today in specialty with over $30 billion in fiscal 'twenty three revenue, which we noted at Investor day has grown at a 14% CAGR over the last three years.

Speaker 4: We're making progress building out our Nivista Network offerings with investments in the platform that will scale over time. Our differentiated model in community oncology is focused on driving practice growth and sharing value while maintaining practice independence. Our approach is being refined through engagement with clinicians and our customer advisory board.

We are making progress building out our <unk> network offerings with investments in the platform that will scale over time, our differentiated model and community oncology is focused on driving practice growth and sharing value while maintaining practice independents. Our approach is being refined through engagement with clinicians and our customer Advisory board.

Speaker 4: Overall, we are developing solutions strategically aligned to supporting the clinical and operational needs of community oncologists that drive long-term practice independence and allow physicians to focus on patient care.

Overall, we are developing solutions strategically aligned to supporting the clinical and operational needs of community oncologists that drive long term practice independence and allow physicians to focus on patient care.

Speaker 4: In nuclear, the business continues its double-digit growth trajectory with strong performance across our core categories and their NAS.

In nuclear the business continues its double digit growth trajectory with strong performance across our core categories and their gnostics.

Speaker 4: We continued experience increasing demand for a center for Theranostics advancement with more than 60 projects at various stages in our pipeline with our pharmaceutical manufacturer parts.

We continued to experience increasing demand for our center for their gnostics advancement with more than 60 projects at various stages in our pipeline with our pharmaceutical manufacturer partners.

Speaker 4: We're progressing on our phase two investments that we announced at investor day. Our Innovation Center and Pre-Commercial Manufacturing Center are already highly utilized.

We're progressing on our phase two investment that we announced at Investor Day, Our innovation Center in pre commercial manufacturing center are already highly utilized.

Speaker 4: We're underway in progressing according to plan with the expansions of our Central Pharmacy Capability and our Commercial Manufacturing Center. With our strong foundation and continued investment, the nuclear business is well on track to deliver its long-term target of doubling profits by fiscal 26, relative to our fiscal 21 base.

We are underway and progressing according to plan with the expansions of our central pharmacy capability and our commercial manufacturing center with a strong foundation and continued investment the nuclear business is well on track to deliver its long term target of doubling profits by fiscal 'twenty six relative to our fiscal 'twenty one baseline.

Speaker 4: Now, turning to medical on priority number 2, the medical business has now delivered back-to-back quarters of meaningfully improved profitability, and we expect more to come.

Now turning to medical and priority number two the medical business has now delivered back to back quarters of meaningfully improved profitability and we expect more to come.

Speaker 4: As part of our medical and permit plan, we've been taking actions to address the challenges in the core products and distribution business with the number one priority being mitigating.

As part of our medical improvement plan, we've been taking action to address the challenges in the core products and distribution business.

With the number one priority being mitigating supply chain inflation.

Speaker 4: We remain on track to address the impact of inflation and global supply chain constraints by the time we exit fiscal 24. And we're pleased to note we are now over 70% to target.

We remain on track to address the impact of inflation and global supply chain constraints by the time, we exit fiscal 'twenty four and we're pleased to note we are now over 70% target.

Speaker 4: On the cost side, while overall still elevated, we've seen lower international free costs reflected in our results as anticipated.

On the cost side, while overall still elevated we've seen lower international freight costs reflected in our results as anticipated.

Speaker 4: We continue to execute our mitigation initiatives to offset elevated inflation, our making progress with our commercial contracting efforts, and our seeing benefits from our additional actions such as our sourcing initiatives.

We continue to execute our mitigation initiatives to offset elevated inflation are making progress with our commercial contracting efforts and are seeing benefits from our additional actions such as our sourcing initiatives.

Speaker 4: Additionally, we've been taking action to our five point plan to grow Cardinal Health brand volume, which is yielded improvements. We are utilizing a balanced portfolio approach and have made important line extensions within our core products to fill portfolio gaps critical to our distribution of.

Additionally, we've been taking action through our five point plan to grow Cardinal Health brand volume, which has yielded improvements we are utilizing a balanced portfolio approach and have made important line extensions within our core products to fill portfolio gaps critical to our distribution offerings. We've also highlighted investments, we're making in new product development and commercialization for our clinically differentiated.

Speaker 4: We've also highlighted investments for making a new product development and commercialization for clinically differentiated specialty medical products.

Specialty medical products, which culminated in two notable product launches during the quarter, we launched our anticipated King grew omni enteral feeding pump in the U S. Designed to help provide enteral feeding patients with more options to meet their nutritional needs throughout their enteral feeding journey from hospital to home. We also announced the launch of our next generation and trainer system two point.

Speaker 4: which culminated in two notable product launches during the quarter.

Speaker 4: We launched our anticipated kangaroo Omni Entral Feeding Pump in the US, designed to help provide entral feeding patients with more options to meet their nutritional needs throughout their entral feeding journey, from hospital to home. We also announced launch our next generation Entrainer System 2.0, a medical device designed to help premature and newborn infants develop with the oral coordination skills to make the transition to independent feeding faster and help produce their NICU length of stay.

Our medical device designed to help premature in newborn infants develop oral coordination skills to make the transition to independent feeding faster and help reduce their NICU length of stay.

Speaker 4: I'm excited about what our products can do for patients and the progress we're making as we now turn to playing more offense to grow our Cardinal Health brand portfolio.

I'm excited about what our products can do for patients and the progress we're making as we now turn to playing more offense to grow our Cardinal health brand portfolio.

Speaker 4: We're continuing to see the results of our actions benefiting our leading indicators, such as our customer experience metrics and portfolio health for key categories, which gives us confidence that we'll be able to better participate in the growth from an overall improving medical utilization environment moving forward. For example, we've seen further improvement in our customer loyalty index score for us distribution beyond the 13 point increase in the last 2 years that we noted at investor.

We're continuing to see the results of our actions benefiting our leading indicators such as our customer experience metrics and portfolio held for key categories, which gives us confidence that we'll be able to better participate in the growth from an overall improving medical utilization environment moving forward.

For example, we've seen further improvement in our customer loyalty index score for U S distribution beyond the 13 point increase in the last two years that we noted at Investor day, and we've seen a continued reduction in our product back orders, which are now at a multiyear low and consistent with pre pandemic levels.

Speaker 4: And we've seen a continued reduction in our product back orders, which are now at a multi-year low in consistent with pre-pandemic levels.

Speaker 4: Satellite of product and distribution, we're continuing to accelerate our growth.

Outside of product and distribution, we're continuing to accelerate our growth businesses.

Speaker 4: In at-home solutions, we continue to see strong demand as care increasingly shifts to the home.

And at home solutions, we continue to see strong demand as care increasingly shifts to the home.

Speaker 4: Our team's focus on operational efficiency is producing better operating leverage in this business, resulting in increased contributions to the bottom line.

Our team's focus on operational efficiency is producing better operating leverage in this business, resulting in increased contributions to the bottom line.

Speaker 4: To wrap up the medical, we're continuing to execute our simplification and cost savings initiatives across the segment, which contributed to the strong SG&E management in the.

To wrap up the medical for continuing to execute our simplification and cost savings initiatives across the segment, which contributed to the strong SG&A management in the quarter.

Speaker 4: Finally, priority number three, maximizing shareholder value creation.

Finally priority number three maximizing shareholder value creation.

Speaker 4: We're maximizing shareholder value creation through our improved operational performance, robust cash flow, and responsible allocation of capital.

We're maximizing shareowner value creation through our improved operational performance robust cash flow and responsible allocation of capital.

Speaker 4: So there in detail our confidence in our cash flow generation enabled execution of our fiscal 24 baseline sherry

Darren detailed our confidence in our cash flow generation enabled execution of our fiscal 'twenty four baseline share repurchases continued evidence of our willingness to return excess capital to shareholders and our value creation through capital deployment.

Speaker 4: Continued evidence of our willingness to return access capital to shareholders and our value creation through capital to

Speaker 4: With our financial flexibility, we'll continue to offer toistically evaluate discipline, M&A, and specialty, and potential additional share reperto- and we'll continue to offer to truly evaluate discipline, M&A, and potential additional share per

With our financial flexibility will continue to opportunistically evaluate disciplined M&A and specialty and potential additional share repurchases.

Speaker 4: We continue to actively evaluate a range of potential partners or acquisition candidates for both the downstream and upstream elements for a specialty strategy, but having clear that our long-term growth targets are not predicated on inorganic investments.

We continue to actively evaluate a range of potential partners or acquisition candidates for both the downstream and upstream elements of our specialty strategy, but have been clear that our long term growth targets are not predicated on inorganic investments.

Speaker 4: We are making progress with our ongoing business and portfolio review, focus on the medical second.

We are making progress with our ongoing business and portfolio review focus in the medical segment.

Speaker 4: While across the company, our team has made significant progress over the past year, re-aligning our operations for focus and simplicity. There's still work and opportunity in front of us.

While across the company our team has made significant progress over the past year realigning our operations for focus on simplicity, theres still work and opportunity in front of us.

Speaker 4: We continue to work collaboratively with our Business Review Committee to evaluate additional value creation initiatives and expect to provide further updates in the coming quarter.

We continue to work collaboratively with our business review committee to evaluate additional value creation initiatives and expect to provide further updates in the coming quarters.

Speaker 4: To close, we had a great first quarter and are excited to build upon last year's momentum.

To close we had a great first quarter and are excited to build upon last year's momentum.

Speaker 4: This was driven by our highly engaged and talented team, and I would like to thank them for all their efforts for filling our critical role as healthcare's most trusted partner. With that, we will take your questions.

This was driven by our highly engaged and talented team and I'd like to thank them for all their efforts with filling our critical role as health Care's, most trusted partner with that we will take your questions.

Thank you.

Speaker 2: As a reminder to ask a question please signal by pressing star 1.

As a reminder to ask a question please signal by pressing star one hour.

Speaker 2: The next question comes from Lisa too, from JP Morgan. Please go ahead.

Our next question comes from Lisa Gill from Jpmorgan. Please go ahead.

Speaker 5: Thanks very much and congratulations on the quarter. Jason, I just want to understand that COVID-19 vaccines, you know, can you maybe just talk about the economics of that? Is that substantially better than kind of traditional drug distribution? And I know you said it only goes through October , but are there other vaccine opportunities that would be similar and incremental opportunities for Cardinal?

Alright, thanks, very much and congratulations on the quarter.

Jason I, just want to understand the COVID-19 vaccines.

Can you maybe just talk about the economics of that is that substantially better than kind of traditional drug distribution and I know you said it only goes through October but.

Are there other vaccine opportunities that that would be similar and incremental opportunities for cardinal.

Speaker 4: Yeah, thanks Lisa. How I think about the vaccines is, again, we're not going to get into, obviously, product and customer level type of detail, but overall, it all comes down to the value that we provide. And so, when you think about COVID-19 vaccines, and vaccines in general, you really have to understand what's the requirement.

Yes, Thanks Lisa.

Think about the vaccines as you know, we're not going into obviously product and customer level type of detail but.

Overall, it all comes down to the value that we provide and so when you think about COVID-19 vaccines and vaccines in general you really have to understand what is the requirements and so with Covid and with some vaccine requires more complex distribution cold chain capacity and capabilities and <unk>.

Speaker 4: And so with COVID and with some vaccines, it requires more complex distribution, cold chain capacity and capabilities. And of course, there's also the unique thing about vaccines is that you scale up and down quickly and so you're spreading all out that cost over a pretty short period of time.

Of course, there is also the unique thing about vaccines that you scale up and down quickly and so youre spreading all of that cost over a pretty short period of time so.

Speaker 4: So, you know, it's, it's, there's not a one size fits all answer to your question and, you know, we provided a little bit of color for you and Aaron's comments there. So you can get a general understanding of the, the benefit that we had to go a little bit further. I can say that about about one third of the growth for the pharma segment this quarter was related to the vaccine.

There is not a one size fits all answer to your question and we provided a little bit of color for you in Aaron's comments. There. So you can get a general understanding of the benefit that we had to go a little bit further I can say that about one third of the growth for the pharma segment. This quarter was related to.

The vaccines.

Speaker 4: So it was a component of it, but certainly not the majority of the driver of the business. The core part of the business remained very strong within the segment for the quarter. And our guidance continues that court to continue to be strong. We do expect the vaccine benefit to be a bit greater in the second quarter, because of course there's more volume in Q2 than in Q1, just given the nature of the October most likely being the peak volume that we would expect to see for vaccine distribution. And then we'd expect that to ramp down as we get the pipeline. We got the pipeline pretty full here as we exit October . And now the future volumes will be much more predicated on what the actual demand is, which of course at this point time is hard to attend.

So it was a component of it but certainly not the.

The majority of the driver of the business the core part of the business remain very strong within within the segment for the quarter and our guidance continues that core to continue to be strong. We do expect the vaccine benefit to be a bit greater in the second quarter because of course, there's more volume in Q2 than in Q1.

Just given the nature of the October most likely being the peak volume that we would expect to see for vaccine distribution and then we'd expect that to ramp down as we get the pipeline. We've got the pipeline pretty full here as we exited October and now the future volumes will be much more predicated on what the actual demand is which of course at this point in time.

It's hard to anticipate.

Speaker 2: Let me question please. We'll now move to our next question from Eric Pertur from Nefron Research. Please go ahead. Thank you.

I think question please.

Our next question from Eric Percher from Nephron Research. Please go ahead.

Thank you question on medical.

Speaker 6: Specifically the over delivery this quarter or upside that you showed versus expectations. How much of that is core medical and mitigation efforts. You know what will carry through to.

Specifically the over delivery this quarter, our upside that you showed versus expectations, how much of that is core medical and mitigation efforts.

What will carry through to the future versus not and then were there any onetime items in Q1, we should keep an eye on.

Speaker 6: the future versus not. And then were there any one-time items in Q1? We should keep an eye on any update on factors driving Q2 to Q4, including the...

Any update on factors driving Q2 to Q4, including the incremental oil price and commodity pressure over the last few months.

Speaker 6: incremental oil price and commodity pressure of the last few months.

Speaker 3: Director Moonning, Sharon. Look, we were really pleased to see Q1, the results, slightly exceeding our external or our rather our expectations.

Eric Good morning, Erin look we were really pleased to see Q1 results slightly exceeding our external or rather our expectations.

Speaker 3: The result of the team doing what they had planned to do, as well as being good managers and always looking for optimization opportunities across the portfolio. And so they did what they were expected to on the first part of the year for the medical improvement plan. And there were no notable one-time items, contrary to some earlier quarters, that complicated development.

The results were a result of the team doing what they had planned to do as well as.

Being good managers and always looking for optimization opportunities across the portfolio and so.

They did what they were expected to on the first part of the first part of the year for the medical improvement plan and there were no. Notable one time items contrary to some earlier quarters that.

Complicated the results.

Speaker 3: So we were quite pleased with the results that we gave. And we do expect that to continue. You will have noted from our guidance for the year that

So we were quite pleased with with the results that we gave and we do expect that to continue you will have noted from our guidance for the year that.

Speaker 3: We do expect slight continued improvement quarter over quarter. We are not changing our guidance for the year on medical. I want to emphasize that we've taken a balanced approach and believe that the $400 million profit number for the year is the right target of the right guidance for that business.

We do expect slight continued improvement quarter over quarter, we are not changing our guidance for the year on medical I want to emphasize that we've taken a balanced approach and believe that the 400 million dollar profit number for the year is the right target the right guidance for that business and the plans also have.

Speaker 3: And the plans also haven't changed, right? It's going to start with the continued execution of the medical improvement plan, the inflation mitigation elements that we've been talking about. Jason highlighted that we had hit 70 percent, plus in the quarter as well. And they're going to continue to optimize and grow the Cardinal Health brand.

Isn't changed right. It is going to start with the continued execution of the medical improvement plan them inflation mitigation elements.

We've been talking about Jason highlighted that we had hit 70% plus in the quarter as well and theyre going to continue to optimize and grow the Cardinal health brand, we're continuing to focus on driving more out of at home and the other growth businesses as well as simplification and cost optimization and so overall a.

Speaker 3: We're continuing to focus on driving more out of at home and the other growth businesses, as well as simplification and cost optimization. So overall a great quarter and good expectations for the year to come.

Great quarter and.

Good expectations for the year to come yes.

Speaker 4: Yeah, the other thing I had at Eric, I think the component of your question was just asking about commodities and there's any impact there. There was not anything significant. So I know we've all been on this long journey as it relates to the impacts of commodities. So let me just spend a moment on that as I think about the commodity in this general inflation. Let me answer the question that way. I put our work into a couple of key buckets.

Yes, the only thing I'd add Eric I think component of your question was just asking about commodities and there is any impact there.

There was not anything significant.

I know we've all been on this long journey as it relates to the impacts of commodity. So let me just spend a moment on that as I think about the commodity <unk>.

General inflation, let me answer the question that way.

I'd put I'd put our work into a couple of key buckets.

Speaker 4: The international freight piece is the only component that we've seen a meaningful change. And of course, that started about a year ago and it was a dramatic reduction. So that reduction is as expected. And given the elongated supply chain we had at that time, it took some time for that to work through and hit our P&L. But we're now seeing the more significant benefits of that over the last couple of quarters.

International freight piece is the only component that we've seen a meaningful change and of course that started about a year ago and it was a dramatic reduction so that reduction is as expected and given the elongated supply chain. We had at that time. It took some time for that to work through and hit our P&L, but we're now seeing the Sip.

More significant benefits of that over the last couple of quarters. So that is certainly a key component of it what I would say about all of the other commodities or all the other inflation specifically the commodity impacts whether it's the oil based products polypropylene polyethylene or <unk> and other types of.

Speaker 4: So that is certainly a key component of it. Why would you say about all the other...

Speaker 4: commodities or all the other inflation Specifically the commodity impacts whether it's the oil based products probably probably polyethylene or unwolvens and willowans and other types of inputs which are varied I would say that they are generally Remain elevated a little bit volatile here and there but generally elevated and not real different than what we have anticipated so certainly noise

Inputs, which are varied I would say that they are generally remained elevated a little bit volatile here and there, but generally elevated and not real different than what we had anticipated so certainly noise, but how I think about it going forward and what my anticipation is.

Speaker 4: How I think about it going forward and what my anticipation is.

Speaker 4: You know, we're just not seeing the volatility that we did back 18 months ago. So there is volatility, no doubt. There always be volatility, but it's to a much lesser degree and much more balanced and kind of an abnormal environment right now. And that's why you don't hear us talking about it.

We're just not seeing the volatility that we did back in <unk>.

18 months ago. So there is volatility no doubt there'll always be volatility, but it's to a much lesser degree and much more balanced and kind of in a normal environment right now and that's why you don't hear us talking about it is because it's just not meaningful in the context of everything else that we have going on.

Speaker 4: just not meaningful in the context of everything else that we have going on.

Speaker 2: Thanks for question, please. Kevin Caliendo, UBS, please go ahead. Your line is up.

The next question next question please.

<unk> UBS. Please go ahead your line is open.

Speaker 4: Great, thanks. I guess what we're trying to figure out is, in the change in the pharma guidance, how much of it was incrementally coming from the vaccine incremental versus what you had originally expected, if you don't want to give us that number specifically, maybe...

Hey, Thanks, I guess.

What we're trying to figure out is.

And the change in the pharma guidance, how much of it was incrementally coming from the vaccine incremental versus what you had originally expected.

You don't want to give us that number specifically maybe.

Speaker 7: Explain there was a five basis point improvement in the farm of margin year over year. How much of that? It's coming from vaccines or maybe you can just break out where the benefits came from. I assume GLP ones were negative on on the margins, so something had to be better on a year over your basis. I'd love to explore that.

Explain.

There was a five basis point improvement in the pharma margin year over year, how much of that.

What's coming from vaccines or maybe you can just break out where the benefits came from I assume <unk> were negative on on the margin. So if something had to be better on a year over year basis, I'd love to explore that.

Speaker 3: We're happy to provide a little more context. Look, it was a strong start to the year and we remain very encouraged about the runway for the form of business. And we did raise the guidance to seven to nine percent. And it was really a result of three factors. First was just the strong Q1. And as Jason alluded to, we did have a contribution from the COVID vaccine distribution.

We're happy to provide a little more context look it was a strong start to the year and we remain very encouraged about.

The runway for the <unk>.

Pharma business and we did raise the guidance to 79% and it was really a result of three factors first was just the strong Q1 and as Jason alluded to we did have a contribution from the Covid vaccine distribution.

Speaker 3: And it was higher that contribution was higher than what we had assumed in our original plans, which was based on the timing of when the approvals came through. And frankly, our teams, the ability to jump on it and execute the way they did.

And it was higher that contribution was higher than what we had assumed in our original plans with based on the timing of when the approvals came through and frankly, our team's ability to jump on it and execute the way they did.

Speaker 3: Third element though was just the ongoing strength of the business under other than the COVID vaccines, which is really consistent from an outlook perspective with the four to six percent guidance that we gave previously on a normalized basis.

Third element, though is just the ongoing strength of the business other than the Covid vaccines, which is really consistent from an outlook perspective with the 4% to 6% guidance that we gave previously on a normalized basis and just to remind you on that what we had guided previously is that we expected low single digit grow.

Speaker 3: And just to remind you on that, what we had guided previously is that we expected low single digit growth, profit growth from the core from a business.

<unk> profit growth from the core pharma business, we would expect that we're expecting stability from the generics business in a consistent market dynamics, you often hear US say, we are expecting double digit growth in the specialty and nuclear business and Jason highlighted that progress in his comments earlier and importantly, we are.

Speaker 3: We expect we're expecting stability from the generic business, you know, consistent market dynamics. You often hear a say.

Speaker 3: We are expecting double-digit growth in the specialty in nuclear business. And Jason highlighted that progress in his comments earlier. And importantly, we are expecting brand inflation more in line with fiscal 22.

We're expecting brand inflation more in line with fiscal 'twenty two.

Speaker 3: You know, not the modest benefit that we saw in fiscal 23, right?

Not the.

Modest benefit that we saw in fiscal 'twenty three right. So look we are early in the year as we have done we will continue to update as we push as we push ahead, but we're pleased with the results so far and the raise to the guidance.

Speaker 3: So look, we are early in the year. As we have done, we'll continue to update, as we push a habit that we're pleased with the results so far in the raise to the

Speaker 2: The next question comes from Erin Wright from Morgan Stanley .

The next question comes from Erin Wright from Morgan Stanley. Please go ahead.

Speaker 8: Hi, thanks. Another question on this farm of business. You mentioned the consistent generics environment, but can you elaborate that on a little elaborate on that a little bit? I guess can you speak to the generics for a pricing environment? Are you seeing, using deflationary dynamics across?

Hi, Thanks, and another question on the service.

Mentioned, it consistent generics environment.

Can you elaborate that on I will.

Elaborate on that a little bit I guess can you speak to the generic drug pricing environment are you seeing easing deflationary dynamics across <unk>.

Speaker 8: to NARACs and how material is that for you in terms of your your guidance raised across that segment and does consistent meaning essentially a continuation of those favorable pricing trends going for our guest throughout the rest of the year.

And how material is that for you in terms of your guidance raise across that segment and thats consistent.

Essentially a continuation of those favorable pricing trend going forward.

I guess throughout the rest of the year.

Speaker 4: Yeah, thanks, Aaron. It's very consistent to the prior messages. So we're not seeing any change in the underlying market. And so my comments are going to be very similar to what it's been in the past. So let me just start with just underlying utilization. Continues to be strong.

Yes, Thanks Erin.

It's very consistent to the prior messages. So we're not seeing any change in the underlying market.

And so my comments are going to be very similar to what it's been in the past. So let me just start with just underlying utilization continues to be strong we've seen in our commentary. This morning, we made a number of comments around just the broad based utilization being being strong in the pharma industry. So we generally benefited from that so volume is absolutely key component.

Speaker 4: We've seen in our commentary this morning, we made a number of comments around just the broad based utilization being being strong in the pharma industry.

Speaker 4: So we generally benefited from that. So volume is absolutely a key component of that.

Speaker 4: The consistent market dynamics that Aaron just referenced again is an indication that the buying cell side continues to be very balanced.

Of that the consistent market dynamics that Aaron just referenced again.

As an indication that the buy and sell side continues to be very balanced.

Speaker 4: So overall, as is in the past, I'm not gonna break apart all the different pieces. We think it's best to look at them on a net basis. And within that, what I will say, those we continue to have very strong performance with our Red Oak sourcing to my venture. So we continue to have that team very focused on the dual mandate of, of course, driving down the best cost.

So overall.

As in the past I'm not going to break apart all the different pieces. We think it's best to look at them on a net basis and within that what I will say, though as we continue to have very strong performance with our red oak sourcing joint venture.

We continue to have that team very focused on the dual mandate of of course driving down the best cost, but also as important and their mandate is to ensure that service levels are optimized as much as possible as well. So we feel very good about their progress both in controlling costs, but also in driving.

Speaker 4: But also, as important in their mandate is to ensure that service levels are optimized as much as possible as well. So we feel very good about their progress, both in controlling costs, but also in driving great service for our customers. So again, those should be very similar words that we've said in the past. So that's why we used the phrase consistent market dynamics because we're not seeing any significant change in underlying dynamics of this part of our business. D recom Melimer Library Christchurch Compound Queensland Network Network

<unk> service for our customers. So again those should be very similar words, what we've said in the past. So that's why we use the phrase consistent market dynamics, because we are not seeing any significant change in underlying dynamics of this part of our business.

Next question please.

Speaker 9: Good morning guys and thanks for taking the questions. I think like a lot of the other people in the line here I'm really intrigued by what seems to be going on in the generic drug business

George Schiele of Deutsche Bank. Please go ahead your line is open.

Good morning, guys and thanks for taking the questions I.

I think like a lot of the other people on the line here I'm really intrigued by what seems to be don't want on the generic drug business.

Speaker 9: You guys called out Red Oak, you know, GLP ones were really strong in the quarter, but they have to be, you know, significantly margin dilutive.

<unk> called out Red Oak.

GOP ones were really strong in the quarter, but that has to be significantly margin dilutive.

Speaker 9: I guess Jason, I'd love if you could talk about like, if anything's changing on the contracting side, are you seeing increased rebates for purchasing compliance or supply compliance? Just kind of, you know, interesting anymore color that you can provide on what's going on in the generic drugs basis, or it relates to profitability would be super helpful.

Yes, Jason I'd Love, if you could talk about like if anything is changing on the contracting side are you seeing like increased rebates for purchasing compliance or supply compliance.

Just kind of interesting any more color that you can provide on what's going on.

And the generic drug space as it relates to profitability would be super helpful.

Yes.

Speaker 4: It's a fair question, George. And there's always going to be an evolution, customer to customer contract to contract. The balance of brand versus generic, and then within brand and within generic, the mix always is ever evolving.

It's a fair question George and there is there's always going to be an evolution customer to customer contract to contract.

The balance of brand versus generic and then within brand and within generic mix always is ever evolving and so over time I would expect there to be more and more.

Speaker 4: And so over time, I would expect there to be more and more separation between some of these elements as the weighting of the products change.

Separation between some of these elements.

As the weighting of the products change.

Speaker 4: So, you know, it's even though this volume has been, you know, dramatic for the GLP ones, it's also been over a pretty, pretty short period of time and probably still early in this journey.

So.

Even though this volume has been dramatic for the <unk>. It's also been over a pretty pretty short period of time and probably still early in this journey.

Speaker 4: So you used the phrase, and I think it was used earlier, as significantly margin dilutive. I'm sure we've never said words like that, because it's very rare you hear us talking about margin rate.

You used the phrase and I think it was used earlier is significantly margin dilutive im not sure Im sure. We've never said words like that because it's very rare you hear us talking about margin rates, which you hear us talking about is margin dollars even joke about this at Investor day, I'm not sure I've ever said the words out loud in my career about margin rate not being the.

Speaker 4: What you hear us talking about is margin dollars. And I even joked about this at Investor Day. I'm not sure I've ever said the words out loud in my career about the margin rate not being the most important or a significant metric for us. And it's because of products like the GLP-1s, products that are incredibly important to that underlying patient, which means it's important to our customers, which means it's important to us.

Most important or a significant metric for us and it's because of products like the <unk> products that are incredibly important to that underlying patient, which means is important to our customers, which means it's important to us.

Speaker 4: It is not the most profitable class of products for us today, but it's important for our patients and important for the industry. What we value more than anything else is innovation in the distribution channel, in the industry.

It is not the most profitable class of products for us today, but it is important for our patients and important for the industry, what we value more than anything else is innovation in the distribution channel in the industry innovation brings good things for us maybe not in the short term and maybe not for every single product, but innovate.

Speaker 4: Innovation brings good things for us. Maybe not in the short term, and maybe not for every single product, but innovation ultimately brings opportunities, whether it's services or whether it's when these products become other opportunities to contract or other opportunities over time for them to go generic. There's just lots of different ways in which you can

Ultimately brings opportunities, whether it's services or whether it's when these products become.

Other opportunities to contract or other opportunities over time for them to go generic theres just lots of different ways in which you can create economic value on a particular transaction in particular product and so <unk> today, you don't hear us talk about it from a revenue it's not a meaningful contributor to our earnings and so we're not going to talk.

Speaker 4: create economic value on a particular transaction, particular product. And so, GLP-1s today, you don't hear us talk about it from revenue. It's not a meaningful contributor to our earnings. And so, we're not going to talk about it from earnings perspective. Contracting, back to your original question, will continue to evolve underneath that dynamic. But ultimately, we are well-protected, customer by customer, in certain corridors to ensure that we don't flip upside down on a particular customer.

From earnings perspective contracting back to your original question, we will continue to evolve underneath that dynamic, but ultimately we are well protected customer by customer and certain corridors to ensure that we don't flip upside down on a particular customer.

Speaker 4: And so that needs to develop over time as those concentrations develop over time. But our model has proven very, very resilient over the years and decades.

And so that needs to evolve over time as those concentrations evolve over time, but our model has proven very very resilient over the years and decades. Because this is the latest mix challenge that there is a mix change I should say.

Speaker 4: Because this is the latest mix challenge that there is or mix change I should say. But it's not the first time that there's been a mix change in her industry and so our models proven to be resilient in that regard. So it's unique in different products but it's not unique in terms of impacts and influences that a particular product category has on the farm and distribution industry.

But it's not the first time that theres been a mix change in our industry and so our model has proven to be resilient in that regard. So it's unique and different product, but it is not unique in terms of.

Impacts and influences that particular product category has on the pharma distribution industry.

Speaker 2: The next question comes from Elizabeth Anderson of the Evercore. Please go ahead.

The next question comes from Elizabeth Anderson of Evercore. Please go ahead.

Speaker 10: Hi guys, thanks for the questions or the comments about who the piece of the year. One thing I was just kind of, I heard what you said about calling out the inflation and how that doesn't quite flow through the same way as it did last year. Can you speak to how you're thinking about sort of the first half of the year versus the second half of the year? Because I would say you had a...

Hi, guys. Thanks for the questions.

The comments about the PC and the one thing I was just kind of I heard what you said about calling out the inflation and how that doesn't flow through the same way as it did last year can you speak to how you're thinking about sort of the first half of the year.

The second half of the year.

<unk>.

Speaker 2: Sorry, I think we lost the previous color and we'll move on to the next question from Denel Crosslight from City. Please go ahead.

Sorry.

I think when loss loss the previous color and promote all fall into the next question from Daniel Cross slight from Citi. Please go ahead.

Speaker 11: Hi, thanks for taking the question. Maybe we'll go back to the COVID vaccine for a second here.

Hi, Thanks for taking the question maybe I will.

We'll go back to the Covid vaccine for a second here.

Speaker 11: You mentioned that you're changing the ocking of vaccine items.

You mentioned that Youre seeing stocking of vaccine.

Adam.

Speaker 11: Let's see then, the winter season. Are you also taking more share in vaccine distributions than perhaps your overall market share would, would suggest?

Let's see then the winter season.

Are you also taking more share in vaccine distributions and perhaps your overall market Sherwood.

With suggest and then as we think about therapeutics moving into the commercial channel.

Speaker 11: And then as we think about therapeutics moving into the commercial channel in a couple months here, how was that factored in into your guidance? And then lastly, you've been operating well above your longer term farmative guidance of 46% for a few quarters here. I'm curious if there's been any change to how you're thinking longer term about the business and some of the secular tailwinds that might be driving growth higher than your longer term or to 6%.

A couple of months here.

That factored into your guidance and then lastly, you've been operating well above your longer term pharma EBIT guidance of 4% to 6% for <unk>.

A few quarters here I'm curious if there's been any change to how youre thinking longer term about the business and some of the secular tailwind that might be driving growth higher than your longer term fixed.

6% guidance.

Speaker 4: You're getting all the value out of your one question. So let me see if I can touch on each one. I think there's some connectivity between these. So overall for vaccines, I think the best way to think about vaccine distribution is more about it from the customer standpoint. So I think what you'll see is that COVID-19 vaccines like other vaccines typically will follow the distribution network.

Youre getting the all the value out of your one question. So let me let me see if I can touch on each one.

I think theres some connectivity between so overall for vaccine.

I think the best way to think about vaccine distribution is more about it from the customer standpoint. So.

I think what Youll see is that COVID-19 vaccines like other vaccines typically will follow the distribution network. So the real question is are customers getting more than their fair share and I don't necessarily want to talk about them from that perspective other than to say, we are very happy with the cusp.

Speaker 4: So the real question is are our customers getting more than their favorite share? And I don't necessarily want to talk about them from that perspective. Other than to say we are very happy with the customers we have. We've often used a phrase for other situations about winning with the winners. And we feel very well aligned with great customers. And so, you know, but I think that's how you should think about it and that it most likely that that's majority of the volume will follow the distribution network.

<unk>, we have we've often used the phrase for other situations about winning with the winners and we feel very well aligned with great customers and so.

But I think that's how you should think about it in that.

Most likely the vast majority of the volume we will follow the distribution network I think your second element of that question was on the Covid therapeutics.

Speaker 4: i think your second element of that question was on the the coven therapeutics

Speaker 4: You know, how I think about that is a little bit differently than vaccines in terms of just the rollout where the vaccines were a bit of an obsolete old product, a new product.

How I think about that a little bit differently and in vaccines in terms of just the rollout where the vaccines were a bit of an obsolete oil product.

New product.

Speaker 4: type of situation where all that government stockpile when we were asked about vaccines nearly a year ago when it was first uh... in case of the commercial

The situation, where all of that government stockpile. When we're asked about vaccines nearly a year ago. When it was first communicated to be commercialized that was part of our response as well we didn't know the FDA approval date. We also didn't know what's going to happen with the in stock inventory, which seems to not even a relevant usage at this stage given the the.

<unk> evolution as it relates to therapeutics, you don't have that same challenge right. There's a lot of product out there still in the rollout will be slower and you are talking about an oral solid type of brand product, which typically does not carry very the same type of specialization necessary in the distribution channel that that does drive higher margin products.

Speaker 4: out there still and the rollout will be slower. And you're talking about an oral solid type of brand product, which typically does not carry the same type of specialization necessary in the distribution channel that does drive higher margin products like our specialty products. And then the last question is on the long-term growth outlook. I think one of the key messages that is behind your question and behind how we think about it is partly why we're calling out those elements that may be a little unusual. Again, just

Our specialty products.

Speaker 4: And then the last question is on the long term growth outlook. I think 1 of the key messages that is behind.

And then the last question is on the long term growth outlook I think one of the key messages that.

Is behind your question and behind how we think about it is partly why we're calling out those elements that may be a little a little unusual again, just like with <unk> COVID-19 vaccines and other form of innovation, we like innovation It provides us new opportunities and new growth.

Speaker 4: your question and behind how we think about it. And partly why we're calling out those elements that may be a little unusual. Again, just like with GLP1's COVID vaccines and other form of innovation, we like innovation. It provides us new opportunities, a new growth as an enterprise. And so part of the answer to this question is how do these innovative products evolve and transition over time? Is that a continued opportunity? Is it lumpy? Is this year maybe higher or lower than what that vine will be in the future? Those are all hard questions to answer. But what we saw here is a bit of an influx of innovation that we've been able to benefit from while using the same infrastructure. One thing that's really important to highlight about our performance is quarter. So we had really nice, gross margin growth.

As an enterprise and so part of the answer to this question is well how did these how did these innovative products evolve and transition over time is that a continued opportunity is it lumpy is this year may be higher or lower than what that volume will be in the future that those are all hard questions to answer, but what we saw here was a bit of an influx.

The innovation that we've been able to benefit from while using the same infrastructure one thing thats really important to highlight about our performance. This quarter. So we had really nice gross margin growth and we had very flat SG&A I made the comment about the operating leverage in my in my comments Thats, what im getting at is that we were able to execute very efficiently this quarter and.

Speaker 4: And we had very flat SGNA. I made the comment about the operating leverage in my comments. That's what I'm getting at is that we were able to execute very efficiently this quarter.

Speaker 4: and whether we're talking about vaccines or other products.

Whether we're talking about vaccines or other products, having that gross margin because it's an incremental product category for us because of course, we do not participate in that volume last year, but we're able to leverage the same capacity. The same team that's an efficient use of our of our distribution channel and as we get more opportunities like that and there is some opportunity.

But one of the key things that Aaron highlighted a number of his comments, whether it's his comments or his answers to the question is that our underlying growth. We feel very good about that that long term target and a lot of what we've seen here was a Q1 over performance both from vaccines, but also just the core utilization being very strong.

Speaker 4: is that our underlying growth, and we feel very good about that long-term target. And a lot of what we've seen here was the Q1 over performance, both from vaccines, but also just the core utilization being very strong. That's not the same level of strength that we have indicated we should be thinking about long-term. It's an opportunity for us, but that's not what we're expecting at this point in time. And it's not what we're guiding for the balance of the year in terms of the core growth. We'd expect that core growth to still be in that four to six percent range.

That's not the same level of strength that we have indicated we should be thinking about long term. It is an opportunity for us, but thats not what were expecting at this point in time and it's not what we're guiding for the balance of the year in terms of the core growth. We would expect that core growth is still be in that 4% to 6% range, but again innovation can create some opportunities for us it's hard to see right now but.

Speaker 4: But again, innovation can create some opportunities for us as hard to see right now, but we're not planning.

We're not planning for that so maybe if I can just.

Speaker 3: So maybe if I just wrap a bow around that from a guidance perspective, just to reiterate what our guidance is. You know, look for the, as we sit here today, the Medical Segment Guidance is $400 million of profit for this year.

Wrap a bow around that from a guidance perspective just to.

Reiterate what our guidance is.

Look as we sit here today the medical segment guidance is $400 million of profit for this year and we've talked about that extensively leading to $650 million of profit in fiscal year 'twenty six while we are pleased with the progress on pharma one quarter into the year and our guidance for this year.

Speaker 3: We've talked about that extensively. Leading to $650 million a profit in fiscal year, new 26.

Speaker 3: While we are pleased with the progress on pharma one quarter into the year and our guidance for this year for pharma, the 7 to 9% profit growth.

Our pro forma the 7% to 9% profit growth our longer term algorithm remains the 4% to 6% profit growth that we had called out at our Investor day, leading to 12% to 14% adjusted EPS growth long term.

Speaker 3: Our longer term algorithm remains the four to 6% profit growth that we had called out at our investor day, you know, leading to.

Speaker 3: 12 to 14% you know adjusted EPS growth long term you know as as our as our overall you know guidance We're not making changes to a long-term guidance as we figure today now some may ask and I've seen some of the headlines well

As our overall guidance, we're not making changes to our long term guidance. So as we sit here today now some of the ask.

And I've seen it in some of the headlines well you beat by a particular amount, but you raise is a little bit less than what that amount is on the short answer to maybe get ahead of the question is is that we had above the line benefits for which we and.

Speaker 3: You beat by a particular amount, but your raise is a little bit less than what that amount is. And the short answer to maybe get ahead of the question is, is that we had above the line benefits for which we and below the line in benefits relative to, you know, consensus or expectations and the real difference between our reason and how you might do that math is just we are not carrying forward the tax.

And below the line benefits relative to consensus of our expectations and the real difference between a raise and how you might do that math is just we are not carrying forward the tax.

Speaker 3: benefit that we saw in Q1 into the updated guidance for reasons I call out during my time to keep forward information and respect.

Benefit that we saw in Q1.

Into the updated guidance for reasons I called out during my prepared remarks.

Speaker 2: The next question comes from Charles Re from TD Cohen. Please go ahead.

The next question comes from Charles <unk> from Cowen. Please go ahead.

Speaker 9: Yeah, thanks for taking the question. Jason, I wanted to follow up on your comments on commodity prices and you said that you're seeing less volatility in prices than before. Would you say that, you know, when you look at sort of the increase in oil over the past six months or so, is that would you say that's within the expectations of volatility and or would you might expect to see that get reflected into freight, you know, so and or some of your other input costs at some point?

Yes, thanks for taking the question Jason I wanted to follow up on your comments on commodity prices and you said that you are seeing less volatility in pricing than before would you say that when you look at sort of the increase in oil over the past six months or so is that would you say that's within your expectations of volatility.

Or would you might expect to see that get reflected into freight.

<unk>.

The input costs at some point thanks.

Speaker 4: Yeah, now that's a great question. And it's, so when I step back and think about 18 months ago, what the root issue was.

Yes, that's a great question.

So when I step back and think about 18 months ago, what the what the root issue was of course, we had international freight that was driving up the cost of everything in a multiple that was crazy, but you also have these other commodities that we're okay. So theres some commodities that are oil based so the oil input costs, but then you had the supply demand factors.

Speaker 4: Of course we had the international freight that was driving up the cost of everything in a multiple that was crazy But you also have these other commodities that were okay, so there's some commodities that are oil-based See the oil input cost, but then you have to supply demand factors going on to that that I think

Going on to that that I think over emphasized that that issue because we don't buy oil we buy products that contain oil and so as oil goes up and down thats often absorbed within the supply chain in a normal steady state unless it gets outside of a certain band and so it did get outside of that band right oil went.

Speaker 4: overemphasized that issue because we don't buy oil, we buy products.

Speaker 4: that contain oil and so as oil goes up and down that's often absorbed within the supply chain in a normal steady state unless it gets outside of a certain band.

Speaker 4: So it did get outside that band, right? Oil went above $100 per barrel. And then you had other demand factors that were driving those commodity costs well beyond what the input costs.

When above $100 per barrel and then you had other demand factors that were driving those commodity costs well beyond what the input cost impacts work. So you had a bit of a an exponential increase in a number of commodities. So today given that we're in a much more muted demand environment as well.

Speaker 4: So you had a bit of an exponential increase in a number of commodities.

Speaker 4: So today, given that we're in a much more muted demand environment as, as a broad industry, because this is way outside of healthcare, right? This is, it's a general economy not being as, as hot as it was at that point in time. When you see these types of input costs going up and down, it goes back to a bit more of a normal model, which is they're not being exaggerated and multiplied. They're just flowing through in a much more normalized steady state.

Broad industry, because this is way outside of health care and this is just the general economy not being as as hot as it was at that point in time. When you see these types of input costs going up and down it goes back to some bit more of a normal model, which is theyre not being exaggerated and multiplied theyre just flowing through in a much more normalized steady state. So that's that's the.

Speaker 4: So that's the reason why that I would not expect this under this current environment.

The reason why that I would not expect this under this current environment to get outside of.

Speaker 4: to get outside of normal bounds. So if you see the input cost going up and you see a heated economic environment that can further compound that impact, that's when we need to start worrying more about this. I know the importance of this will certainly be, you know, we day to day, we certainly spend a lot of...

Normal bounds.

So if you see the input costs going up and you see a heated economic environment that can further compound that impact that's one we need to start worrying more about this.

I know the importance of this will certainly be day to day, we certainly spent a lot of time on this but we will continue to provide any insight that we see going forward of course, when we get into the very significant changes thats the changes to our contracting structure that we've put into place.

Speaker 4: but we'll continue to provide any insight that we see going forward. Of course, when we get into the very significant changes, that's the changes to our contracting structure that we've put into place. That's never going to be perfect. It's never going to be a one-for-one offset, but it's meant to really be active and impactful when you have those more extraordinary types of impacts. That really kind of compound these items like I just referenced and not just the normal types of more muted movements.

We're going to be perfect, it's never going to be a one for one offset but it's meant to.

Really be active and impactful when you have those more extraordinary types of impacts that really kind of compounding. These items like I, just referenced and not just the normal types of more muted movements.

Speaker 2: The next question is from Alan Lutz from Bank of America. Please go ahead.

The next question please.

Allen Lutz from Bank of America. Please go ahead.

Speaker 4: Good morning and thank you for taking the questions. I wanna go after the formal margin dynamic a little bit differently. So they were up five this year over a year. It sounds like the vaccine benefit is gonna peak in your fiscal 2Q. So the right way to think about the margin growth in the formal segment year over year is it could peak or the growth could peak in 2Q and then kind of more but normalize lower margin trajectory in the back cap. Just trying to get a sense of the seasonality there. de

Good morning, and thank you for taking the question I wanted to go after the pharma margin dynamic a little bit differently. So they were up five bps year over year. It sounds like the vaccine benefit is going to peak in your fiscal <unk>. So is the right way to think about the margin growth in the pharma segment year over year.

It could peak or that growth could peak in <unk>, and then kind of more normalized lower margin trajectory in the back half just trying to get a sense of the seasonality there.

Speaker 3: We really haven't provided quarterly guidance up the marginal level for the form of business. We were, we leaned in a bit and describing the impact to Q1 from the COVID vaccine distribution as well on the streets and comments around the expectations for Q2. Beyond that, I think you just need to, taking into account what we typically say about our business, which is

So we really haven't provided quarterly guidance at the margin level for the pharma business.

Were.

We leaned in a bit in describing the impact to Q1 from the Covid vaccine distribution as well as Jason's comments around the expectations for Q2.

Beyond that I think you just need to take into account, what we typically say about our business which is.

Speaker 3: First, that we expect the consistent market dynamics from a generic perspective, right, and we are not assuming some of the benefits from a brand perspective in Q3 that we have, you know, previously seen. That's all we are offering up today.

First that we expect the consistent market dynamics from a generic perspective, and we are not assuming some of the benefits from a brand perspective in Q3 that we have previously seen.

We are offering up today.

Speaker 2: Well, now take out a final question today. Today, familiar with Anderson Evercore, please go ahead.

We will now take our final question today today from Elizabeth Anderson Evercore. Please go ahead.

Speaker 10: Hi guys, topologies about the audio issues before. My question was, just on the non-operating items, it seems like both on interest expense and maybe on the share count based on the ASR that you talked about and the interest expense in the first quarter that there's a little bit of conservatism in that number in those, both of those numbers.

Alright, guys apologies about the idea of excuse me sorry.

My question was just on the <unk>.

Nonoperating items it seems like both on interest expense and maybe on the share count based on the ASR that you talked about.

And the interest expense in the first quarter that there is a little bit of conservatism in that number.

Both of those numbers.

Speaker 3: And it seems we have an attempt to answer the

And until we.

You can attempt to answer that.

Speaker 3: I'll answer the question I think she was seeking to ask.

I'll answer the question I think she was seeking to ask.

Speaker 3: The question from what I heard was interest and other, are we being conservative as well as what's going on with our share count? And I guess I would offer the following. We were pleased to see, you know, continued benefit in the quarter from INO driven by the fact that we have such high cash balances and the return we're receiving on those cash balances.

The question from what I heard was interest and other are we being conservative as well as what's going on with our share count.

I guess I would offer the following we were pleased to see continued benefit in the quarter from <unk> driven by the fact that we have such high cash balances and the return we're receiving on those cash balances. We are of course also benefiting in the quarter from.

Speaker 3: We are of course also benefiting in the quarter from

Speaker 3: The fact that we are largely fixed rates have been now for several quarters and so we haven't been exposed to the interest rate increases that some other companies you may be dealing with and that just isn't by the good stewardship previously.

The fact that we are largely fixed rate would have been now for several quarters and so we haven't been exposed to the interest rate increases that some other companies who may be dealing with and that's just driven by the good stewardship.

Speaker 3: We do have a maturity coming at the end of fiscal 24th about $750 million dollars from recollection and we've commented that we're likely to refinance that. I haven't commented on the timing of that as we carry forward and so we believe the guide, we the updated guide we've provided on I know reflects the benefits in the various trade off.

Previously.

We do have a maturity coming at the end of fiscal 'twenty four it is about $750 million. So from recollection and we've commented that we're likely to refinance that hasnt commented on the timing of that as we carry forward and so we believe the guide we the updated guide we've provided provided on I know reflects the benefits.

And the various trade offs.

Speaker 3: With respect to the share count, I do think it's important to call out that, as we have consistently said, we don't guide for share count changes beyond the baseline share repurchase. We made a commitment during our investor day in June that our baseline share repurchase was going to be $500 million.

With respect to the share count I do think it's important to call out that as we have consistently said.

We don't guide for share count changes beyond the baseline share repurchase we made a commitment at during our Investor day in June that our baseline share repurchase is going to be $500 million during.

Speaker 3: During fiscal year 24 we completed that in the first quarter. That is the share of purchase we're talking about You know today and our guide reflects the impact of that of the completion of that share of purchase program It does not reflect any other changes to share of purchase over the course of year as Jason called out earlier You know we We have the benefit of our cash balance and having Invested having the plans that we do to invest in the business

During fiscal year 'twenty four we completed that in the first quarter that is the share repurchase we're talking about here today and our guide reflects the impact of that of the completion of that share repurchase program. It does not reflect any other changes to share repurchase over the course of the year as Jason called out earlier.

We have the benefit of our cash balance in <unk>.

Having invested having the plans that we do to invest in the business.

Speaker 3: capex wise and ninety two million dollars in the first quarter targeting five hundred million for the year

Capex wise and $92 million in the first quarter targeting $500 million for the year.

Speaker 3: and continue to make progress on our investment grade rating and the two outlook changes, positive outlook changes that we received during the quarter, having made our baseline show repurchase.

To make progress on our investment grade rating and the two outlook change a positive outlook changes that we received during the quarter, having made our baseline share repurchase during Q1 as well as continuing to pay our dividend as we are as.

Speaker 3: Q1 as well as continuing to pay our dividend as we are.

Speaker 3: as a dividend aristocrat and now we have the opportunity in support of the plans to take the Resources we have available to us to invest

As a dividend aristocrat and now we have the opportunity and supportive the plans to take the resources, we have available to us to invest back into the business with a specialty focus that Jason this called out several times.

Speaker 3: back in the business with that specialty focus that Jason has called out several times.

Speaker 3: to look at M&A in a discipline to matter.

To look at M&A in a disciplined manner.

Speaker 3: as Jason called out, and then to also consider further opportunistic.

Jason called out and then to also consider further opportunistic share repurchase in due time as we assess how.

Speaker 3: share approaches in due time as we assess how the year is performing. I think that's where Louisville was going.

How the year is performing I think thats, where political is growing.

Okay.

Speaker 2: Thank you for this, we conclude today's question and answer session and now I'd like to head back over to Jason Holler for any additional or closing remarks over to you sir.

Thank you with this we conclude todays question and answer session and now I'd like to hand, the call back over to Jason Hollar for any additional or closing remarks over to you Sir.

Speaker 4: Yeah, thanks again everyone for joining us this morning. As we said a few times, it was a great start to the year. We're pleased with our broad-based performance and to be in the position that we are today to raise our guidance after just the first quarter. We look forward to certainly continuing to update you on our progress against these plans throughout the year. And with that, thank you and have a great day.

Yeah. Thanks again, everyone for joining us this morning, as we've said a few times. It was a great start to the year. We're pleased with our broad based performance and to be in the position that we are today to raise our guidance. After just the first quarter. We look forward to certainly continue to update you on our progress against these plans throughout the year and.

With that thank you and have a great day.

Speaker 2: This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.

Thank you. This concludes today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.