Q2 2025 Cardinal Health Inc Earnings Call
Speaker Change: Hello, and welcome to the second quarter of fiscal year 2025 at Cardinal Health incorporated earnings Conference call.
George: My name is George and there'll be a coordinator for today's event.
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Speaker Change: Hello, and welcome to this morning's Cardinal health second quarter fiscal 'twenty five earnings conference call and thank you for joining us.
Speaker Change: With me today are Cardinal health CEO, Jason Hollar at our CFO Erin all.
Speaker Change: You can find this morning's earnings press release and Investor presentation on the Investor Relations section of our website at IR that Cardinal health Dot com.
Speaker Change: Since we will be making forward looking statements today, let me remind you that the matters addressed in these statements are subject to risks and uncertainties that could cause our 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 Investor presentation.
Speaker Change: For a description of these risks and uncertainties.
Speaker Change: Note that during our discussion today, the comments will be on a non-GAAP basis, unless specifically called out as GAAP.
Speaker Change: GAAP to non-GAAP reconciliations for all relevant periods can be found in the supporting schedules attached to our press release.
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.
Jason: Thank you and good morning, everyone. Today, we reported strong second quarter results accelerating the momentum that we built over the last couple of years overall the performance was led by robust demand across our largest and most significant business pharmaceutical and specialty solutions and our relentless focus on the execution of our simplification.
Jason: <unk> to best serve our customers.
Jason: Notably, we're seeing strength in brand specialty generics and consumer health as we are well positioned within a growing market.
Jason: As a result of the significant strategic and operational actions. We've taken we remain bullish about our position in the healthcare industry and confident in our strategic direction for the future.
Jason: And with this confidence we are pleased to again raise our fiscal 'twenty five enterprise guidance, which Aaron will cover in more detail shortly.
Jason: We see opportunities to continue building upon the resiliency of the pharma business and drive consistent growth, particularly within specialty.
Jason: Closing of the acquisition of a majority stake in GI Alliance, which in conjunction with our recently completed integrated oncology network transaction will allow us to continue to expand across key therapeutic areas and generate additional value for our customers patients and shareholders.
Jason: Later on I will talk more about how these investments accelerate our strategy, but for now I'd like to officially welcome both the ion in GI Airlines teams to Cardinal health and thank them for their focus and dedication as we work together to unlock new opportunities.
Jason: And Jim PD, while Q2 was below our expectations. The team remains focused on executing the <unk> improvement plan with positive progress on our cost optimization initiatives during the quarter.
Jason: And across our other businesses nuclear at home and not be freight we see robust demand across these three faster growing and higher margin businesses. The long term potential for growth is evident and we intend to continue to invest across these businesses to add scale and capabilities and such.
Jason: Summary, we are pleased with this quarter's results, which reflect our efforts to accelerate our strategy execute with precision and drive sustainable long term growth with that I'll turn it over to Aaron to review our results and updated guidance.
Aaron: Thanks, Jason and good morning from a financial perspective, we continued our momentum in Q2 with outstanding results from the pharma segment strong performance from the businesses included in other and continued operational progress in G&P D.
Aaron: We grew operating earnings by 9%, while overcoming the headwinds of the prior customer contract exploration and the as anticipated COVID-19 seasonal timing.
Aaron: In summary, we had a lot going on and we are pleased to report that the profit growth across the business resulted in a much better than expected EPS of $1 93.
Aaron: We are raising our EPS guidance to a range of $7 85 to $8.
Aaron: Let's review the results starting with slide four.
Aaron: Total company revenue decreased 4% to $55 billion on a reported basis adjusting for the contract exploration revenue increased 16% versus the prior year, primarily reflecting strong demand across pharma and all three of the businesses included in other.
Aaron: Total company gross margin increased 5% with contributions from all of our operating segments.
Aaron: As you can see from the financials, our team continued to control our costs across the enterprise with SG&A, increasing a modest 3% covering the impact of rising healthcare costs, the <unk> acquisition and investments against the businesses.
Aaron: This led to operating earnings growth of 9% versus the prior year.
Aaron: Moving below the line interest and other increased $45 million $238 million, primarily driven by financing impacts related to the recent acquisitions, including the Q2 proactive debt issuance.
Aaron: Our second quarter effective tax rate finished at 21, 4% flat to a rate a year ago.
Aaron: Q2 average diluted shares outstanding were 243 million shares, 1% lower than a year ago due to our previous share repurchases.
Aaron: The net result for Q2 was EPS of $1 93 growth of 2%.
Aaron: Now turning to the segments, beginning with pharmaceutical and specialty solutions on slide five.
Aaron: Second quarter revenue decreased 4% to $51 billion due to the impact of the customer transition.
Aaron: Excluding that revenue increased 17% driven by brand and specialty sales growth from existing and new customers.
Aaron: This included approximately six five percentage points of revenue growth from <unk> sales.
Aaron: As we indicated in a recent industry conference. During Q2, we saw strong pharmaceutical demand across our business and brand specialty consumer health and generics and from our largest customers.
Aaron: The team delivered segment profit of $531 million in the second quarter, an increase of 7% driven by growth from Biopharma solutions, including contributions from specialty networks and a higher contribution from brand and specialty products only partially offset by the customer contract exploration.
Aaron: In specialty we saw strong performance across specialty distribution. We also continued to be pleased with the progress of integrating specialty networks, which is benefiting our overall specialty strategy and tracking consistent with our original expectations.
Aaron: As expected the distribution of COVID-19 vaccines was a headwind in the quarter as we compared to last year's peak during Q2, we.
Aaron: We do not expect a meaningful contribution from COVID-19 vaccines for the remainder of the fiscal year.
Aaron: Our generics program continued to see positive performance, including strong volume growth and consistent market dynamics.
Aaron: Operationally, our large customer onboarding and expansions are in progress while each customers needs are unique and timelines vary. We are pleased with the performance of our pharma business and how that business is prepared for the future.
Aaron: Let's turn now to our turnaround business, the <unk> segment, which continues to advance the <unk> improvement plan.
Aaron: Revenue increased 1% in Q2 to $3 $2 billion, driven by volume growth from existing customers as.
Aaron: As previewed earlier this month volume growth was less than we expected in part driven by softness with respiratory products in our lab business.
Aaron: <unk> segment profit increased to $18 million slightly below our initial expectations for the quarter, reflecting the softer volumes I, just referenced and an unanticipated $15 million impact in our wave Mark business largely from the write off of uncollectible receivables.
Aaron: While we were disappointed with the wave Mark adjustments this quarter that business model is resonating with customers as they continue to realize substantial benefits from the products and value creating services we provide.
Aaron: On the positive side it should be noted that the <unk> team managed to mostly offset the shortfall to expectations in the quarter with aggressive SG&A management, and a better than expected impact from our cost optimization initiatives.
Aaron: Finishing with the business is reported in other as seen on slide seven.
Aaron: Second quarter revenue increased 13% to $1 3 billion due to the growth across all three businesses at home solutions nuclear and precision health solutions and optic freight logistics.
Aaron: The businesses collectively grew segment profit in the quarter by 11% driven biopsy freight and nuclear <unk>.
Aaron: I'm, especially pleased with our nuclear business manage through the moly 99 shortage astutely and posted better than expected results.
Aaron: We are looking forward to talking about at homes progress against its automation and efficiency efforts in future quarters.
Aaron: Now turning to the balance sheet, we ended the quarter with a cash position of $3 8 billion, which included $2 8 billion, which was used today to close the acquisition of 73% of Gi Alliance.
Aaron: Adjusted free cash flow was a use of approximately $250 million per quarter, primarily reflecting unfavorable quarter and day of the week timing.
Aaron: During the second quarter, we continued to deploy capital according to our disciplined capital allocation framework.
Aaron: We invested nearly $100 million in capex back into the businesses to drive organic growth.
Aaron: We returned approximately $125 million to shareholders through dividends and we closed on the <unk> acquisition and it pays the financing that we're using to complete the Gia acquisition today.
Aaron: Now, let's turn our gaze forward some context notes before we begin.
Aaron: We have reached the mid year point and are now focused on the back half on significant customer onboarding and expansions a third element of our large customer non renewal mitigation plans.
Aaron: We've closed our acquisitions of ion and GI Alliance and early positive views of those businesses are incorporated into today's update to guidance.
We do not yet have visibility to a closing date on ESG given customary closing conditions. So we'll wait to incorporate ESG into our guidance until after closing.
Aaron: Together, <unk> and Gia while positive profit generators are not meaningful to our fiscal 'twenty five EPS given the partial remaining year. The increased interest expense to fund the transactions and the timing of our investments and synergy achievement plans, we will provide more details beyond this fiscal year, when providing fiscal year 'twenty six guidance on future calls.
Aaron: With that out of the way, let's talk about our updated fiscal 'twenty five guidance.
Aaron: After another strong quarter, we are raising our fiscal 'twenty five EPS guidance to a range of $7 85 to $8 a <unk> <unk> increase at the midpoint from our prior guidance of $7 75 to $7 90.
Aaron: This was primarily driven by strong growth in the pharma segment offset by <unk> and higher interest costs.
Aaron: Reflecting our acquisitions interest and other is increased to a range of $200 million to $230 million driven by the new debt financing and foregone interest income.
Aaron: Moving on to our segments starting on slide 10.
Aaron: For pharma, we are improving our revenue outlook to a decline of 1% to 3%, reflecting the additions of Gi alliance and ion into our guidance and the strong year to date utilization we've seen.
Aaron: Normalizing for the customer transition and our acquisitions fiscal 'twenty five revenue growth at the midpoint would now be approximately 20%.
Aaron: For segment profit, we are raising our pharma segment profit guidance for the full year to 10% to 12% growth.
Aaron: Excluding the contributions of Gia and ion this would equate to high single digit underlying segment profit growth.
Aaron: You should note that GAA holds meaningful minority equity positions in many of the ambulatory surgical centers in which their procedures are conducted.
Aaron: The ASC tied profit streams in Gia will not show up in our pharma segment, but will rather show up as a positive item in <unk> other income.
Aaron: For reference we expect about $15 million of other income coming from GE as equity method investments in fiscal 'twenty five.
Aaron: Regarding farmers cadence, we continue to expect significant incremental volume over the back half of the year from new customer wins and expansions and we also continue to expect Q3 to be the highest profit dollar quarter of the year driven by the timing of manufacturer price increases, which have traded generally consistent with our expectations.
Aaron: For <unk>, our revenue outlook remains unchanged at 2% to 4% growth, which is also what we now expect for Cardinal brand revenue growth.
Aaron: As we think about the <unk> improvement plan and the efforts I referenced earlier, while we are pleased with the progress the team is making the efforts do take time for.
Aaron: For the rest of this year, we recognize the impact of the health care costs. The wave Mark write offs and the Q2 soft volume headwinds that we've experienced as a result, we are adjusting our GMP guidance on segment profit to be in the $130 million to $150 million range.
Aaron: Still a significant improvement from last year as.
Aaron: As I've commented before we continue to expect improvements in profit in the back half of the year with Q4 being the high point of the fiscal year similar to last year.
Aaron: We are not providing an update to our fiscal 'twenty six our long term profit guide on <unk> today.
Aaron: All our financial objectives are clear, we are scrutinizing volume trends and the current highly fluid tariff environment in Mexico, and the United States and we are awaiting clarity on whether there will be industry wide dislocations are exceptions, which may present, both risks and opportunities for us. This is a highly fluid situation.
Aaron: The one certainty is that our <unk> team continues to aggressively work to improve our business.
Aaron: In other we are reiterating our expectations for 10% to 12% revenue growth and approximately 10% segment profit.
Aaron: Note on others cadence, we expect stronger year over year profit growth in Q4 than in Q3 due to the timing of our growth oriented technology investments and associated benefits.
Aaron: Before I wrap up a couple of comments on capital deployment, we remain committed to creating continued shareholder value over the long term now.
Aaron: Nothing is changing regarding our disciplined capital allocation strategy.
Invest in the business protect our investment grade rating return a baseline of capital and assess additional M&A and return of capital opportunities.
Aaron: Following the closures of our deals we will take a disciplined approach to paying down debt, we anticipate retaining our triple BBB <unk> investment grade rating by quickly getting back within Moody's post deal updated targeted leverage range for us.
Aaron: 275 times to three five times adjusted debt to EBITDA.
Aaron: We will also execute on our previously committed fiscal year 'twenty five additional share repurchases of $375 million.
Aaron: As for M&A, we are focused on executing against the integration and improvement plans that surround the acquisitions, we have announced in the last year we.
Aaron: We will continue to evaluate high quality assets in strategic areas of importance, but we'll focus on integration and tuck in acquisitions to the multi specialty and oncology platforms that we have just acquired.
Aaron: To close Cardinal health continues to benefit from our disciplined focus on our core while also making important investments securing our growth for the long term.
Aaron: Our shareholder value creation efforts span, our enterprise and both the progress to date and the roadmap of what we have in front of US gives Jason and I confidence to raise our guidance again for the remainder of this year. We look forward to updating you on this in coming months with that I will turn it back over to Jason.
Jason: Thanks, Erin and pharmaceutical and specialty solutions, a positive second quarter performance is a direct result of our rigorous focus on prioritizing core operational execution and simplification. The team's efforts have resulted in commercial gains, including new distribution business and renewals with key customers we.
Jason: We successfully on boarded a couple of notable acute health systems this quarter and consistently aimed to provide them and all of our customers with industry leading service.
Jason: In fact, our service levels have continued to increase off of last quarter's multiyear high and are now up over 10% over the last two years.
Jason: Of note our team has navigated severe storm activity this winter, while maintaining above target on time delivery metrics.
Jason: Our efforts to build a strong foundation and increase our exposure to higher growth and higher margin areas are working to drive growth and continued momentum across the business.
Jason: As I've consistently indicated specialty is our most important growth area, where we've been investing both organically and inorganically in areas, where theres not only the greatest opportunity for future business growth, but also where we can create value for our customers and patients.
Jason: Our specialty strategy as seen on slide 12 is centered upon the community provider and is our ambition to deliver clinical and economic value for specialty positions across key therapeutic areas, enabling them to focus on providing high quality and cost effective patient care.
Jason: We're excited about the suite of services and capabilities, we're building beyond our heritage in distribution and contracting including today's closing of Gi lines.
Jason: This acquisition is a key component of our strategy to continue driving meaningful growth over the long term and the larger 60% of the specialty market consisting of non oncology therapeutic areas.
Jason: <unk> Alliance the largest gastroenterology managed services platform in the country with over 900 positions across 345 practice sites in 20 States will serve as the foundation of our multi specialty platform, enabling further national expansion in Gi and areas like urology rheumatology and neurology.
Jason: This team brings best in class support capabilities, such as revenue cycle management and a physician led leadership team headed by founder and CEO. Dr. Jim Weber that is highly regarded in the industry and we will continue to operate the business as a standalone platform within Cardinal health.
Jason: In oncology the work to integrate the <unk> team and providers into our and the Vista platform is progressing as planned the combined leadership team is in place and has visited key sites, where it's easy to see how joining the vista clinical expertise with ion operational strengths will be a big win for independent community oncologists.
Jason: The team has created is consolidated leadership structure Definement of this to go to market strategy and is engaging with a growing pipeline of opportunities as a result of our expanded offerings.
Jason: Multitude of data is created while treating patients and thanks to the capabilities, especially networks PPS analytics providers can generate actionable insights to improve patients' clinical outcomes, while manufacturers can leverage its sonar capabilities for research purposes to improve future therapies.
Jason: We've completed the integration of the legacy specialty networks from Cardinal health processes and established the go forward execution roadmap, including extending specialty networks capabilities to Vista, so providers on both our oncology and multi specialty platforms can enhance their ability to provide exceptional patient care and grow their practices.
Aaron: Aaron highlighted our strong performance from Biopharma solutions, which in addition to specialty networks includes our leading specialty <unk> and some excess patient access among its offerings.
Aaron: We continued to see strong <unk> performance during the second quarter with revenue growth of over 20% in Sonexus, which has seen steady growth is executing a number of key product implementations with a strong pipeline of opportunities ahead.
Aaron: We've previously highlighted our advanced therapy solutions, offering, which supports <unk> cell and gene therapy manufacturers across 450 sites of care and is already processed over 18000 cell and gene therapy orders in the quarter, We launched advanced therapy connect a first in class cell and gene therapy ordering solution, which allows our customers to.
Aaron: Efficiently consolidate their ordering processes onto our singular platform or.
Aaron: Our business is partnering with Biopharma innovators and many of the top academic medical centers to bring cell and gene therapy products more efficiently to patients.
Aaron: Turning to <unk>, where the team is focused on executing our <unk> improvement plan initiatives.
Aaron: Jumping back while we had some additional nonrecurring impacts with wave mark in the quarter. We are pleased with the continued improvement in the <unk> business combined with last year's significant growth. This year's guidance reflects a nearly $300 million profit improvement from fiscal 'twenty, three driven by progress on inflation mitigation cost reductions and a return to growth with our cardinal.
Aaron: Branded products.
Aaron: But we recognize work remains in this transformation, we have an aggressive set of service profit and cash flow improvement efforts in flight across the business that will continue to power the turnaround.
Aaron: For example, we are modernizing our distribution network and bringing innovative solutions to the market, including the opening of a new distribution center in Massachusetts that will increased U S warehouse capacity and expand specialized handling capabilities at the same time, we reached an agreement to sell the legacy distribution facility in the area, which will contribute to our stated value creation initiatives along with.
Aaron: Some recent inventory improvements, we've driven our business is committed to getting our customers the right products at the right place and time and remain focused on doing so as we navigate the existing trade environment monitoring the potential impact of new trade policies and their effect on pricing are geographically diverse manufacturing network supports our ability to balance supply resilience.
Aaron: See service and costs for our customers.
As an example, with our recent investments to expand domestic <unk> production, 90% of our syringe product categories now manufactured in the United States.
Aaron: And now finishing with our other businesses, which are becoming a greater growth driver for us and an area, where we intend to continue to invest in the future.
Aaron: In nuclear and precision health solutions, we see continued strength in both our core business and Theyre gnostics, along with an expanding pipeline.
Aaron: We are now the first company to offer actinium $2 25 at commercial scale spearheaded from our collaboration with Terrapower offering a significant milestone in increasing access to potential new cancer treatments for patients.
Aaron: New therapies containing the isotope actinium $2 25 have the potential to become the next generation of cancer treatment due to their less invasive impact to the patient.
Aaron: This is an example of innovation in action and reaffirms our commitment to making meaningful investments to help address some of the most pressing health issues facing patients today.
Aaron: Also grown production of GE healthcare's visible and Alzheimers diagnostic by nearly 70% since last quarter investments are underway to nearly double our visible manufacturing sites by the end of fiscal year 'twenty five.
Aaron: And at home solutions, we have begun construction on our new distribution center in Fort worth, Texas to continue benefiting from the growth of home health care facility.
Aaron: The facility will be equipped with leading robotics and automation technologies and should be fully operational by this summer.
Aaron: Our investments in advanced distribution centers will enable synergies related to our acquisition of advanced diabetes supply group.
Aaron: Bringing together the scale and efficiency of our at home business with the patient acquisition and retention capabilities of ATSG will be highly complementary create further diversification within our diabetes business and allow us to drive significant value for customers and patients.
Aaron: CMS continues to make policy decisions supporting CGM access and we are well positioned to take advantage of future market growth as CGM utilization continues to increase.
Aaron: And obviously freight logistics, we continue to deliver action driven insights to support our customers many of the leading health systems in the United States, enabling them to better manage their shipping needs. The team remains laser focused on innovative and technology, driven solutions that drive incremental value and capabilities for our customers.
Aaron: Recently, the team made enhancements to our total view insights portfolio with total view reporting making it easier for customers answer critical program performance questions and unlock decision driving insights.
Aaron: At least three product launches planned over fiscal 'twenty five 'twenty six our team is constantly expanding its capabilities and exploring opportunities for new product penetration and clinical departments within hospitals, where customers are looking for support efficiency and value.
Aaron: Closing, we are pleased with what we accomplished this quarter and are excited about the future. Thank you to our team for their unwavering dedication to fulfilling our role as health Care's, most trusted partner with that we will take your questions.
Speaker Change: Thank you very much Mr <unk>.
Speaker Change: Ladies and gentlemen, once again, if you wish to ask a question. Please press star one on your telephone keypad and also just please note that you are limited to one question each thank you.
Speaker Change: First question today, it will be coming from John Stenzel, calling from Jpmorgan. Please go ahead, Sir your line is open.
Speaker Change: Great. Thanks for taking my question I think what I heard was high single digit operating profit growth in pharma ex M&A.
Speaker Change: Just thinking about the back half I think that would imply a bit of a deceleration versus first half can.
Speaker Change: Can you just help kind of pick through some of the key puts and takes as we think about growth second half fiscal 'twenty five kind of excluding M&A and kind of what is a factor.
Speaker Change: Factors might be thank you.
Speaker Change: The question is we called out in prepared remarks, we are really pleased with the results of the.
Speaker Change: Enterprise overall, and certainly our pharma business, so far this year, including Q2.
Speaker Change: Including the raise to our guidance.
Speaker Change: Just to restate the raise for the full year Oi.
Speaker Change: 10% to 12% that of course includes the impact of <unk>.
Speaker Change: And the Gi deal, which we closed today.
Speaker Change: Hurt us correctly that the Oi for the full year will be high single digits without the deals. The M&A is adding about 300 basis points.
Speaker Change: To the pharma raise but also don't lose sight of the fact that we have $15 million more of positive progress that is going to hit other income just given the equity treatment on the minority asc's.
Speaker Change: In the first half of the year, we experienced a strong utilization environment really across every element of the business you heard Jason who will comment on that.
Speaker Change: In the back half we are assuming a more normalized environment. We don't believe that utilization will be sustained at the same levels and of course, we would be happy to be wrong there.
Speaker Change: Also want to call out that we.
Speaker Change: We have also started the onboarding of the significant ramp of new customers.
Speaker Change: Our onboarding costs for those new customers are already built into the updated guide that we've provided and of course, we're lapping our specialty networks acquisition in March and so we believe that the guide in the back half being need to guide for the year is a prudent one reflective of the success, so far and acknowledging that as I said in <unk>.
Speaker Change: The prepared remarks, we have a lot going on.
Speaker Change: That we're looking to land the plane well.
Speaker Change: Next question please.
Speaker Change: Thank you.
Speaker Change: Next question will come from Erin Wright, calling from Morgan Stanley. Please go ahead.
Erin Wright: Great. Thanks for taking my question could you talk a little bit about what youre seeing across specialty right now.
Erin Wright: Key drivers that Youre thinking about how the integration is some of these assets is progressing relative to your expectations.
Erin Wright: And just how we should think about that progressing throughout the year. Thanks.
Erin Wright: Sure, Yes specialty was absolutely a driver of revenue and profit for the quarter, we talked about the broad based specialty growth over the last several years ex the large customer non renewal we've seen close to mid single digit type of mid mid to mid teens.
Erin Wright: Growth type of growth, 14% growth over the last several years and we saw a pretty similar growth last quarter as well as this quarter was even a little bit stronger a couple of points faster than that so the specialty category continues to grow very well, which certainly gives us confidence to continue to invest.
Erin Wright: Into that business, which is of course underpinning not just the more recent closings now of both ion and GI Alliance, but of course. It was also a key component of the strategy.
Erin Wright: That we laid out more recently and started with the inorganic investments with specialty networks.
Erin Wright: We did include in the material I believe its slide 12 that just reminds everyone of that strategy and I talked a little bit about it but I think the key point here is that that community physician specialty physician.
Erin Wright: A lot of requirements a lot of needs they want to take care of those patients, but they also need to run a business and what we've done here is build up a series of support around them beyond contracting getting into helping them manage their data getting.
The administrative as well as the broader Msos services to support those physicians and we think by putting that specialty physician at the center of how we approach them as a partner and as a customer.
Erin Wright: Lead to growth well beyond just distribution and into all of those other services.
Erin Wright: One other area of differentiation that we've continued to clarify what this strategy is that we're going to market with two very distinct platforms. One within oncology, which is of course ion is combined with our <unk> business and then the other one of course is Gi Alliance.
Erin Wright: And getting into the other 60% of the multi specialty part of the business. So we're pleased with the strategy. We are pleased with the underlying momentum that we're seeing in the specialty business that just further gives us confidence that we should be investing into this critically important part of the market not just for us Phi.
Erin Wright: But probably more importantly for customers and ultimately patients.
Speaker Change: Next question please.
Speaker Change: Yes, Sir the next question will be coming from Allen Lutz, calling from Bank of America. Please go ahead.
Allen Lutz: Hi, good morning, and thanks for taking the questions one for Aaron how did the Covid vaccine volumes come in the second quarter versus your expectations. I think we were estimating something like a $20 million headwind year over year, but is there any way to size the relative contribution.
Allen Lutz: From vaccines in the second quarter versus the first quarter or size the headwind year over year.
Allen Lutz: We have not provided a specific number on the impact of Covid in Q2, although what I can tell you as it came in exactly as we expected it would and we were pleased to overcome it obviously given the.
Allen Lutz: Incredibly strong results from the pharma business in the quarter we.
Allen Lutz: We had said it would be a modest headwind and thats indeed, what how it played out.
Allen Lutz: Next question please.
Speaker Change: Next question today will be coming from Elizabeth Anderson.
Speaker Change: Evercore. Please go ahead.
Speaker Change: Hi, guys good morning, and thanks for the question.
Speaker Change: Thanks for all the color today I was wondering if you could talk a little bit more about the MPD. Obviously, you. Thank you for helping us to quantify the <unk> contribution in the quarter, but and you've talked about some investments and I realize that there is tariff implications that we probably can't quantify right now, but if we think about like just the core business ex some of these one time items and forgetting about tariffs for a second how do we think.
Speaker Change: About sort of the cadence of sort of the investments and sort of the opportunity.
Speaker Change: Move through the back half of the year.
Speaker Change: Is that sort of ramping down and we should think of that as the go forward.
Speaker Change: Right, there, where you think there is sort of more long term investments that you will continue to make as you continue to grow that business.
Speaker Change: Let me start with some comments on the guidance and then perhaps just one want to offer some strategic comments there.
Speaker Change: We started the year with a guide on <unk> of $175 million and then as a result of the unanticipated healthcare incremental healthcare cost in Q1, we adjusted our guidance to bring it down and that was zero call 17 year $1 million in Q1 and Q2, we have certainly.
Speaker Change: <unk> another unanticipated item, which is a 15 million dollar charge. It in the wave Mark part of the business really tied to uncollectible receivables absent those two items.
Speaker Change: <unk> improvement plan really continues as it passed and so while we want to be prudent and reflect the realities of those two items and of course callout that volumes were a little soft in Q2 softer than we expected other than that the business continues to perform.
Speaker Change: As we had expected and indeed consistent with the guidance. We provided we said at the start of the year that we expected sequential improvement each quarter in profitability, we still expect that to be the case Q4 will be higher than Q3's, obviously from a sequential perspective and what we.
Speaker Change: Shared about the team leading <unk> is that they are leaving no rock unturned relative to continuing to invest in the business and find ways to improve the operating performance.
Speaker Change: Improved our customer service so that we are.
We are achieving the plans we have not backed away from our long term guidance today, we are not providing an update on long term guidance either for <unk> or for the overall enterprise and you can read into that what you will.
Speaker Change: Just observe though that we believe the new guidance of $130 million to $150 million with the midpoint being the reduction of the two one time items or nonrecurring items from that original guidance is a reflection of kind of where we are Jason yes, I'll add on some other elements here.
Speaker Change: So.
Speaker Change: I'm pleased with the performance of the team given some other elements that Aaron didn't talk about right.
Speaker Change: <unk> been receiving a number of questions of course as it relates to international freight all the storms winter activity as well, there's a lot of complexities within supply chain that has not impacted significantly in the business and we've not made any changes to our guidance as a result of those types of items. So the team has managed through a challenging type of some.
Speaker Change: Fly chain environment. This year now that leads us of course to alright. So now what does it mean for the balance of the year as it relates to tariffs I should probably also add that we had tariffs in China that did require us to resource and to pass on some of that in the form of pricing as well, but now when we're looking at potentially more significant tariffs both in Mexico as well as in the United States.
Speaker Change: That requires us to continue to evaluate that model and manage through it.
Speaker Change: So we are not providing any adjustments to our guidance both current year as well as long term as it relates to that it's still a bit early to determine that what I will say is that the team has done a nice job to de risk the model from where we were before.
Speaker Change: We still have some work to do with tariffs, where we're looking at both sides of it and the sourcing side as well as the customer and pricing side on the sourcing side. We've made some fantastic improvements to the resiliency of that supply base. As a reminder, only about a third of our business. So the $12 billion ish in revenue as Cardinal brand. So the two thirds is national.
Speaker Change: Brand, we largely pass through those types of adjustments. So that one third that is Cardinal brand is where we have the most work to do there within that third about a half of it is sourced out of North America, which is split between the U S and Mexico for the most part.
Speaker Change: And then the rest of the world is quite diverse we no longer manufacture out of China, we source a little bit although with more recent tariffs we've reduced that further so we're definitely well below 10% at that level and we have near short into Latin America quite a bit of product as well we've been brought some of them more onshore as Aaron highlighted 90% of our syringe category.
Now produced in our Cardinal owned facility in the United States. So we will continue to do what we can to minimize the impact as it relates to tariffs, but make no mistake. If there are widespread tariffs anywhere from the 10% to 25% range I anticipate there will be corresponding price increases we will.
Speaker Change: What we tend to minimize those.
Speaker Change: With 1% to 2% margins, we will not absorb.
Speaker Change: Whatever impacts are left and with our <unk>.
Speaker Change: <unk> diverse supply base supply chain throughout the globe and what we believe is balanced.
Speaker Change: We think we're well positioned competitively to build a pass on those price increases. So it's something we will work to minimize but it's going to be a.
Speaker Change: Reality.
Speaker Change: Europe's are widespread across multitude of countries.
Speaker Change: Next question please.
Speaker Change: Yes, Sir our next question today is coming from Michael Cherny coming from Leerink Partners. Please go ahead. Your line is open.
Michael Cherny: Good morning, congratulations on another really nice quarter.
Speaker Change: Maybe if I can go back to some of the specialty commentary as you think about where you are now positioned with all of the at least specialty oriented acquisitions close right now Jason you had talked a bit about some of your service expansion, but how fast you feel some of that integration.
Speaker Change: Resonating in the market how much of it do you feel as a competitive driver in terms of winning new business and how do you think about that against the backdrop of what seemingly appears to be elevated specialty market growth.
Speaker Change: Whether it's due to changes in the IRI part D design or other areas, but how does that all factor into from an underlying specialty basis your ability to essentially accelerate growth on top of that now larger portfolio.
Speaker Change: Well it certainly doesn't hurt in the marketplace.
Speaker Change: Sure you can imagine there's a lot of factors that go into a customer's decision.
Speaker Change: Our investments in specialty they want to see that we're competitive and that we understand their needs in that space.
Speaker Change: This certainly does.
Speaker Change: <unk>.
Speaker Change: I wouldn't draw too many connections.
Speaker Change: And on what's part of the market you are talking about it if you're talking about retail independent if you're talking about a large chain I think our investments in specialty or a lot less relevant what's more relevant for them as are we taking care of their needs today as that service levels, what other types of.
Speaker Change: Products and capabilities, we can bring for them.
Of course, when you are talking about that specialty physician. It is incredibly important for them that we take care of as many of their needs as possible of which distribution is only one of them. So it is a flywheel effect that we've talked about all the way back to our Investor day that was the cornerstone of the strategy that is what's most important to that physician and of course, we have to be competitive.
Speaker Change: And everything else.
Speaker Change: But.
Speaker Change: It is.
Speaker Change: All bringing together now.
Speaker Change: Now this quarter as I mentioned, we're seeing a little bit stronger specialty revenue growth is that because we continue to.
Speaker Change: Be a partner of choice I think it's a little early with some of these acquisitions as well, but certainly we're growing at least as fast as the market, 16% type of growth in the quarter. So we're holding our own and have great partners that are growing quickly as well and we're doing what we tend to further improve our capabilities to be an even better partner for them going forward.
Speaker Change: Next question please.
Speaker Change: Next question will be coming from Eric Percher of Nephron. Please go ahead.
Speaker Change: Thank you I'd like to return to medical and.
Speaker Change: Maybe expand to GMP and at home it sounds like the impact from macro weakness as maybe a little bit less severe than we might have thought.
Speaker Change: Can you tell us is the Cardinal brand still growing has there been any change in trajectory and then is the impact extending to at home in any meaningful way.
Speaker Change: Yes, so the overall.
Speaker Change: We saw slight growth in overall for.
Speaker Change: All products as well as Cardinal health brand products. So there is no distinction our differentiation there of any significance and.
Speaker Change: Youll see in the Q that comes out we continued I think Darren even made the comments, we have double digit growth for each of our other businesses in terms of top line.
Speaker Change: So we continue to see very strong growth there.
Speaker Change: That.
Aaron did highlight.
Speaker Change: We saw some weakness within.
Speaker Change: Respiratory and lab type of products within.
Speaker Change: The GM PD business those are not products that drive volume through our at home business.
Speaker Change: It is a very diverse type of product groupings within that home customer, but it's different in those types of types of products. So the only thing I'd just highlight as last quarter, we're at 3% growth.
Speaker Change: Overall market, we predicted to be somewhere in the low single digit range, so 1% growth, while a little bit weaker and we certainly wanted to call that out we're watching it very closely.
Speaker Change: The trends are going to be important how much of this is related to what is happening on the respiratory lab side of cough cold and flu. This season is it's something that we'll determine here in the next couple of months, if it's a lasting trend or if it gets more back to that typical type of longer term lower single digit but better than one.
Speaker Change: <unk> percent growth that we anticipate and that's.
Speaker Change: That's why we're watching it closely but.
Speaker Change: We need to see what kind of trends is really it looks like before making any other further adjustments just to reinforce some of the question. Some of the answers around at home you will see that at homes revenue growth for the quarter was up 13%.
Speaker Change: Strong in CGM diabetes, and urology related categories.
Speaker Change: We do continue to make large investments in that business, even pre closure of the acquisition, we've announced and that's why you heard me signal in my prepared remarks, we're looking forward to talking about the.
Speaker Change: The profit contribution from that business in future quarters really driven by seeing the return on the investments we've been making in automation and efficiency as they get to multi year record levels of productivity quality and safety over the course of the year and so we view, while we haven't spent a lot of time talking about it it will be viewed as a bright spot for the future of the business.
Speaker Change: Next question please.
Speaker Change: We will now go to Kevin Caliendo, calling from UBS. Please go ahead Sir.
Kevin Caliendo: Thanks, Thanks for taking my question.
Kevin Caliendo: I wanted to get to your comments around utilization in the sort of expectation that it's going to nor.
Kevin Caliendo: Normalized <unk> stepped down a little bit from what you've seen in the first half.
Kevin Caliendo: My question is sort of are you actually seeing this now is it a question of your Youre comping higher utilization in the fiscal second half of the year and what is the higher utilization that you saw in the first half of the year was there anything special about it.
Kevin Caliendo: Was it higher margin or did it contribute more to EBIT than corporate average I'm just trying to understand like what was the driver with the higher utilization was and sort of why you don't expect it to continue.
Kevin Caliendo: Yes, let me start and then.
Aaron: There's a lot there to unpack and so Aaron may have something in the backend.
Aaron: So as I think about let me, let me talk to the second quarter growth that we've seen and it does.
Aaron: <unk> quite a bit the type of growth we saw in the first quarter. So let me just go deeper into that give you a little bit more insight as to what's driving when we when we say broad utilization what exactly do we mean give you a little bit more perspective, there and then.
Aaron: I think that will help inform the types of trends that you would expect to continue and perhaps some that would not.
Aaron: So.
As I step back and think about the drivers of our profitability.
Aaron: We have already talked about some of the headwinds right. So it's COVID-19 and it's the large customer nonrenewals as Aaron highlighted our headwinds this quarter from an earnings perspective, as well as from a revenue perspective, we're very consistent with our expectation and what.
Speaker Change: Im really pleased with this particular quarter. So our strength in pharma was driven not by having less bad news. It was more good news more strength in the underlying business. So what drove that those tailwind.
Speaker Change: It allowed us to grow that business from an earnings perspective. This particular quarter utilization was of course, one of those items.
Speaker Change: So the 4% reduction in revenue as Aaron highlighted translates to 17% ex large customer non renewal and then when you adjust for GOP ones. That's another.
Speaker Change: 67%, so you get close to 10% 11%.
Speaker Change: Customer non renewal <unk>, one type of growth, so that 10% to 11%.
Speaker Change: Is significant it's not too unlike where we have been operating but it's good growth.
Speaker Change: And of course, we're talking revenue, but when youre looking at the underlying volume in areas that contribute less revenue like generics. It was also a little bit stronger than what we've typically seen so within that 10% to 11% adjusted type of revenue there were no real headwinds that we had to offset so we did see growth across.
Speaker Change: All the categories.
Speaker Change: <unk> in generics were generally consistent with that type of rate, where we saw.
Speaker Change: Excess growth above that was specialty so that brings with it nice margin and brings with it a nice mix.
Speaker Change: And it's.
Speaker Change: Also some of our consumer health business within generics, while the revenue was not a big driver of it.
Speaker Change: We saw strength, where we are in the areas that do bring with it a little bit more margin like retail independents as one example.
Speaker Change: Did have some new customers that were being on boarded but there was good mix by again specialty by retail independents or is the right type of volume that we saw that was a little bit stronger this quarter than we've seen before now that's just one of the components of our earnings drivers. We also had very good productivity. It was a quarter that had great volume and we.
Speaker Change: Translated that volume to very strong earnings.
Speaker Change: And that's based upon some of the actions that we've put into place beginning almost a year ago. When we learned of that large customer non renewal that we will start to lap and then of course, the specialty networks will be lapping here in the third quarter as well and that's the third component our Biopharma solutions business was very strong this quarter that.
Speaker Change: Especially networks, but it's also our three PL, we saw higher than then.
Speaker Change: Usual type of growth so <unk> is growing over 20%.
Speaker Change: So there's a lot of growth drivers like that that while we have invested into it and while we have confidence will continue to grow the level of growth and a positive mix of specialty of generics of retail independents.
Speaker Change: Categories like that are more of the areas that we would expect to be more normalized going forward and of course specialty networks, we begin to lap it in the third quarter as well earn anything I missed there the only thing I would add.
Speaker Change: And we'll just see.
Speaker Change: Yes.
Speaker Change: Coda to note that our back half.
Speaker Change: If you adjust if you normalize out for Optum, we are expecting the profit to grow above our long term target of 4% to 6% and so I appreciate the pushback on.
Speaker Change: The number there, but we are expecting higher than our targeted growth in the back half and pharma.
Speaker Change: Next question please.
Speaker Change: Yes, Sir.
Speaker Change: Our next question now will be coming from Eric Coldwell, calling from Baird. Please go ahead.
Eric Coldwell: Thanks, very much I was hoping to touch on Gi alliance a bit when investors see MSR deals in drug distribution.
Eric Coldwell: <unk> industry, they tend to think of distribution contracts, they think of Biosimilars et cetera.
Eric Coldwell: Is there not also a med surge opportunity, particularly in this segment and if so could you talk about that and where you might see some opportunities too.
Eric Coldwell: Further help those physicians with with your med search package and or any other solutions that you that you provide or their tie ins to something in the other segment for example, as well.
Eric Coldwell: Yes, thanks for the question Eric.
Eric Coldwell: The short answer is yes, there's opportunities.
Eric Coldwell: All I'd, rather stress what I talked about before I think I think the problem with answering your question in that manner as it puts us first and not the physician first and their biggest problem isn't getting med surge items and it's relatively small relative to now of course across the whole industry is a big part of it but when you look at even.
Eric Coldwell: 1000 physicians, it's just not.
Eric Coldwell: Significant relative to the broader industry and certainly that could be less.
Eric Coldwell: One health system customer on that side. So it's something that we're not ignoring but it's also clearly not.
Eric Coldwell: The cornerstone of what we're doing here. This is very specifically on GI Alliance. We're most focused on that positioning specifically most focused on that other 60%. The other non oncology therapeutic areas were not.
Eric Coldwell: Not only is in an area that hasnt been invested into near the extent is oncology.
Eric Coldwell: There is not nearly the options and support out there, but what's so exciting for US is what we believe is the best of the best is Dr. Jim Weber and team in GI Alliance, we did scour the industry to look for the best possible partner and the other 60% and we're confident.
Eric Coldwell: That team and that organization that fits well with us culturally but.
Eric Coldwell: Also fits well with being able to solve the needs of so many of those physicians in both Gi as well as other therapeutic areas and just to emphasize this is both general rates in.
Eric Coldwell: Their platforms for future growth, which come with higher margin service opportunities and capabilities that we will look at it as a basket of opportunities as we continue to drive our progress and specialty going forward.
Speaker Change: Next question please.
Speaker Change: Our next question will be coming from Daniel gross night of Citi. Please go ahead. Your line is open.
Speaker Change: Hi, guys. Thanks for taking the question I wanted to go back to some of the comments you made on tariffs and you provided some great detail there, namely the 50% of Cardinal branded products that are made in North America I'm wondering if you could kind of segregate that out between the.
United States and Mexico, and then also help us think about.
Speaker Change: How what percent of your products are made in central and South America and finally, if all of this tariff noise volatility is making you rethink your onshoring strategy. So perhaps more of your branded product will look like syringes versus.
Speaker Change: How it has traditionally left thank you.
Speaker Change: Sure. So again, let me just walk us from the top two thirds is national brand one third Cardinal brand of the Cardinal brand about 50 50.
Speaker Change: North America versus rest of the world.
Speaker Change: At 50%, that's North America, it's pretty well balanced between Mexico and U S. So think about it as another 50 50.
Speaker Change: And as it relates to central and South America, I would say that other 50% outside of North America is very diverse so I'm not going to break it down further into that we do have southeast Asia that remains a component of that but it's quite diverse where we have.
Speaker Change: Very little.
Speaker Change: I would not.
Speaker Change: Significant concentration in any one country outside of that so it is truly broad and diverse there.
Speaker Change: Other data point that I highlighted.
Speaker Change: In the past and maybe again today I can't remember, but we do have product capabilities of manufacturing, 50% of Cardinal brand in the United States. So we don't manufacture that but we have.
Speaker Change: Up to 50% today of those categories, where we're already manufacturing a product where we can bring more of it onshore now that's not something that can be done overnight, but we have the capability and expertise to be able to do so over time and when I think about tariffs that element of time is an important one because it is something that.
Speaker Change: Beyond the cost impact the FDA is going be very busy helping the industry resource significant amounts of product. If there is no exclusion I remember in the first Trump administration. There were widespread exclusions that included a lot of medical and health care products, but if those exclusions are not existing this time around there will be.
Speaker Change: The strong incentives to resource a lot of products quickly and that's something that we will we'll have to do what we can.
Speaker Change: But we're going to have to look at that cost trade off and there are plenty of products that will still not makes sense to sort of transition to the United States.
Speaker Change: The cost differential is many times greater than that but then there's also just the natural capacity to build a resource products that must be tested rigorously before changing suppliers before changing sites of manufacturing that will cause for a lot of.
Speaker Change: A lot of effort, but also a lot of volatility that will want to make sure. We keep the patient in safety in mind as well.
Speaker Change: Next question please.
Speaker Change: Yes, Sir the next question today comes from Steven Valiquette, calling from Mizuho. Please go ahead.
Steven Valiquette: Great. Thanks, Good morning, guys. Thanks for taking the question. So I think you briefly touched on the cough cold for the GM PD segment, but really for the overall company and my question is separate from the timing of your revenue recognition related to the Covid vaccines and there was some discussion amongst some of your peers that the flu <unk> illness.
Speaker Change: <unk> was pretty soft in the December quarter.
Speaker Change: But that more recent data shows that actually picked up a lot in January which I think should bode well on a net basis for your upcoming fiscal <unk>. So I guess I'm curious whether you have any further color or just from your own point of view in relation to these quote unquote illness season dynamics for the December quarter and March quarter really across all your segments and the overall company.
Speaker Change: Yes, yes, thanks, Steve.
Speaker Change: It's an interesting question because on the one hand, we're talking about strong utilization on the other hand, we're talking about weaker utilization and so understanding the distinction is important and we use cough cold and flu illnesses in general as.
Speaker Change: The centerpiece of that discussion.
Speaker Change: I think there is a.
Speaker Change: A hypothesis we're not.
Speaker Change: And what we're seeing is again on the <unk> side is more lab and respiratory so.
Perhaps what we're seeing in this last quarter, because we didn't see the same weakness within our pharma business. So people are getting treated for illnesses at a rate that seems to be at least as consistent as it was last year. So we're not seeing weakness there now it's not a huge margin driver for us anyways on the pharma side.
Speaker Change: Our higher margin products on the <unk> side.
Speaker Change: So this could be one of test less testing versus less treatment.
Speaker Change: Our treatments are seeing a whole lot.
Speaker Change: A difference, but we're testing is a bit lower.
Speaker Change: I've heard anecdotally some of the same that you just referenced that perhaps January will be a little stronger because there seems to be a little bit of resurgence.
Speaker Change: I won't say that ive seen that yet if it has happened it hasnt.
Speaker Change: It's just not it's just too early to have a great perspective on that and.
Speaker Change: So I think for the time being that's about much as I can give you next.
Speaker Change: Next question please.
Speaker Change: Thank you Sir.
Charles: We'll now move to Charles ROI of TD Cowen. Please go ahead.
Charles ROI: Yes. Thanks for taking the question just wanted to go back a little bit on the issue of sort of onshoring products.
Speaker Change: Understanding the complexity of that but.
Charles ROI: With sort of the.
Charles ROI: With this administration coming in I think last quarter, you did talk about expanding domestic products.
Charles ROI: In response to sort of disruptions et cetera.
Charles ROI: Does the new administration, and so are there kind of wielding of tariffs.
Charles ROI: All over the place here is that looking to accelerate sort of your plans here in terms of.
Charles ROI: Bringing more products to be manufactured domestically or so given the uncertainty does does that maybe give you a little bit pause and just kind of.
Charles ROI: Thank you want to wait and see and then secondly, you talked about sort of the stable generics kind of environment.
Charles ROI: But when we look at I'm, sorry, you said consistent dynamics here in the second quarter, but.
Charles ROI: If we look we're seeing consistently in the data.
Charles ROI: Moderation in deflation.
Speaker Change: Curious if you think that can persist going forward, if there's any dynamics youre seeing as you look out in the next few quarters. Thanks.
Charles ROI: Yes.
Charles ROI: There's a lot of variables and decisions that go into where we source product and short term I think it will be very difficult like I said not only are the constraints of us getting the capability, but theres also.
Charles ROI: The regulatory compliance requirements to ensuring that we have the ability to through FDA approvals and such so that will be a natural limiter on how quickly those moves can be made.
Charles ROI: And it's just too early to tell if were talking about like in the case of China with PPE at 50% tariffs that was a no brainer it needed to be moved out of China. There is no way for there to be a business case for staying there but.
Charles ROI: But to be clear.
Charles ROI: Those products did not come to the U S. They went to southeast Asia.
Charles ROI: And I'm not convinced that even at a 50% tariff throughout the world that those products would come back onshore given the cost differential that is there between domestic manufacturing versus low cost countries in general So there's a big delta there for some commoditized products theres less of a delta for more highly complex products.
Charles ROI: And.
Charles ROI: The highly complex products, often have more manufacturing investments and so when we have to make those decisions whether or not we bring them on shore. We got to look at the timeline and say is it worth the investments and the uncertainty to make those types of investments today get enough of a payback to justify doing that or will the next.
Charles ROI: Administration have a different view so those are all elements that will have to come together.
Charles ROI: And we'll always be looking at what.
Charles ROI: It makes the most sense as it relates to the second part of the question I will turn it over to Aaron.
Speaker Change: Youre right, we did see a consistent market dynamic environments.
Speaker Change: When asked about deflation will not the quarter, we always point to the facts and we manage both sides of the equation ramps dependent or working with red oak to do that and so we're managing the business to a.
Speaker Change: Consistent average margin per unit.
Speaker Change: Which means it doesn't make too much of an impact for us right because we're managing the portfolio as a basket there with rising volume, which we saw in generics as well.
Speaker Change: It leads to goodness in the P&L.
Speaker Change: Next question please.
Speaker Change: Yes, Sir we do have one question left in the queue and the question is coming from Brian <unk>.
Brian: <unk> of Jefferies. Please go ahead.
Speaker Change: Hey, Thanks for taking the questions Jack <unk> on for Brian.
Speaker Change: And you guys have run through in detail most of the stuff. We wanted to ask just wanted to maybe a more nitty gritty one on the.
Speaker Change: The cash flow side and some of the comments you had I appreciate the.
Speaker Change: The talking points on on wanting to maintain the credit rating and giving some of the ranges. There can you just run back through <unk>.
Speaker Change: <unk> sort of what that means for the next call. It six quarters I guess on my quick math.
Speaker Change: If you look at the acquisitions dividends buybacks that are left in the back half of this year versus the free cash guide you've got something like a one 5 billion to $2 billion, a hole that you need to fill.
Speaker Change: Is the right way to think about that that that needs to be debt paydown until that sort of whole is filled and then you can get back to.
Speaker Change: Pushing excess into buybacks and tuck ins or just any thoughts on what that might mean for 2006 capital allocation. Thanks.
Speaker Change: Sure.
Speaker Change: Appreciate the question on hours like talking about capital allocation model.
Speaker Change: We have confirmed a couple of things over time before today and today. The first is is that we have a disciplined capital allocation strategy, which is unchanged post M&A.
Speaker Change: And that in order is first we're going to invest against the business and we will spend we will invest more than $500 million in capex against the business. This year second we will protect our investment grade rating and I'll come back to that in a second because there are so there is some change there.
Speaker Change: Third that we will provide a baseline return of capital to investors historically, that's been $500 million. This year, we have reconfirmed that we will complete $750 million.
Speaker Change: Our return of capital to shareholders through the share repurchase.
Speaker Change: And then we look for further opportunities for M&A.
Speaker Change: Sure.
Speaker Change: Additional return of capital to shareholders.
Speaker Change: With respect to the debt we've taken on in connection with the acquisitions.
Speaker Change: We were pleased that when we presented our plans to the rating agencies that they confirmed for us that they saw the industrial logic that we did they saw the value creation opportunities and they appreciate the fact that we continue to be committed to paying down our debt over time, they actually raised our degrees of flexibility as far as commenting on the deals and so.
Speaker Change: Having announced four acquisitions, we actually have a different leverage metric now it has gone up it was before two five to three times now, it's two and three quarters, two or three in the quarters and so we will manage our leverage ratio over time to get back within the new Moody's a ratio.
Speaker Change: Consistent with that that will take us a lot of time as youre doing the math as we carry forward given I believe we also reconfirmed our adjusted free cash flow guidance for the year. So while we won't get there this year the rating agencies aren't expecting us to get there within fiscal year 'twenty five.
Speaker Change: But as you look at it.
Speaker Change: Looking at our debt stack the towers, we have coming in the near term you'll see we have eminent flexibility to be able to continue to do what we said we were going to do which is invest in the business pay down some of that debt quickly while continuing our return of capital to shareholders. Now we have an important day coming June 12 is our next.
Speaker Change: Investor Day, and if you look back in our comments, Jason to my comments from our Investor Day, two years ago. What Youll see is we were very focused on laying out of the long term algorithm for shareholder value creation not just on the income statement, but also on the cash flow.
Speaker Change: We will provide further detail on that the opportunities we see as we carry forward into 'twenty six and beyond.
Speaker Change: As we get to that June 12.
Speaker Change: June 12, Investor day, rather.
Speaker Change: Alright, thank you.
Speaker Change: We did not have any other questions. Let me turn the call back over to you Mr. <unk> for any additional or closing remarks. Thank you.
Speaker Change: Yes. Thank you for joining US again. This morning, just quick summary here very pleased with the second quarter, another very strong quarter for for Cardinal health, driven by really strength across the enterprise, but most especially by our largest most significant business within pharma very pleased with that 7% growth.
Speaker Change: Considering some of those headwinds to still be above the long term target is fantastic progress and that certainly gives us the confidence for the year ahead and pleased that we were able to raise our guidance yet again to that 775% to 790, but probably most exciting for me is that we're doing that while progressing our strategy. The strategy that is progressing through the organic investments that further.
Speaker Change: <unk> by the significant steps we've taken here.
Speaker Change: I enclose in December and the Gi aligns close that occurred today.
Speaker Change: And that just gives us confidence to continue to drive our business going forward and as Aaron just indicated we look forward to going into those strategies, even further come our investor day in June until then until the next quarter talk to you then.
Speaker Change: Thank you, ladies and gentlemen that will conclude todays conference, which had tenants who wish you a very good day.
Speaker Change: Goodbye.