Q3 2025 Cardinal Health Inc Earnings Call
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George: Hello and welcome to the third quarter fiscal year 2025 Cardinal Health Incorporated Earnings Conference. My name is George. I'll be your coordinator for today's event.
Speaker Change: Hello, I'll walk around third quarter of fiscal year 2025.
Health incorporated earnings Conference call.
Georgia: My name is Georgia will be coordinating today's event.
Operator: Please note, this conference is being recorded after the duration of the call. Your lines will be listed in only mode. However, you will have the opportunity to ask questions towards the end of the presentation and this can be done by pressing star one on the top of the keypad to ask your question. And can you also please limit yourselves to one question each for the maximum people to ask a question. If it requires to sense any point, please press star zero and you will be connected to an operator.
Please note. This call is being recorded after the duration of the call your lines will be in a listen only mode.
Georgia: However, you will have the opportunity to ask questions towards the end of the presentation that this can be done by pressing star one on your tongue.
Georgia: A key part of the switch to your question.
Georgia: I can also please limit yourselves to one question each so the Maxwell people to ask a question.
Georgia: If it requires to synthetic quaint. Please press star zero and you will be connected to the operator.
Matt Sims: I'd like to now call over to host today, Mr. Matt Sims, Vice President and Mr. Regents to be at today's conference. Thank you.
Santos: I like that I try to call. The <unk> hosted a shoebox Santos Vice President of Investor agents to begin today's conference. Thank you.
Matt Sims: Welcome to this morning's Cardinal Health third quarter fiscal 25 earnings conference call and thank you for joining us. With me today are Cardinal Health CEO, Jason Hollar, and our CFO, Aaron Alt. You can find this morning's earnings press release and investor presentation on the Investor Relations section of our website at ir.cardinalhealth.com.
Speaker Change: Welcome to this morning's Cardinal health third quarter fiscal 25 earnings conference call and thank you for joining us with.
Speaker Change: With me today are Cardinal health, CEO, Jason Hollar, and our CFO Aaron at 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 at Cardinal Health Dot Com.
Matt Sims: 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 statement slide at the beginning of our presentation for a description of these risks and uncertainties.
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 presentation for a description of these risks.
Speaker Change: And uncertainties.
Matt Sims: Please note that during our discussion today, the comments will be on a non-GAAP basis, and less specifically called out as GAAP. GAAP to non-GAAP reconciliations for all relevant periods can be found in the supporting schedule attached to our press release.
Speaker Change: Please note that during our discussion today, the comments will be on a non-GAAP basis, unless specifically called out as GAAP GAAP to non-GAAP reconciliations for all relevant periods can be found in the supporting schedules attached to our press release.
Matt Sims: 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.
Speaker Change: 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'll now turn the call over to Jason.
Matt Sims: With that, I will now turn the call over to Jason. Thank you and good morning everyone.
Speaker Change: Thank you and good morning, everyone. Today, we reported strong third quarter results, which demonstrate the continued acceleration of our momentum we've established in recent years, the underlying strength of our business and the effectiveness of our strategy in today's increasingly complex macro environment. Our role as healthcare is crucial link is more.
Jason Hollar: Today we reported strong third quarter results which demonstrate the continued acceleration of the momentum we've established in recent years, the underlying strength of our business, and the effectiveness of our strategy. In today's increasingly complex macro environment, our role as health care's crucial link is more important than ever. We bridge the clinical and operational aspects of health care, delivering end-to-end solutions that touch every part of the care continuum. Customers and manufacturer partners confidently rely on us to safely, securely and efficiently deliver essential products and services to the right place and time. Our team continuously navigates evolving market conditions and regulatory complexities within the healthcare industry, allowing us to act with urgency and flexibility to best serve customers and patients.
Speaker Change: Importantly ever we bridge, the clinical and operational aspects of health care delivering end to end solutions that touch every part of the care continuum custom.
Speaker Change: Customers and manufacturer partners confidently rely on us to safely securely and efficiently deliver essential products and services to the right place and time.
Speaker Change: Our team continuously navigate the evolving market conditions and regulatory complexities within the health care industry, allowing us to act with urgency and flexibility to best serve customers and patients.
Jason Hollar: We create tremendous value for our partners through the breadth and scale of our office. With our strong competitive positioning and the positive trends underpinning our results, our business has proven to be incredibly resilient. It should also be noted that while our industry relies upon an efficient and effective global supply chain, Cardinal Health has a strong U.S. footprint with over 99% of our enterprise revenue generated here. Roughly 95% of our segment profit is generated from four of our five businesses, which are, as yet, largely unimpacted by tariffs or other regulatory action.
Speaker Change: We create tremendous value for our partners through the breadth and scale of our offerings.
Speaker Change: With our strong competitive positioning and the positive trends underpinning our results our business has proven to be incredibly resilient.
Speaker Change: You should also be noted that while our industry relies upon an efficient and effective global supply chain Cardinal health is a strong U S footprint with over 99% of our enterprise revenue generated here.
Speaker Change: Roughly 95% of our segment profit is generated from four of our five businesses, which are as yet largely unimpeded by tariffs or other regulatory actions.
Jason Hollar: And we have invested approximately $7 billion in the last two years in the United States, including recent acquisitions, expanded domestic manufacturing, new distribution nodes, technology, and automation, which has directly supported the delivery of our country's health. As always, we proactively monitor proposed legislation and regulation, and as I've said before, we continue to support the overarching goals of increasing patient access, affordability, and innovation in healthcare.
Speaker Change: And we have invested approximately $7 billion in the last two years in the United States, including recent acquisitions expanded domestic manufacturing new distribution nodes technology and automation, which is directly supported the delivery of our country's health care.
Speaker Change: As always we proactively monitor proposed legislation and regulation and as I said before we continue to support the overarching goals of increasing patient access affordability and innovation in health care.
Jason Hollar: Moving on to our results, our performance this quarter was driven by strong utilization trends and execution across our most significant business, pharmaceutical and specialty solutions, and our three growth businesses reported another, which are becoming an increasingly important part of our overall mix.
Speaker Change: Moving onto our results our performance this quarter was driven by strong utilization trends and execution across our most significant business pharmaceutical and specialty solutions and our three growth businesses reported another which are becoming an increasingly important part of our overall mix.
Jason Hollar: Most notably, the broad-based performance reflected profit growth from all five of our operating an indication that a relentless focus on advancing our strategic priorities is delivering real, measurable It's also worth mentioning, when looking at the strong pharma results, we are seeing the first positive benefits from the acquisitions of GI Alliance and Integrated Oncology Network, both of which, in early days, are performing consistent with our expectations. And within our higher-margin other businesses, at-home solutions, nuclear, and OptiFreight, we see continued potential to expand our capabilities and create additional value.
Speaker Change: Most notably the broad based performance reflected profit growth from all five of our operating segments and indication that our relentless focus on advancing our strategic priorities is delivering real measurable impact.
Speaker Change: It's also worth mentioning when looking at the strong pharma results. We are seeing the first positive benefits from the acquisitions of Gi lines and integrated oncology network, both of which in early days are performing consistent with our expectations.
Speaker Change: And within our higher margin other businesses at home solutions nuclear and <unk>, we see continued potential to expand our capabilities and create additional value.
Jason Hollar: We are pleased to complete the acquisition of Advanced Diabetes Supply Group at the beginning of April and would like to extend a warm welcome to the ADS. As a result, we are pleased to again raise our Fiscal 25 EPS guidance and have great confidence in our ability to generate sustainable, long-term growth for the future. In summary, we are encouraged by the performance this quarter, which validates the strength of our strategy, the discipline of our teams, and our conviction and our trajectory heading into the fourth quarter.
We were pleased to complete the acquisition of advanced diabetes supply group at the beginning of April and we'd like to extend a warm welcome to the <unk> team.
As a result, we are pleased to again raise our fiscal 'twenty five EPS guidance and have great confidence in our ability to generate sustainable long term growth for the future.
Speaker Change: In summary, we are encouraged by the performance this quarter, which validates the strength of our strategy the discipline of our teams and our conviction in our trajectory heading into the fourth quarter with that I'll turn it over to Eric.
Aaron Alt: With that, I'll turn it over to Aaron. Thanks, Jason. And good morning. Q3 was a strong financial quarter for us as we continued to do what we said we were going to. invest in the business, drive growth in pharma, and the three other growth businesses, and continue the turnaround of GMPD. Overall, we grew operating earnings by 21% and EPS by 13%, even while comparing against a prior period to the customer contract expiration, and while executing and integrating our recent acquisition. The outstanding performance of Pharma, up 14%, anchored our earnings results with further momentum provided by all three of the other growth businesses, together up 22%, and continued profit growth in GMPD.
Eric: Thanks, Jason and good morning, Q3 was a strong financial quarter for us as we continue to do what we said we were going to do invest in the business drive growth in pharma and the three other growth businesses and continue the turnaround our GMP D.
Eric: Overall, we grew operating earnings by 21% and EPS by 13%, even while comparing against the prior period to the customer contract exploration and while executing and integrating our recent acquisitions.
Eric: Outstanding performance of pharma up 14% anchored our earnings results with further momentum provided by all three of the other growth businesses together up 22% and continued profit growth in <unk>.
Aaron Alt: In total, our results led to earnings per share in the quarter of $2.35. As a result, we are raising and narrowing our full-year EPS guidance to a range of $8.05 to $8.15.
Eric: In total our results led to earnings per share in the quarter of $2 35.
Eric: As a result, we are raising and narrowing our full year EPS guidance to a range of $8 five to.
Eric: To $8 15.
Aaron Alt: Let's review the results, starting with slide four. Total company revenue was flat at nearly $55 billion on a reported basis. Adjusting for the contract expiration, revenue increased 19% versus the prior year, with strong demand across pharma and all three of the growth businesses and others. We drove strong operating leverage in the quarter. Total company gross profit dollars increased 10%, while SG&A increased a more modest 4%, notwithstanding our investments across the business and recent acquisitions. Digging deeper, SG&A actually decreased slightly year over year when normalizing out the additions of GI Alliance and ION, reflecting the strong cost control efforts and efficiencies pursued by the team.
Eric: Let's review the results starting with slide four.
Eric: Total company revenue was flat at nearly $55 billion on a reported basis adjusting for the contract exploration revenue increased 19% versus the prior year with strong demand across pharma and all three of the growth businesses and other.
Eric: We drove strong operating leverage in the quarter total company gross profit dollars increased 10%, while SG&A increased a more modest 4% notwithstanding our investments across the business and recent acquisitions.
Eric: Digging deeper SG&A actually decreased slightly year over year, when normalizing out the additions of Gi Alliance and ion, reflecting the strong cost control efforts and efficiencies pursued by the team.
Aaron Alt: This led to operating earnings growth of 21% versus the prior year.
Eric: This led to operating earnings growth of 21% versus the prior year.
Aaron Alt: Moving below the line, interest and other increased by $38 million to $65 million in the quarter, primarily due to previously anticipated acquisition related financing costs. Our third quarter effective tax rate was 22.4%, a 2.5 point increase from prior year due to the non-repetition of some positive discrete items in the prior year. Q3 average diluted shares outstanding were 240 million shares, 2% lower than a year ago due to our share repurchase effort. The net result for Q3 was EPS of $2.35, growth of 13%.
Eric: Moving below the line interest and other increased by $38 million to $65 million in the quarter, primarily due to previously anticipated acquisition related financing costs.
Eric: Our third quarter effective tax rate was 22, 4% a two five point increase from prior year due to the non repetition of some positive discrete items in the prior year.
Eric: Q3 average diluted shares outstanding were 240 million shares, 2% lower than a year ago due to our share repurchase efforts the.
Eric: The net result for Q3 was EPS of $2 35.
Eric: A 13%.
Aaron Alt: Now turn to the segments beginning with PhRMA on slide 5. Third quarter revenue was relatively flat at 50.4 billion dollars. Excluding the customer contract expiration, revenue increased 20% driven by brand and specialty pharmaceutical sales growth from existing and new customers. This included approximately 7 percentage points of revenue growth from GLP-1 sales. In Q3, we saw a continuation of strong pharmaceutical demand across the business, within brand, specialty, generics, and consumer health, and from our largest customers.
Eric: Now turning to the segments, beginning with pharma on slide five.
Eric: Third quarter revenue was relatively flat at $54 billion, excluding the customer contract exploration revenue increased 20% driven by branded specialty pharmaceutical sales growth from existing and new customers. This included approximately seven percentage points of revenue growth from <unk> sales.
Eric: In Q3, we saw a continuation of strong pharmaceutical demand across the business within brands specialty generics and consumer health and from our largest customers.
Aaron Alt: We also saw growth from new customers and were especially pleased with the successful onboarding of Publix during the quarter, which was made possible by the collaborative effort between the Cardinal and Publix. Q3 delivered segment profit of $662 million, growth of 14%. This was driven by all of contributions from brand and specialty products, our MSO platforms, including GI Alliance. Biopharma Solutions, including specialty networks, and by positive generics program performance. This growth was partially offset by the customer contract expiration.
Eric: We also saw growth from new customers and we're especially pleased with the successful onboarding of public during the quarter, which was made possible by the collaborative effort between the Cardinal and Publix teens Q.
Eric: Q3 delivered segment profit of $662 million growth of 14%.
Eric: This was driven by all of contributions from brand and specialty products, our MSL platforms, including Gi Alliance.
Eric: <unk> solutions, including specialty networks and by positive generics program performance.
Eric: This growth was partially offset by the customer contract exploration.
Aaron Alt: As a reminder, we closed our acquisition of ION in Q2 and of GIA on January 30th, so the quarter included positive results from both business... We continue to be excited about these additional higher margin revenues. which, as we've said, are anticipated to contribute approximately 3 percentage points to our pharma segment profit growth this year. Finally, our generics program continues to see positive performance, including strong volume growth and consistent market dynamics.
Eric: As a reminder, we closed our acquisition of ion in Q2, and if Gia on January 30th So the quarter included positive results from both businesses. We continue to be excited about these additional higher margin revenue streams, which as we've said are anticipated to contribute approximately three percentage points to our pharma segment profit growth this year.
Eric: <unk>.
Eric: Finally, our generics program continued to see positive performance, including strong volume growth and consistent market dynamics.
Aaron Alt: Let's turn now to our turnaround business, the GMPD site. Revenue increased 2% in Q3 to $3.2 billion, driven by volume growth from existing customers. We were particularly pleased to see Cardinal Health brand growth of 3% during the quarter, which was actually a couple percentage points higher when normalizing for billing day differences between periods and currency fluctuations. GMPD segment profit increased to $39 million in the quarter driven by the net benefit from our cost optimization initiative. team continues to be aggressive in executing its simplification strategy to deliver operational efficiencies and best serve our customers.
Eric: Let's turn now to our turnaround business the <unk> segment revenue.
Eric: Revenue increased 2% in Q3 to $3 2 billion.
Eric: Driven by volume growth from existing customers, we were particularly pleased to see Cardinal health brand growth of 3% during the quarter, which was actually a couple of percentage points higher when normalizing for billing day differences between periods and currency fluctuations.
Eric: <unk> segment profit increased to $39 million in the quarter driven by the net benefit from our cost optimization initiatives.
Eric: The team continues to be aggressive in executing its simplification strategy to deliver operational efficiencies and best serve our customers.
Aaron Alt: Finishing with the businesses reported in other as seen on slide 7.
Eric: Finishing with the business is reported in other as seen on slide seven.
Aaron Alt: Third quarter revenue increased 13% to $1.3 billion. Demand was strong for the products and services of these businesses. In at-home solutions, we saw a 12% revenue growth. OptiFreight Logistics had 17% revenue. and Nuclear had 14% revenue growth, which included 30% plus revenue growth in Theranos.
Eric: Third quarter revenue increased 13% to $1 3 billion.
Eric: Demand was strong for the products and services of these businesses.
Eric: And at home solutions, we saw 12% revenue growth.
Eric: <unk> logistics had 17% revenue growth and nuclear had 14% revenue growth, which included 30% plus revenue growth and third opex.
Aaron Alt: Third quarter profit growth and other increased 22% to $134 million with profit growth across all three operating segments.
Eric: Third quarter profit growth and other increased 22% to $134 million with profit growth across all three operating segments.
Aaron Alt: Now turn to the balance sheet. We ended the quarter with a cash position of $3.3 billion. We've delivered a just and free cash flow of $1.2 billion a year to date and have continued to deploy capital according to our disciplined capital allocation framework. We've invested $315 million back into the business so far this year. We have more than fulfilled our baseline commitment and repurchased $750 million in shares during the year as we completed $375 million of accelerated share repurchases in March. The average price of our year-to-date share repurchases has been $117 per share.
Eric: Now turning to the balance sheet, we ended the quarter with a cash position of $3 3 billion.
Eric: We've delivered adjusted free cash flow of $1 $2 billion year to date and have continued to deploy capital. According to our disciplined capital allocation framework.
Eric: We've invested $315 million back into the business so far this year.
Eric: We have more than fulfilled our baseline commitment and repurchased $750 million in shares during the year as we completed $375 million of accelerated share repurchases in March.
Eric: The average price of our year to date share repurchases has been $117 per share.
Aaron Alt: And during Q3, we deployed $2.8 billion for the closing of our majority position in GI Alliance.
Eric: And during Q3, we deployed $2 8 billion for the closing of our majority position in Gi Alliance.
Aaron Alt: Now let's talk about our full year guidance for fiscal year 25 with only one quarter left to go. Reflecting the strong Q3 results, we are raising and narrowing our fiscal 25 EPS guidance to a range of $8.05 to $8.15, an 18 cent increase at the midpoint of our prior guidance. Given the better than expected adjusted free cash flow year to date, we also are now expecting adjusted free cash flow at the high end of our prior guidance range, approximately $1.5 billion. We are narrowing our interest and other guidance to the lower end of our previous guidance, now $200 million to $215 million, primarily reflecting the strong cash flow.
Eric: Now, let's talk about our full year guidance for fiscal year 'twenty five with only one quarter left to go.
Eric: Reflecting the strong Q3 results, we are raising and narrowing our fiscal 'twenty five EPS guidance to a range of $8 five.
Eric: So $8 15.
Eric: An 18% increase at the midpoint of our prior guidance.
Eric: Given the better than expected adjusted free cash flow year to date. We also are now expecting adjusted free cash flow at the high end of our prior guidance range approximately $1 5 billion.
Eric: We are narrowing our interest and other guidance to the lower end of our previous guidance now $200 million to $215 million, primarily reflecting the strong cash flows.
Aaron Alt: As a result, we borrowed less than we anticipated to complete the ADSG transaction. This guidance implies roughly $75 million in I&O next quarter now that we've completed our acquisitions of ION, GIA, and ADSG. As a reminder, our interest in Otherline also includes the income that GIA recognizes from its minority equity positions in ambulatory surgery centers. For context, we expect about $10 million of other income from the ASC positions in Q4.
Eric: As a result, we borrowed less than we anticipated to complete the ATSG transaction.
Eric: This guidance implies roughly $75 million in iron ore next quarter now that we've completed our acquisitions of ion Gia and ATSG.
Eric: As a reminder, our interest and other line also includes the income that Gia recognizes from its minority equity positions in ambulatory surgery centers for context, we expect about $10 million of other income from the ASC physicians in Q4.
Aaron Alt: We are also updating our effective tax rate guidance to a range of 23% to 23.5%.
Eric: We are also updating our effective tax rate guidance to a range of 23% to 23, 5%.
Aaron Alt: Moving on to our segments, starting on slide 10. For pharma, we are raising our segment profit guidance for the full year to 11.5% to 12.5% growth, driven by the continued broad based demand we've seen in core pharma and specialty Of note, Q4 is expected to contain a higher-than-usual amount of investment-related costs as we near completion of our Consumer Health Logistics Center, continue to invest in technology, and continue to add capabilities while scaling our MSL platform. While individual customer timelines have varied, we are confirming that we have now completed customer onboardings that make up approximately $10 billion of new customer revenue in FY25, setting us up for further growth in FY26.
Eric: Moving on to our segments starting on slide 10.
Eric: For pharma, we are raising our segment profit guidance for the full year 211, 5% to 12, 5% growth driven by the continued broad based demand we've seen in core pharma and specialty.
Eric: Of note Q4 is expected to contain a higher than usual amount of investment related costs as we near completion of our consumer health Logistics Center continue to invest in technology and continue to add capabilities, while scaling our MSL platforms.
Eric: While individual customer timelines have varied we are confirming that we have now completed customer onboarding that makeup approximately $10 billion of new customer revenue in fiscal year 'twenty five.
Eric: Setting us up for further growth in fiscal year 'twenty six.
Aaron Alt: For GMPD, we are narrowing our guidance to the lower end of our prior fiscal year 25 guidance. Now $130 million to $140 million. Even with this narrowing of guidance for GMPD, the team is making good progress and the fourth quarter should reflect a meaningful step up in profitability as a result of the actions taken in the last several quarters. There are a few factors which support our guide. First, Q3 showed a positive change in trajectory for Cardinal Health brand volume, including strength we saw as we exited the quarter. Second, the team has continued to respond to environmental adversity by finding incremental cost-saving action.
Eric: For <unk>, we are narrowing our guidance to the lower end of our prior fiscal year 'twenty five guidance range now of $130 million to $140 million.
Eric: Even with this narrowing of guidance for <unk>. The team is making good progress in the fourth quarter should reflect a meaningful step up in profitability as a result of the actions taken in the last several quarters.
Eric: There are a few factors, which support our guidance.
Eric: First Q3 showed a positive change in trajectory for Cardinal health brand volume, including strengths, we saw as we exited the quarter.
Eric: Second the team is continuing to respond to environmental adversity by finding incremental cost saving actions, including a reduction in force, which occurred at the end of Q3.
Aaron Alt: including a reduction in force which occurred at the end of Q3. Third, our guidance has always signaled that fourth quarter would be our highest seasonal quarter in terms of segment profit, just like last year. I should note that while Q4 will be impacted by the earlier rounds of tariffs between the U.S., Mexico, and Canada, most of that early impact will be offset in the quarter or will be recognized in future periods when the related product is sold. As a result, the onset of tariffs is not expected to have a direct material financial impact on the fourth fiscal quarter for any of our businesses.
Eric: Third our guidance is always signaled that fourth quarter would be our highest seasonal quarter in terms of segment profit.
Eric: Like last year.
Eric: I should note that while Q4 will be impacted by the earlier rounds of tariffs between the U S Mexico and Canada.
Eric: Most of that early impact will be offset in the quarter or will be recognized in future periods. When the related product is sold.
Eric: As a result, the onset of tariffs is not expected to have a direct material financial impact on the fourth fiscal quarter for any of our businesses.
Aaron Alt: In other, we now expect fiscal year 25 revenue growth of 17% to 19% and segment profit growth of 16% to 18%. driven by stronger organic growth across the businesses and anticipated contributions from ADSG during the fourth quarter. We expect ADSG to be slightly accretive to EPS immediately, despite the one-time impact of an acquisition-related inventory fair value step-up, which will be unique to Q4.
Eric: In other we now expect fiscal year 'twenty five revenue growth of 17% to 19% and segment profit growth of 16% to 18% driven by stronger organic growth across the businesses and anticipated contributions from <unk> during the fourth quarter, we expect ATSG to be slightly accretive to EPS immediate.
Eric: Despite the onetime impact of an acquisition related inventory fair value step up which will be unique to Q4.
Aaron Alt: Now, given the highly dynamic environments in which we are all operating, today, we will provide early context on next year. We are only six weeks away from our investor day on June 12th, by which time we expect to have more visibility on macro events and to offer more concrete thoughts on fiscal 26 and beyond. In PhRMA, we expect to continue to benefit from positive utilization growth, our strong core foundation, which includes our leading Red Oak-enabled generics program, and our partnerships across a diverse and growing customer base. We expect strong growth in specialty, both in our upstream biopharma solutions and our downstream services, including our MSO platforms, which continue to expand.
Eric: Now given the highly dynamic environment in which we are all operating today, we will provide early context on next year. We are only six weeks away from our Investor Day on June 12 by which time, we expect to have more visibility on macro events and to offer more concrete thoughts on fiscal 'twenty six and beyond.
Eric: In pharma, we expect to continue to benefit from positive utilization growth our strong core foundation, which includes our leading red oak enabled generics program.
Eric: And our partnerships across a diverse and growing customer base.
Eric: We expect strong growth in specialty both in our upstream Biopharma solutions, and our downstream services, including our MSL platforms, which continue to expand.
Aaron Alt: We are competent in our ability to navigate changes to the US healthcare ecosystem, whether that is the administration's Section 232 review of the pharmaceutical industry or the recent drug pricing executive order. Based on what is known at this time, we do not currently expect meaningful changes to our economics from these actions because of our unique value proposition and ability to respond as needed. In other, we expect continued strong demand and organic growth fueled by the secular tailwinds of the markets, our leading competitive positions, and our investment. The addition of ADS-G to at-home solutions will be accretive to our business as we work to quickly unlock deal synergy.
Eric: We are confident in our ability to navigate changes to the U S health care ecosystem, whether that is the administration's section 232 review of the pharmaceutical industry or the recent drug pricing executive order.
Eric: Based on what is known at this time, we do not currently expect meaningful changes to our economics from these actions because of our unique value proposition and ability to respond as needed.
Eric: In other we expect continued strong demand and organic growth fueled by the secular <unk> of the markets are leading competitive positions and our investments the.
The addition of ATSG to at home solutions will be accretive to our business as we work to quickly unlock deal synergies.
Aaron Alt: and GMPD, Jason will shortly talk about the aggressive actions we're continuing to take to reduce the burden of the tariffs on our customers and on our business. We remain committed to the GMPD turnaround and are relentlessly focused on ensuring GMPD retains a viable and improved financial profile. While we need more clarity on the nature, geographic reach, intended duration, and resulting financial impact to our business of the reciprocal and targeted tariffs, the operational improvements the team has made give us confidence that GMPD fiscal year 26 segment profit will be at least consistent with fiscal 25 level.
Eric: In <unk>, Jason will shortly talk about the aggressive actions, we're continuing to take to reduce the burden of the tariffs on our customers and on our business we.
Eric: We remain committed to the <unk> turnaround and are relentlessly focused on ensuring <unk> retains a viable and improved financial profile.
Eric: While we need more clarity on the nature geographic reach intended duration and resulting financial impact to our business of the reciprocal and targeted tariffs. The operational improvements. The team has made give us confidence that GMP fiscal year 'twenty six segment profit will be at least consistent with fiscal 'twenty five levels.
Aaron Alt: Finally, in fiscal 26, having lapped the negative working capital unwind of the customer contract expiration, we expect robust cash flow generation.
Eric: Finally in fiscal 'twenty, six having lapped the negative working capital unwind of the customer contract exploration, we expect robust cash flow generation, we remain committed.
Aaron Alt: We remain committed to our disciplined capital allocation framework, prioritizing internal investments, such as our new Consumer Health Logistics Center, strengthening our balance sheet with incremental debt paydown, returning capital to shareholders, and prioritizing tuck-in acquisitions in areas of strategic focus, as you saw in our earnings release this morning.
Eric: Committed to our disciplined capital allocation framework prioritizing internal investments such as our new consumer health Logistics center strengthening our balance sheet with incremental debt Paydown, returning capital to shareholders and prioritizing tuck in acquisitions in areas of strategic focus as you saw in our earnings release. This morning.
Aaron Alt: Bringing this all together. Overall, the largest and highest growth parts of our business are resilient and well positioned to continue growth in fiscal year 26. and we are confident in the enterprise achieving double-digit, non-GAAP EPS growth next year. In closing, our team is steadfast on pursuing operational execution while investing for long-term growth.
Eric: Bringing this all together.
Eric: Overall, the largest and highest growth parts of our business are resilient and well positioned to continue growth in fiscal year 'twenty six and we are confident in the enterprise achieving double digit non-GAAP EPS growth next year.
Eric: In closing our team is steadfast on pursuing operational execution, while investing for long term growth. We have a plan we are executing against it and we look forward to sharing more at our upcoming Investor day on June 12.
Jason Hollar: We have a plan, we are executing against it, and we look forward to sharing more at our upcoming Investor Day on June 12th. With that, I will turn it back over to Jason. Thanks, Aaron.
Eric: With that I will turn it back over to Jason.
Jason Hollar: Stepping back, there's a lot to be excited about with our results. Not only did we see earnings growth in each of our five operating segments, but we also saw significant growth in our high-priority growth. Specialty Nuclear, At-Home Solutions, and Ops. We have more work to do with GMPD, but I am pleased with the operational improvements we have achieved, even in a more uncertain macroeconomic environment.
Jason: Thanks, Erin stepping back there's a lot to be excited about with our results this quarter.
Jason: Not only did we see earnings growth in each of our five operating segments, but we also saw significant growth in our high priority growth areas specialty nuclear at home solutions and offer free.
Jason: We have more work to do with <unk>, but I am pleased with the operational improvements we have achieved even in a more uncertain macroeconomic environment.
Jason Hollar: So, let's go a little deeper. In Pharmaceutical and Specialty Solutions, the positive third quarter performance reflects sustained momentum across the segments, highlighting our disciplined approach to operational execution and prioritization of the core. It is our customer focused execution that led to the successful onboarding of publics during the We consistently aim to provide all of our customers with industry-leading support, and the team has continued to drive above-target, on-time delivery metrics with historically high service costs. Another critical component of our success in the core is our partnership with Roto, which continues to fulfill its dual mandate of securing product access and controlling cost.
Jason: So let's go a little deeper in.
Jason: In pharmaceutical and specialty solutions, a positive third quarter performance reflects sustained momentum across the segments, highlighting our disciplined approach to operational execution and prioritization of the court.
Jason: It is our customer focused execution that led to the successful onboarding of publics. During this quarter. We consistently aim to provide all of our customers with industry, leading support and the team is continuing to drive above target on time delivery metrics with historically high service levels.
Jason: Another critical component of our success in the core is our partnership with Red Oak, which continues to fulfill its dual mandate of securing product access and controlling costs.
Jason Hollar: Specialty remains central to our long-term growth strategy with compelling opportunities to drive meaningful and differentiated value and accelerate our growth.
Jason: Specialty remains central to our long term growth strategy with compelling opportunities to drive meaningful and differentiated value and accelerate our growth.
Jason Hollar: We were delighted to share the news about G.I. Alliance's recent acquisitions, furthering our mission to deliver integrated, high quality and patient centered specialty care across the United. Notably, Urology America and Potomac Urology marked GIA's expansion into urology, reinforcing its commitment to building a comprehensive multi-specialty model. We are encouraged by the latest additions to our portfolio and see clear evidence that our strategic approach to providing community-based physician practices with a comprehensive MSO platform.
Jason: We were delighted to share the news about Gi alliances recent acquisitions, furthering our mission to deliver integrated high quality and patient centered specialty care across the United States.
Jason: Notably Urology America, and Potomac Urology, Mark Gia is expansion into urology reinforcing its commitment to building a comprehensive multi specialty models.
Jason: We are encouraged by the latest additions to our portfolio and see clear evidence that our strategic approach of providing community based physician practices. The comprehensive MSL platform is working.
Jason Hollar: Turning to GMPD, where the team's rigorous focus on executing the GMPD improvement plan led to solid growth for the quarter. Along with the efforts to further streamline our cost structure, we were pleased to see stronger growth of our Cardinal Health-branded products.
Jason: Turning to <unk>, where the team's rigorous focus on executing the <unk> improvement plan led to solid growth for the quarter.
Jason: Along with the efforts to further streamline our cost structure, we were pleased to see stronger growth of our Cardinal health branded products were also pleased with the recent commercial progress, including a new long term distribution agreement with a notable health system.
Jason Hollar: We're also pleased with the recent commercial progress, including a new long-term distribution agreement with a notable health Now, I know that you are all interested in some further color on We understand the importance of the United States competing in a fair global market and we are engaging with the administration to try to mitigate impact. Our focus has been on GMPD given the other four operating segments representing 95% of our segment profits are largely unaffected by the announcements to date. And we anticipate their robust business models will continue to minimize ongoing Within GMPD, we have been proactive and aggressive in implementing mitigation actions to reduce the burden on our customers as much as possible.
Jason: Now I know that you are all interested in some further color on tariffs we understand the importance of the United States competing in a fair global market and we are engaging with the administration to try to mitigate impact to patient care or.
Jason: Our focus has been on GMP D. Given the other four operating segments, representing 95% of our segment profit are largely unaffected by the announcements to date and we anticipate their robust business models will continue to minimize ongoing impacts.
Jason: Within <unk>, we have been proactive and aggressive in implementing mitigation actions to reduce the burden on our customers as much as possible.
Jason Hollar: This includes increasing U.S. manufacturing capacity in key categories such as syringes and incontinence, diversifying our supplier network away from higher-risk jurisdictions, Identifying and onboarding alternate sources of supply, including, in some cases, pre-stocking inventory, deploying AI in support of our tariff planning and compliance, and further reducing our internal cost struggle. Only after aggressive mitigation actions like these are accomplished do we consider price adjustments. So far, these actions and others have helped us already mitigate several hundred million dollars of exposure. However, based on today's tariffs, we would still anticipate roughly two to three hundred million dollars of remaining gross tariff costs in fiscal twenty six before further mitigation.
Jason: This includes increasing U S manufacturing capacity in key categories, such as syringes in incontinence, diversifying our supplier network away from higher risk jurisdictions, identifying and onboarding alternate sources of supply, including in some cases pre stocking inventory.
Jason: Deploying AI in support of our tariff planning and compliance and further reducing our internal cost structure.
Jason: Only after aggressive mitigation actions like these are accomplished we consider price adjustments.
Jason: So far these actions and others have helped us already mitigate several hundred million dollars of exposure.
Jason: However, based on today's tariffs, we would still anticipate roughly $2 million to $300 million of remaining gross tariff costs in fiscal 'twenty six before further mitigation.
Jason Hollar: We anticipate mitigating the majority of these costs through continued operational actions and price adjustments, which we are already working on with our customers. As Aaron said, we are working to ensure that GMPD retains a viable financial profile.
Jason: We anticipate mitigating the majority of these costs through continued operational actions and price adjustments, which we are already working on with our customers.
Jason: As Aaron said, we are working to ensure that <unk> retains a viable financial profile. We are all too aware of the burden that GM PD and Cardinal health shoulder during COVID-19, resulting in significant financial losses, and we are highly focused on ensuring that costs are minimized, but also shared more equitably in this case.
Jason Hollar: We are all too aware of the burden that GMPD and Cardinal Health shouldered during COVID, resulting in significant financial losses. and we are highly focused on ensuring that costs are minimized but also shared more equitably in this case. In proactively working with our customers, we are seeking a scenario which does not result in market scarcity of key products or disruptions to supply.
Jason: And proactively working with our customers we are seeking a scenario, which does not result in market scarcity of key products or disruptions to supply.
Jason Hollar: And now, finishing with our other business. with strong performance across the three operating This continues to be an area where we see substantial runway for growth thanks to our differentiated offerings, supportive secular trends, strong competitive positioning, and investments for the future. Within Nuclear and Precision Health Solutions, we continue to see above-market growth in our core business and saw over 30% growth in Theranos We appreciate it. reflecting meaningful growth in the demand for products within our oncology and urology portfolio, such as the Lusix and Plovic. We're also excited about the potential of new therapeutics to enhance the treatment of Alzheimer's and other conditions.
Jason: And now finishing with our other businesses with strong performance across the three operating segments. This continues to be an area, where we see substantial runway for growth. Thanks to our differentiated offerings supportive secular trends strong competitive positioning and investments for the future.
Jason: Within nuclear and precision health solutions, we continue to see above market growth in our core business.
Jason: Saw over 30% growth and thorough gnostics this quarter, reflecting meaningful growth in the demand for products within our oncology and urology portfolio, such as elusive and predictable.
Jason: We're also excited about the potential of new therapeutics to enhance the treatment of Alzheimers and other conditions, our positioning as the go to partner for radio pharmaceutical innovators is evident when we consider recent activity, including our announcement that we've entered into an agreement with GE healthcare to manufacture and distribute for Ricardo a first of its kind pet.
Jason Hollar: Our positioning as the go-to partner for radiopharmaceutical innovators is evident when we consider recent activity, including our announcement that we've entered into an agreement with GE Healthcare to manufacture and distribute Flurcardo, a first-of-its-kind PET agent for enhanced diagnosis of coronary artery disease.
Jason: For enhance diagnosis of coronary artery disease.
Jason Hollar: At Home Solutions, we are delivering on our clear strategy to win in this rapidly growing part of the economy. We continue to invest in automation to bolster the productivity, quality, and safety of our supply chain, which has been a driver in our all-time high operation. This business is on an extremely solid foundation as we have begun the integration of ADS-G, which in its early weeks is tracking aspects. We continue to expect the synergistic combination of ADSG and at-home solutions to create value for patients and enable us to grow profitably as the overall diabetes care market expands well into the future.
Jason: And at home solutions, we are delivering on our clear strategy to win in this rapidly growing part of the industry.
Jason: We continued to invest in automation to bolster the productivity quality and safety of our supply chain, which has been a driver in our all time high operational metrics. The business is on an extremely solid foundation as we have begun the integration of ESG, which in its early weeks is tracking as planned.
Jason: We continue to expect the synergistic combination of ATSG and at home solutions to create value for patients and enable us to grow profitably as the overall diabetes care market expands well into the future.
Jason Hollar: And in OptiFreight Logistics, we're driving consistently strong performance. With the team's ability to deliver action-driving insights, more customers are expanding on our platform.
Jason: And and not be freight logistics, we're driving consistently strong performance with the team's ability to deliver action driving insights more customers are expanding on our platform.
Jason Hollar: In closing, this quarter's strong results driven by solid contributions across all five operating demonstrates the clarity of our strategic direction and underlying strength of our The broad-based momentum we're seeing across enterprise reinforces our confidence in the path ahead and our ability to accelerate through the remainder of fiscal year 2020. While we continue to monitor the broader landscape, we are confident in the resiliency of our business and this team's ability to deliver. Our focus remains on the discipline execution of our strategy to best serve our customers and drive long term value.
Jason: In closing this quarters strong results driven by solid contributions across all five operating segments demonstrate the clarity of our strategic direction and underlying strength of our business.
Jason: Broad based momentum, we're seeing across enterprise reinforces our confidence in the path ahead, and our ability to accelerate through the remainder of fiscal year 'twenty five.
Jason: While we continue to monitor the broader landscape, we are confident in the resiliency of our business and this team's ability to deliver our focus remains on the disciplined execution of our strategy to best serve our customers and drive long term value creation.
Jason Hollar: Thank you to our team for consistently going above and beyond to fulfill our role as health care's most trusted partner.
Jason: Thank you to our team for consistently going above and beyond to fulfill our role as health Care's, most trusted partner with that we will take your questions.
George: With that, we will take your Thank you, sir. Ladies and gentlemen, as a reminder, if you have any questions, please press star one on your definite keypad.
Speaker Change: Thank you Sir.
Speaker Change: Ladies and gentlemen, as a reminder, if you have any questions. Please press star one on your Dupont keypad and once again can you. Please limit yourselves to one question each other Mexican within these to ask questions.
George: And once again, can you please limit yourselves to one question each to the maximum attendees to ask a question?
Lisa Gill: Our first question today is coming from Lisa Gill, colleague from J.P. Morgan. Please go ahead. Thanks very much. And thank you for all the details, Jason. I appreciate the comments on around the tariffs. And I look forward to more when we get to the analyst day.
Our first question today is coming from Lisa Gill from.
Speaker Change: From Jpmorgan. Please go ahead.
Lisa Gill: Thanks, very much and thank you for all the details Jason.
Lisa Gill: I appreciate the comments around the tariffs and I look forward to tomorrow, when we get to the analyst day I really wanted to focus my question on.
Lisa Gill: I really want to focus my question on, you know, what you talked about in the quarter, really strong brand and specialty sales growth. Can you talk about where that's coming from? Do you think that changes due to the IRA under Part D, is that driving it? I know underlying utilization costs continue to go higher when we think about pharmaceutical costs. Just any color that you can give around what you're seeing from a volume perspective and how sustainable you think that is as we move into 26.
Lisa Gill: What you talked about it in the quarter really strong brand and specialty sales growth.
Lisa Gill: Can you talk about where that's coming from do you think that changes do David.
Lisa Gill: IRI under part D is that driving it.
Lisa Gill: I know underlying utilization costs continue to go higher when we think about pharmaceutical costs just any color that you can give around what youre seeing from a volume perspective.
Lisa Gill: And how sustainable you think that is as we move into 'twenty six.
Speaker Change: Yes, Thanks, Lisa for the question.
Jason Hollar: Thank you, Lisa, for the question.
Jason Hollar: And, you know, while that may, out-of-pocket maximum reduction may have some impact, it would be nearly impossible to determine.
Lisa Gill: While that may.
Lisa Gill: Out of pocket maximum reduction may have some impact it would be nearly impossible to determine but I would highlight that this is very broad based and so I think there are other factors at play here as well.
Jason Hollar: But I would highlight that this is very broad-based, and so I think there are other factors at play here as well. When you think about the strength that we've seen, that we saw this quarter, it goes, you know, certainly it began well before this quarter, and it's, you know, it's in each of the different categories of our business. When we called out the drivers for earnings growth for the pharma segment this quarter, we highlighted multiple different categories, generics and just broader branded products. But especially within specialty, we saw a broad-based strength, continued strength. We're now several years into mid-teens type of growth for our specialty distribution.
Lisa Gill: Do you think about the strength that we've seen that we saw this quarter. It goes.
Lisa Gill: Certainly.
Dan: Dan well before this quarter and it's.
Dan: And each of the different categories of our business when we called out the drivers for earnings growth for the pharma segment. This quarter, we highlighted multiple different categories.
Dan: Generics and just broader branded products.
Dan: Especially within specialty we saw broad based strength continued strength. We are now several years into mid teens type of growth for our specialty distribution and this was yet another quarter at that same type of level.
Jason Hollar: And this was yet another quarter at that same type of level. We saw very good strength within our biopharma solutions business, obviously relatively little in the top line, but in terms of the size of the business, but a nice profit contributor that did include the specialty networks last quarter that we see that tailwind from a year-over-year perspective. And then we saw the addition, of course, of the MSOs ION and GIA. So it really is a broad-based, both organic and inorganic within the quarter. And we are quite consistent with what we've seen in the prior quarters in that regard as well.
Dan: We saw very good strength within our Biopharma solutions business, obviously relatively little in the top line, but in terms of the size of the business, but a nice profit contributor that did include the specialty networks.
Dan: Last quarter that we see that tailwind from a year over year perspective, and then we saw the addition of course of the Msos ion in Gia. So it really is broad based both organic and inorganic within the quarter and we are quite consistent will be seen in the prior quarters in that regard as well.
Jason Hollar: We did have the beginnings of the new customers did start in our second quarter, but this is the first real full quarter associated with that $10 billion of new customers that we anticipated for the full year. This is kind of the first full quarter of that. So that was another additional nice tailwind, which to put that into context, while our revenue was relatively flat, X, the large customer transition, that's about 20% volume revenue growth. And that was driven by all those factors that I just referenced. And of course, GLP ones being about 7% of that growth as well.
Dan: We did have that.
Dan: The beginnings of the new customers did start in our second quarter, but this is the first.
Dan: Real full quarter associated with that $10 billion of.
Dan: New customers that we anticipated for the full year. This is kind of the first full quarter of that so that was another additional nice tailwind which to put that into context, while our revenue was relatively flat.
Dan: The large customer transition that's about 20%.
Dan: Volume revenue growth and that was driven by all of those factors that I just referenced and then of course GOP ones being about 7% of that growth as well so still very solid robust low to mid teens type of growth driven by all of those factors and lease.
Jason Hollar: So still very solid, robust, low to mid-teens type of growth driven by all that.
Jason Hollar: Lisa, to the point of your question on the carry forward, while we're not providing a specific guide on pharma today, we'll provide more details on that at our investor day. It is the case that we are carrying forward in 26, assuming a positive utilization environment. We're assuming consistent market dynamics and good performance in the generics program as we move into next year as well, as well as continued strong growth in specialty, both upstream in biopharma and downstream in the MSO platforms, as well as benefiting from those customer wins that Jason referenced.
Dan: Such as the point of your question on the carry forward, while we're not providing a specific guide on pharma today, we will provide more details on that are at our Investor day. It is the case that we are carrying forward in 'twenty six assuming a positive utilization environment, we're assuming consistent market dynamics and good performance in the generics program as we move into next year as well.
Dan: As well as continued strong growth in specialty both upstream and Biopharma and downstream in the NSO platforms.
Dan: As well as benefiting most customer customer wins that Jason referenced earlier.
Operator: Next question, please. Yes, sir.
Dan: Next question please.
Allen Lutz: Our next question is coming from Allen Lutz of Bank of America. Please go ahead. Good morning, and thanks for taking the questions.
Speaker Change: Yes, Sir our next question is coming from Allen Lutz All Bank of America. Please go ahead.
Allen Lutz: Good morning, and thanks for taking the questions I guess I'll kind of flip leases question and ask are you seeing any script headwinds from consumer weakness related to tariff concerns and a weaker macro wondering if any consumers are pulling back on prescriptions or has the growth really been resilient.
Jason Hollar: I guess I'll kind of flip Lisa's question and ask, are you seeing any script headwinds from consumer weakness related to tariff concerns in a weaker macro? Wondering if any consumers are pulling back on prescriptions, or has the growth really been resilient across the board? Thanks, guys. Yeah, nothing in particular. No. And, you know, while we're just into the first month of the next quarter, there's no trend changes that we see kind of real time here as well.
Speaker Change: Across the board thanks, guys.
Speaker Change: Yes.
Speaker Change: Yes, nothing in particular no.
Speaker Change: While we're just into the first month of the next quarter Theres no trend changes that we see kind of real time here as well.
Jason Hollar: And when you go back in time to some of the, I think, the more significant types of macro events like the Great Recession, to use an extreme example. Even in that environment, we saw pharmaceutical demand remain quite resilient. So we are privileged to be in an industry that typically does not see significant volatility in the face of especially more minor type of macro events. The more significant they get, there could be some impact, but it's not consistent with what we've seen historically being a very cyclical type of type of And another key point with all of that is beyond just the lack of cyclical nature of it, you know, this is an industry that does have very favorable secular trends.
Speaker Change: And when you go back in time to some of the.
Speaker Change: The.
Speaker Change: More significant types of macro events like the great recession to use an extreme example, even in that environment. We saw pharmaceutical demand remained quite resilient.
Speaker Change: We are privileged to be in an industry that typically does not see significant volatility in the face of this especially more minor type of macro events more significantly to get there could be some impact, but it's not consistent with what we've seen historically being very cyclical type of type of it.
Speaker Change: Industry and.
Speaker Change: Another key point with all of that is <unk>.
Speaker Change: And just the lack of the cyclical nature of it. This is an industry that does have very favorable secular trends you've heard me talk quite a bit about whether its the demographics or the innovation that continues to be the <unk>.
Jason Hollar: You've heard me talk quite a bit about whether it's the demographics or the innovation that continues to be the lifeblood of this industry. You know, that does continue and will continue under any type of macro scenario and event. And so we're feeling really good about the setup for the industry and our role.
Speaker Change: Lifeblood of this industry that does continue and will continue under any type of macro.
Speaker Change: Scenario, an event and so we're feeling really good about the setup for the industry and our role specifically.
Elizabeth Anderson: Next question, please. We will now go to Elizabeth Anderson of Evercore ISI.
Speaker Change: Next question please.
Speaker Change: We will now go to Elizabeth Anderson Evercore ISI. Please go ahead.
Elizabeth Anderson: Please go ahead. Sure, and if I- So I think we know Cardinal brand revenue is about one-third of total GMPD revenue.
Sharon: Thanks for the question this is Sharon.
Sharon: So I think we know Cardinal brand revenue is now one third of total Gen PD revenue.
Elizabeth Anderson: Can you give us an update what's the...
Speaker Change: Can you give us an update.
Sharon: And what percentage of that.
Aaron Alt: Post-branded, do you expect to recover by to make sure that it was a question around the profit mix of Cardinal Health plans. Yeah, we talked about revenue disclosure. Right, so the only information that we'll provide is revenue based and roughly $4 billion of our GMPD revenue is from Cardinal Health brand. It is clearly a higher margin relative to national brand, but we're not going to break out. Aaron highlighted in his comments that we did see good volume growth for Cardinal Health Brand overall being at 3% but when normalized for FX and a number of operating billing days that was closer to 5% and that was led by our most important categories within Cardinal brand or leader categories that do have higher margin and the types of products that we are investing in.
Speaker Change: Brendan do you expect you to cover that USAA. Thank you.
Speaker Change: I think just to make sure that it was a question around the.
Speaker Change: Profit mix of Cardinal Health brand, which is.
Speaker Change: Yes.
Speaker Change: Revenue disclosure.
Speaker Change: Right. So the only information that will provide us revenue based and roughly $4 billion of our GM PD revenue is from Cardinal Health brand.
Speaker Change: It is clearly higher margin relative to national brand, but.
Speaker Change: We're not going to break out the specific.
Speaker Change: Pieces there.
Speaker Change: Aaron highlighted in his comments that we did see good.
Speaker Change: Volume growth for Carnival brand overall being at 3%, but when normalized for FX in a number of.
Speaker Change: Operating billing days.
Speaker Change: Was closer to 5% and that was led by.
Speaker Change: Our most.
Speaker Change: Important categories within Cardinal brand, our leader categories that do have higher margin than the types of products that we are investing most in June and it is also the case that our team is very focused on wherever appropriate pursuing the U S. MCA in Nairobi protocol exemptions.
Aaron Alt: And it is also the case that our team is very focused on, wherever appropriate, pursuing the USMCA and Nairobi protocol exemptions, and the team is focused there. We've been deploying new tools to ensure that we are mitigating tariffs wherever possible.
Speaker Change: The team is focused there and we've been deploying new tools to ensure that we are mitigating tariffs whenever possible based on those exemptions.
Operator: Great.
Operator: Next question, please.
Speaker Change: Great next question please.
Eric Percher: Yes, sir. Thank you.
Speaker Change: Yes sure. Thank you will.
Eric Percher: We will now move to Eric Percher of NetFront. Please go ahead. Thank you.
Speaker Change: Ill move to Eric Percher of Nephron. Please go ahead.
Jason Hollar: I'll take the tariff question at a slightly different angle. So if we look at the one third of Cardinal brand, could you speak to what is required there to offset the exposure that you have? And when you speak to 200 to 300 million incremental, how does the action to offset for Cardinal brand differ from national brand? And is there a general expectation of ability to pass that on if needed at national brand versus more responsibility for offset falling to you at Cardinal brand? Yeah, of the remaining two to $300 million, the majority of that, given the significant operational actions and the other several hundred million, so more than 50% being mitigated plans already in place, given that that is.
Speaker Change: Thank you.
Speaker Change: Take the tariff question slightly different angle. So if we look at the one third of Cardinal brand.
Speaker Change: Could you speak to.
Speaker Change: What.
Speaker Change: As required there to offset exposure that you have and when you speak to $200 million to $300 million incremental.
Speaker Change: And as the.
Speaker Change: Action to offset for Cardinal brand differ from National brand and is there a general expectation ability to pass that on if needed at national brand versus more responsibility for offset falling to you at Cardinal brand.
Speaker Change: Yes.
Speaker Change: Remaining $2 million to $300 million the majority of that given the significant operational actions and the other several hundred million dollars, so more than 50% being mitigated.
Speaker Change: <unk> is already in place.
Speaker Change: Given that that is.
Jason Hollar: Already after those mitigation actions, we would anticipate the majority of that $200 to $300 million to be in the form of pricing. So, you know, we're already kind of working through the operational aspects and getting to that remaining component. You know, we'll continue to look for opportunities to minimize that as much as possible, but that is the underlying assumption that we're basing that on.
Speaker Change: Already after those mitigation actions, we would anticipate the majority of that two to 300 million to be in the form of pricing.
Speaker Change: So.
Speaker Change: We're already kind of working through the operational aspects and getting to that remaining component.
Speaker Change: We will continue to look for opportunities to minimize that as much as possible, but that is the underlying assumption that that we're basing that on with a national brand and that component of your question, Yes, Thats largely a pass through and so there will be some short term type of noise that goes along with that but it's largely a fee for service type of relationship.
Jason Hollar: Within national brand and that component of your question, you know, that's largely a pass-through. And so there will be some, you know, short-term type of noise that goes along with that. But it's largely a fee-for-service type of relationship. And so the pricing we're talking about, the vast majority of it would be on the cart.
Speaker Change: So the pricing we are talking about the vast majority of that would be on the Cardinal health side of it.
Operator: Next question, please. Thank you, sir.
Speaker Change: Next question please.
Speaker Change: Thank you Sir we'll now go to Michael Cherny of Leerink Partners. Please go ahead. Your line is open.
Michael Cherny: We'll now go to Michael Cherny of Lear Inc. Partners. Please go ahead. Your line is open.
Michael Cherny: Good morning and congrats on a nice quarter. I just want to come back to the tariff question, especially as you think through the starting point for fiscal 26. I appreciate the update. I think it was 200, 300 million expected tariff impact at this point in time that you're obviously working to mitigate. As you think about where MPD sits as a jumping off point, should we think about based on what you know now, at least, that being the max impact and that the new update, both A, is a framing of a downside and B, is much more tariff oriented than anything else.
Michael Cherny: Good morning, and congrats on a nice quarter.
Michael Cherny: Just wanted to come back to the tariff question, especially as you think through.
Speaker Change: The starting point for fiscal 'twenty six I appreciate the update I think it was $200 million to $300 million expected.
Michael Cherny: Tariff impact at this point in time.
Michael Cherny: Obviously working to mitigate as you think about where <unk> MPD sits as a jumping off point should we think about based on what you know now at least that being the Max impact and that the new update.
Michael Cherny: Both as a training of a downside and b is much more tariff oriented than anything else. It seems like every thing else on the <unk> recovery.
Aaron Alt: It seems like everything else on the GMPD recovery still seems to be on track. So just trying to bridge the delta from previous versus current views and figure out how much precisely of that is specifically the net impact of tariff. The more significant part, certainly the majority of it will be in the form of the tariff impact that flows through.
Michael Cherny: All seem to be on track so just trying to bridge the delta from.
Michael Cherny: Previous versus current views and figure out how much precisely if that is specifically the net impact of tariffs.
Michael Cherny: Yes, the more significant part certainly the majority of that will be in the form of the tariff impact that flows through.
Aaron Alt: I think about it, just let's just start with kind of puts and takes from 25 to 26. We would anticipate all the things that we've been talking about in the drivers of the business this year continuing. So we anticipate continued growth with Cardinal Health brand, largely driven by the underlying industry, but continued improvements in underlying mix, as well as our ongoing cost reductions. As you heard from, from Aaron, that we made further reductions in our, in our headcount here in the third quarter to ensure that we are doing our part to mitigate this as much as possible.
Michael Cherny: About it just let's just start with kind of a kind.
Michael Cherny: Kind of puts and takes from 25 to 2006, we would anticipate all the things that we've been talking about and the drivers of the business. This year continuing so we anticipate continued growth with Cardinal health brand largely driven by the underlying industry, but continued improvements in underlying mix.
Speaker Change: And as well as our ongoing cost reductions you heard from from Aaron that we made further reductions in our in our head count here in the third quarter to ensure that we are doing our part to mitigate this as much as possible.
Aaron Alt: But then that will be offset to some degree with the impact in the near term that we do anticipate from the portion of the two to $300 million that has not passed along in the form of pricing. So those are the puts and takes that are the key contributors to that and very consistent with the prior commentary we made about the underlying.
Michael Cherny: But then now.
Michael Cherny: We will be offset to some degree with the impact in the near term that we do anticipate from the portion of the $2 million to $300 million that does not pass along in the form of pricing. So those are the puts and takes that are.
Michael Cherny: The key contributors to that and very consistent with the prior commentary we made about the underlying drivers of the business.
Operator: Next question, please. Thank you, sir.
Michael Cherny: Next question please.
Speaker Change: Thank you Sir.
Kevin Caliendo: Next question will be coming from Kevin Caliendo of UDS. Please go ahead. Thanks, thanks for taking my question.
Speaker Change: Next question comes from Kevin Caliendo of UBS. Please go ahead.
Kevin Caliendo: Thanks, Thanks for taking my question I wanted to shift actually over to the potential pharma tariffs and how to think about the impact to you guys and how it impacts the chain like do you have enough.
Jason Hollar: I want to shift actually over to the potential pharma tariffs and how to think about the impact to you guys and how it impacts the chain. Like, do you have enough comfort contractually that you as a distributor and purchaser of the drug can pass through whatever the ingredient cost tariff is to pharmacies and is there a potential opportunity here for you? Is there any potential risk? Just trying to understand how the process might work and how you fit into that and how it affects your financial. Yeah, certainly.
Kevin Caliendo: Contractually that you as a distributor and the purchaser of the drug can pass through whatever the ingredient cost tariff is to pharmacies and is there a potential opportunity here for you is there any potential risk just trying to understand how the process might work.
Kevin Caliendo: And how you fit into that and how it affects your financials.
Kevin Caliendo: Yes, certainly.
Jason Hollar: I guess this is the benefit of being a 1% margin distributor, is that we don't have that type of risk largely in our pharma business. We take title typically in the United States. It is an important element to our customers and ultimately patient affordability, so it's not lost on us that changes to the pricing for pharmaceutical products is something that we watch very closely. I feel very good about the model. The model, the business model has evolved many times over the years. The value that we provide to safely, securely, and efficiently deliver these products is unchanged.
Kevin Caliendo: I guess this is the benefit of being a 1% margin distributors that we don't have that type of risk largely in our in our pharma business.
Kevin Caliendo: We take title typically in the United States.
Kevin Caliendo: It is an important element to our customers and ultimately patient affordability. So it's not lost on us that the changes to the pricing for pharmaceutical products is something that we watch very closely.
Kevin Caliendo: I feel very good about the model.
Kevin Caliendo: The model the business model has evolved many times over the years the value that we provide to safely securely and efficiently deliver these products is unchanged unchanged relative to the price point unchanged relative to any tariff add ons whatever it may be we've seen this in the past as it relates to when prices have gone down.
Jason Hollar: Unchanged relative to the price point, unchanged relative to any tariff add-ons, whatever it may be. We've seen this in the past as it relates to when prices have gone down for certain products like insulin. You heard from us at that point in time talk about the value we are providing was unchanged, and so we expect our compensation to be unchanged, and that's exactly what's happened. So as we look forward, we can't predict exactly what will happen and how that will look, but we feel very good about the contracts. We feel very good about this business model.
Kevin Caliendo: For certain products like insulin you heard from us at that point in time talk about the value. We are providing was unchanged and so we expect our compensation to be unchanged and thats exactly whats happened. So as we look forward, we can't predict exactly what will happen and how that will look but we feel very good about the contracts. We feel very good about this business model, we feel very good about the historical.
Jason Hollar: We feel very good about the historical context that has proven that the value that we provide is understood and rewarded by our customers in the form of just the ongoing arrangement. So we'll continue to stay focused on it, but we feel good about that setup.
Kevin Caliendo: That has proven that the value that we provide is understood.
Kevin Caliendo: Rewarded by our customers.
Kevin Caliendo: In the form of just the ongoing arrangement. So we'll continue to stay focused on it but we feel good about that setup. Now your question was on pharma, but I do want to take a moment to highlight the other businesses.
Jason Hollar: Now your question was on pharma, but I do want to take a moment to highlight the other businesses. They're individually, each have their own different version of that same type of discussion. We largely in the same manner don't have, we have a very similar type of structure and arrangement as pharma.
Kevin Caliendo: They are individually each have their own different version of that same type of discussion we largely in the same manner don't have we have a very similar type of structure an arrangement as pharma. Some like occupancy has no real direct exposure. So we feel very good about the 95% of our segment profit that's in the form of.
Jason Hollar: Some like Optifreight has no real direct exposure. So we feel very good about the 95% of our segment profit that's in the form of those four out of five different businesses. We'll continue to manage through that aggressively and appropriately to make sure we take care of customers and patients, but at the same time, we feel really good about the business models of each of those four businesses, and we'll continue to work hard to mitigate any impacts on GMB.
Kevin Caliendo: Four out of five different businesses will continue to manage through that aggressively and appropriately to make sure we take care of customers and patients.
Kevin Caliendo: At the same time, we felt really good about the business models of each of those those four businesses and we will continue to work hard to mitigate any impacts on <unk>.
Operator: Next question, please. Thank you, sir.
Kevin Caliendo: Next question please.
George Hill: We'll now move to George Hill of Deutsche Bank. Please go ahead. Your line is open, sir. Hey, good morning, guys. And thanks for taking the question. I just had a question on the margin expansion pharma. And Aaron, I was wondering if we look at the, we've kind of continued to see this margin expansion pharma, despite the growth in specialty and brand drug sales. I was just wondering if maybe you could attribute the margin expansion on a rank order. You're going to have the acquisitions, the new customers, just growth in the business, generics program to some degree offset by the client loss, and which would be compression in due to a mixed change of brand and specialty.
Speaker Change: Thank you Sir.
Speaker Change: We'll now move to George Hill of Deutsche Bank. Please go ahead. Your line is open Sir.
George Hill: Hey, good morning, guys and thanks for taking the question I just had a question on the margin expansion in the pharma and Erin I was wondering if we look at the.
George Hill: We've kind of continuing to see this margin extension pharma despite the growth in specialty and branded drug sales I was just wondering if maybe you can attribute the margin expansion on a rank order.
George Hill: Youre going to have.
George Hill: Acquisitions, the new customers just growth in the business generics program to some degree offset by the client loss and which should be compression due to mix change and branded specialty would just be interested if there's any way that you can attribute kind of the outweighed positive drivers versus the negative drivers of margin expansion.
Aaron Alt: We'd just be interested if there's any way that you could attribute kind of the outlay to the positive drivers versus the negative drivers of margin expansion.
Aaron Alt: First, thank you for noticing that's certainly been an intentional effort on the part of the pharma team to grow our gross margin. And the drivers you called out are the right drivers, whereas we continue to double and triple down on growing the specialty parts of our portfolio. You know, that is a higher margin part of the business that's growing much faster than our core lower margin. Certainly, the additions of the higher of the additional revenue streams that are higher margin profiles as well to the MSOs is facilitating that, although those are still early days for us, given the timing of the closure of the benefits.
George Hill: Well first thank you for noticing that's certainly been an intentional effort on the part of the pharma team to grow our gross margin and the drivers you called out are the right drivers, whereas we continue to double and triple down on growing the specialty parts of our portfolio that has a higher margin part of the business that's growing much faster.
George Hill: And then our core lower margin business.
George Hill: Certainly the additions of the higher of the additional revenue streams that are higher margin profiles as well through the msos is facilitating that although those are still early days for us given the timing of the closure of the benefits and so all of that is really coming together to help drive that gross margin improvement.
Aaron Alt: And so all of that is really coming together to help drive that gross margin improvement. Now, I would be remiss if I didn't point out the other piece of it, though, which is we are very happy with how the team has also been controlling our SG&A position, and as a 1% business overall, we're very focused on both parts of the P&L. And I hope you noticed that I called out during my comments that if you extract the, you normalize out the absolute dollar addition of the SG&A from the acquisitions, our SG&A was actually down for the quarter.
George Hill: Now I'd be remiss, if I didn't point out the other piece of it though which is we are very happy with how the team has also been controlled.
George Hill: Our SG&A position as a 1% business overall, we're very focused on both parts of the P&L and I Hope you noticed that I called out during my comments that if.
George Hill: If you extract the normalize out the absolute dollar.
George Hill: <unk> of the SG&A from the acquisitions, our SG&A was actually down for the quarter and that's a that's us trying to set the business up for long term success as we carry forward.
Aaron Alt: And that's us trying to set the business up for long-term success as we carry forward.
Operator: Next question, please. Thank you, sir.
George Hill: Next question please.
Thank you Sir.
Eric Coldwell: Next question is from Eric Coldwell of Baird, please go ahead. Thanks very much. A quick one here on the mention of taking advantage or at least looking at the Nairobi protocol on tariffs. I'm curious, one, do you have Nairobi protocol protections in place today for any of your products? Two, could you give us a sense on what types of products you think would be most applicable? And then three, what is the process? Do you simply say this counts, we're not going to pay a tariff? Or do you actually have to get affirmation from U.S. Customs before doing so?
Speaker Change: Next question is from Eric Coldwell of Baird. Please go ahead.
George Hill: Thanks very much.
George Hill: Quick one here on the mention of taking advantage or at least looking at the Nairobi protocol on tariffs.
George Hill: Curious one do you have Nairobi protocol protections in place today for any of your products.
George Hill: <unk> could you give us a sense on what types of products you think would be most applicable and then three what is the process do you simply say discounts, we're not going to pay a tariff or do you actually have to get affirmation from U S. Customs before doing so thanks very much.
Eric Coldwell: Thanks very much.
George Hill: Now for a little bit of perspective without going too far which is we do actually have some.
Jason Hollar: We do actually have some protections in place. As the tariff discussion has continued, as I said earlier, our team has continued to lean in into where the existing protections are and what additional products may be benefited by the 9-1-B protocol, and so that is part of the team's ongoing efforts as well as we assess the broader portfolio. So we're not going to identify today because it is broadly immaterial at an enterprise level for us, but just take away that the team is turning over every rock in an attempt to identify where we have those opportunities.
George Hill: Protections in place.
George Hill: As the tariff discussion has continued as I said earlier, our team has continued to lean in into where.
George Hill: On the existing protections are and what additional products may be <unk>.
George Hill: <unk> by the Nairobi protocol and so that is part of the team's ongoing efforts as well as we assess the broader portfolio, we're not going to identify today because it is broadly in material at an enterprise level for us, but just note, but just takeaway that the team is.
George Hill: Turning over every rock and attempt to identify where we have those opportunities.
Jason Hollar: What I would add is consistent with what Erin was saying, but just to give you a little more color, it is something we've used for the last couple of years, so it's not new to us, and it's covered hundreds of different products that we have. So we have a pretty good understanding of it, and we'll continue to monitor very closely any ongoing evolution.
George Hill: What I would add is it's.
George Hill: Consistent with where they are the same but just give you a little more color. It is something we've used for the last couple of years. So it's not new to us and it and its covered hundreds of different products skus that we have so we have them.
George Hill: Pretty good understanding of it and we will continue to monitor very closely any ongoing evolution and usage of it.
Erin Wright: Next question, please. Next question will be coming from Erin Wright of Morgan Stanley.
George Hill: Next question please.
Speaker Change: Next question will be coming from Erin Wright of Morgan Stanley. Please go ahead.
Jason Hollar: Please go ahead. Can you talk a little bit more, I guess, in detail about kind of the customer onboarding, in terms of the new customer wins, anything new to call out on that front, and sort of how that, how we should be thinking about that in terms of the progression of pharma growth and the quarterly cadence of this onboarding and how that's just progressing relative to your expectations? There's always puts and takes to any new customer onboarding, but we did reaffirm the $10 billion of incremental new customers for this year.
Erin Wright: Can you talk a little bit more I guess any detail about kind of the customer onboarding.
Brian: In terms of the new customer wins anything new to call out on that Brian.
Erin Wright: <unk>.
Erin Wright: And in terms of how that how we should be thinking about that in terms of progression.
Erin Wright: Pharma growth in the quarterly cadence and data Onboarding and how that's progressing relative to your expectation.
Erin Wright: Yes, there's always puts and takes to any new customer onboarding, but we did.
Erin Wright: Reaffirm that $10 billion of incremental new customers for this year I did comment just briefly in my earlier comment but to repeat it here that onboarding did begin in the second quarter, but when you look at the $10 billion.
Jason Hollar: I did comment just briefly in my earlier comment, but to repeat it here, that onboarding did begin in the second quarter, but when you look at the $10 billion, it's spread fairly evenly between the third and fourth quarter in terms of the biggest impact. So it started in Q2 and now has gotten to the full rollout of those customers that we anticipate for the remainder of this year. But like I said, there's puts and takes, but we feel very good about certainly the benefit that we're seeing in the current year being consistent.
Erin Wright: <unk> spread fairly evenly between the third and fourth quarter in terms of the biggest impact. So it started in Q2 and now has gotten to the full rollout of those those customers that we anticipate for the remainder of this year, but like I said, there's puts and takes but.
Erin Wright: But we feel very good about certainly the benefit that we're seeing in the current year being consistent with what we thought.
Operator: Next question please.
Daniel Grosslight: Thank you, sir.
Erin Wright: Next question please.
Erin Wright: Sure.
Daniel Grosslight: We will now move to Daniel Grosslight of Citi.
Erin Wright: We will now move to Daniel co slate of Citi. Please go ahead.
Daniel Grosslight: Please go ahead.
Daniel Grosslight: Hi, guys, thanks for taking the question. I wanted to dig in a little bit more into the mechanics of taking price increases to offset some of those GMPD tariffs. You know, if you listen to what some of the large health systems have said publicly about their supply costs, they're all pretty confident that the vast majority of their supply costs are fixed for at least the next year. I think, you know, most of the publicly traded guys have said around 70% of supply costs are fixed. So I'm curious, you know, from your perspective, how much of the price increases that you're going to seek to take are contractually obligated versus how much are you going to have to basically say, hey, if you don't take these prices, we can't supply you now.
Speaker Change: Hi, guys. Thanks for taking the question.
Speaker Change: I wanted to dig in a little bit more than just the mechanics of taking price increases to offset some of those <unk> tariffs.
Speaker Change: And to what some of the large health systems has said publicly about their supply costs out at all.
Speaker Change: Pretty confident that the vast majority of their supply costs are fixed for at least the next year.
Speaker Change: Most of the publicly traded guys have said around 70%.
Speaker Change: Supply costs are fixed so I'm curious.
Speaker Change: From your perspective, how much of the price increases that youre going to seek to take our contractually obligated versus how much are you going to have to basically say hey, if you don't take each pricing we can't supply you know.
Daniel Grosslight: And then, you know, with that, of that 200 to 300 million of gross tariff costs, what percent do you think can be mitigated by price increases?
Speaker Change: And then with that of that $200 million to $300 million of growth.
Speaker Change: Tariff costs what percent do you think can be mitigated by price increases. Thanks.
Jason Hollar: Thanks. That's the last piece first. The majority of that $200 to $300 million is pricing. That's after all those other actions. And I'm not sure we're all saying anything that's too significantly different from one another. Because as I indicated, the vast majority of what we're doing here is through other non-pricing actions to minimize that impact. And we're going to work very collaboratively with our customers to find solutions. Some product categories are absolutely overweighted from low-cost overseas locations that carry with them very low margins. Those are the products that are the most difficult and costly to bring into other locations.
Speaker Change: And the last piece first the majority of that $2 million to $300 million is price.
Speaker Change: After all of those other actions and I'm not sure. We're all saying anything thats too significantly different from one another because as I indicated the vast majority of what we're doing here is through other non pricing actions to minimize that impact and we're going to work very collaboratively with our customers to find solutions some product categories are absolutely.
Speaker Change: Overweighted from low cost overseas locations that carry with them very low margins. Those are the products that are the most difficult and costly to bring bring into other locations. When you think about.
Jason Hollar: When you think about the profile of where we take our product, as I mentioned in the past, only about 10% of our product comes out of China. Well, why that 10% still exists is that it is incredibly low-cost, more commoditized types of products or some other reason that makes it more challenging to build a resource. That type of product cannot be resourced easily elsewhere, or we would already do that. So there's exceptions to all that. And not every product is going to see price increases. Not every product is going to see the same level of price increases.
Speaker Change: The profile of where we take our product.
Speaker Change: As I mentioned in the past only about 10% of our product comes out of China.
Speaker Change: Why that 10% still exists is that it is an incredibly low cost more commoditized types of products or some other reason that makes it more challenging to build a resource that type of product cannot be resource easily elsewhere, or we would already do that so theres exceptions to all of that and not every product is going to see.
Speaker Change: Price increases not everybody's going to see the same level of price increases and our primary focus is to find something that works for.
Operator: And our primary focus is to find something that works for us that's not creating significant losses for the business, while ensuring that we protect, most importantly, for the supply of those critical products Next question, please. Thank you, sir.
Speaker Change: For us that's not creating significant losses for the business, while ensuring that we protect most importantly for the supply of those critical products to our customers.
Speaker Change: Next question please.
Ryan Rhee: Next question is coming from Ryan Rhee or Ryee of TD Collins. Go ahead, sir. Yeah. Hey, thanks for taking the question. Hey, I just want to touch maybe, Aaron, on Fiscal 26. Obviously, you know, you're calling out for double-digit EPS growth, even with the outlook for, you know, the potential, you know, challenging macro environment. And when we think about it, because it sounds like what you're saying is, right, when you think about the five businesses that you're running, you know, three of which are within the other segment, you know, you have four out of five really operating at a good pace.
Speaker Change: Thank you Sir.
Speaker Change: Next question is coming from Brian Lee array of Cowen. Please go ahead Sir.
Speaker Change: Yes.
Speaker Change: Thanks for taking my question.
Speaker Change: I just wanted to touch maybe Aaron on fiscal 'twenty, six obviously, you're calling out for double digit EPS growth.
Speaker Change: Even with the outlook for.
Speaker Change: The potential in a challenging macro environment, when we think about it because it sounds like what Youre, saying is right. When you think about the five businesses that you are running two many of which are within the other segment.
Speaker Change: Four out of five really operating.
Aaron Alt: And it sounds like, you know, for the most part, should be fairly tariff-resistant here. So, when we think about the components to get to that double-digit, you know, and obviously, you've kind of given an outline for GNPD a little bit here, with more to come potentially.
Speaker Change: At a good pace and it sounds like for.
Speaker Change: For the most part.
Speaker Change: Should be fairly tariff resistant here.
Speaker Change: So when we think about the components to get to that double digit.
Speaker Change: And obviously, you've kind of given an outline for GMP D a little bit here.
Speaker Change: With more to come potentially but.
Aaron Alt: But, you know, is it fair to think that we should think predominantly that the pharma segment is what's going to be the primary driver here in Fiscal 26, given sort of when we look at growth X sort of M&A, or certainly the, you know, customer shifts, sort of the underlying growth, and really that, to a certain extent, you know, GNPD at this point, you know, isn't going to be the biggest driver here, as we think about the outlook.
Speaker Change: Is it fair to think that we should think predominantly that the pharma segment is what's going to be the primary driver here in fiscal 'twenty, given sort of when we look at growth.
Speaker Change: M&A.
Speaker Change: Customer shifts.
Speaker Change: The underlying growth in <unk>.
Speaker Change: And really that sort of thing.
Speaker Change: The NPD it at this point.
Speaker Change: Isn't going to be the biggest driver here as we think about the outlook.
Aaron Alt: Let me offer some more perspective. Obviously, we're not yet done with our fiscal 25 and our budgeting efforts are underway, and we are working hard to get ready for our investor day in a mere six weeks, but we thought it was important to provide some perspective on 26 today, just given the broader macro environment, which is very, very dynamic. Look, if you think back to what Jason said at the start of our call, we have momentum in our business broadly at the enterprise level. The businesses tend to be very resilient as well, and as a result, we believe the basket of businesses we run are positioned to continue to grow in fiscal year 26, and we were purposeful in calling out the double-digit ETS growth next year, which is really the combination of the various profiles that our businesses have.
Speaker Change: Great question, let me offer some more perspective, obviously, we're not yet done with our fiscal 'twenty five in our budgeting efforts are stronger way and we are working hard to get ready for our investor day in EMEA or six weeks, but we thought it was important to provide some perspective on 2006 today, just given the broader macro environment, which is.
Speaker Change: Very dynamic look if you think back to adjacent said at the start of our call. We have momentum in our business broadly at the enterprise level the businesses tend to be very resilient as well and.
Speaker Change: As a result, we believe the basket of business that we run are positioned to continue to grow in fiscal year 'twenty six and we were purposeful in calling out the double digit EPS growth next year, which is really the combination of the various profiles that our businesses have theres not a lot purely different between.
Speaker Change: You've heard me describe pharma positively utilization continued generics program performance consistent market dynamics strong growth in specialty upstream downstream the benefit of the customer wins, that's all contributing to that double digit EPS growth next year. Similarly on the other businesses. The three businesses that we have.
Speaker Change: Revealed more.
Speaker Change: To the outside world in the last 18 months.
Speaker Change: Continued strong demand there and we continue to invest in all three of those businesses to certainly support and grow the revenue and profit growth within those businesses as well in all three businesses have secular tailwind so that contributed to their performance. So far this year and that we expect to continue on into the business as well.
Aaron Alt: And as you pointed out, we can't forget about the M&A, right? GIA, they announced two acquisitions yesterday. They're doing what they said they were going to do or what we said we were going to do when we announced the deal, and with ADSG having closed 29 or 30 days ago, we're very pleased with how that integration's already operating, so that will also be a contributor there. It's driven in no small part by just the sheer operational execution and the level of detail at which that team has been operating now for the last couple of years, their ability to also handle the tariff environment.
Speaker Change: And as you pointed out we can't get we can't forget about the M&A right.
Hey.
Speaker Change: <unk> two acquisitions yesterday theyre doing what they said they were going to do or what we said we were going to do when we announced the deal and with ATSG, having closed 29 or 30 days ago. We're very pleased with how that integration is already operating so that will also be that will also be a contributor there.
Speaker Change: Really just net net as we think about the puts and takes adjacent is called off with tariffs on gene PD. We were purposeful in calling out that we expect that business to perform at least consistent with fiscal 'twenty five we view that as a positive sign it's driven in no small part by just the sheer operational execution and the level of detail at which that team has been.
Speaker Change: Operating now for the last couple of years there are.
Speaker Change: Also handle is a tariff environment when you put all those pieces together, that's what's bringing us to the double digit EPS growth for next year and I promise, we will provide more details at our Investor day six weeks.
Aaron Alt: When you put all those pieces together, that's what's bringing it to that double-digit EPS growth for next year, and I promise we will provide more details at our investor day in six weeks.
Operator: Next question, please.
Speaker Change: Next question please.
Steve Baxter: Thank you very much, sir.
Speaker Change: Thank you very much.
Steve Baxter: We will now move to Steve Baxter, Clarksville, Wells Fargo. Please go ahead, sir. Hi, I appreciate all of the tariff discussion. I was hoping that you could just, you know, maybe be a little bit more descriptive about what level of tariffs are actually considered in this gross estimate that's being discussed. I mean, for example, for China, is this the full, you know, 145%? I guess for the rest of the world, is it the current 10% or are you assuming something closer to what was proposed on Liberation Day? And I guess, how do we think about, you know, what happens if there is to be, you know, some moderation, for example, in the China tariffs at some point, you know, over the next several months?
Speaker Change: We'll now move to Steve Baxter closed from Wells Fargo. Please go ahead Sir.
Steve Baxter: Hi, I appreciate all of the tariff discussion I was hoping that you could just maybe be a little bit more descriptive about what level of tariffs are actually considered in this gross estimate that's being discussed I mean for example for China is this the full 145% I guess for the rest of the world is that the current 10% are you assuming something closer to <unk>.
Steve Baxter: It was proposed on Liberation day, and I guess, how do we think about what happens if there is to be.
Steve Baxter: Moderation for example in the China tariffs at some point over the next several months I guess like what happens to the price increases that youll be putting through are you needing to agreed to reverse those if the tariff situation changes would love to just understand that dynamic a little bit better. Thank you.
Steve Baxter: I guess, like, what happens to the price increases that you'll be putting through? Are you needing to agree to reverse those if the tariff situation changes? I'd love to just understand that dynamic a little bit better.
Jason Hollar: Thank you. Yeah, there's a lot there. So the short answer is this is absolutely based upon what we understand literally today. So as everything evolves, we've got a great process and model set up to be able to manage this real time. There's a lot of game theory that goes into trying to answer the second part of your question, because it's not just the tariff rates, it's the relative tariff rates, because the types of products that we have outside the United States tend to have a profile that are more commoditized, higher content of labor cost things that under, I think, most likely scenarios for tariff rates would indicate that they are probably going to remain outside the United States.
Steve Baxter: Yes, there is a lot there so.
Steve Baxter: The short answer is this is absolutely based upon what we understand literally today, so as everything evolves.
Steve Baxter: Got a great process and model set up to be able to manage this real time.
Steve Baxter: There's a lot of game theory that goes into trying to answer the second part of your question.
Steve Baxter: Because it's not just the tariff rates as the relative tariff rates because the types of products that.
Steve Baxter: That we have outside the United States tend to have a profile that are more commoditized.
Steve Baxter: Higher content of labor cost things that.
Steve Baxter: I think most likely scenarios for tariff rates.
Steve Baxter: Would indicate that they are probably going to remain outside of the United States. There are certainly some products that we will continue to come into the U S. Like what we've already done with our our syringes and other products. So we will continue to look at the relative rates to determine what that is and of course make sure that we're working with our customers all along the way for for supply to ensure that.
Jason Hollar: There are certainly some products that will continue to come into the U.S., like what we've already done with our syringes and other products. So we'll continue to look at the relative rates to determine what that is. And of course, make sure that we're working with our customers all along the way for supply to ensure that we are... We've made good progress in getting more to North America and the United States in particular. We're now up to about a third of our underlying value of production is coming out of the U.S. This is the single largest country in which we operate.
Steve Baxter: We are.
Steve Baxter: Protecting them with that we've made good progress in getting more to North America in the United States. In particular, we are now about a third.
Steve Baxter: Of our underlying Val.
Steve Baxter: <unk> production is coming out of the U S. This is the single largest country in which we operate.
Jason Hollar: And then secondary to that would be Mexico, so that the combination of North America is now over 50%. So we feel pretty good about our setup. We clearly have a very diverse global footprint that has served us well through this process, but it's not bulletproof to the extreme rates. And so as I mentioned before, that 10% in China is the biggest driver of tariff dollars. And so that will impact the map as we go forward.
Steve Baxter: And then secondary to that would be Mexico. So that the combination of North America is now over 50%.
Steve Baxter: We feel pretty good about our setup, we clearly have a very diverse global footprint that has served us well through this process, but it's not bulletproof to the.
Steve Baxter: Extreme rates and so as I mentioned before that 10% in China.
Steve Baxter: Is the biggest driver of tariff dollars and so that will impact the map as we go forward.
Operator: Next question please. Thanks.
Steve Baxter: Next question please.
Speaker Change: Thank you Sir.
Brian Tankwillett: We'll now move to Brian Tankwillett of Jeffries. Please go ahead, sir. Hey, good morning, guys.
Steve Baxter: We'll now move to Brian <unk>.
Steve Baxter: Oh Jefferies. Please go ahead Sir.
Brian Jefferies: Hey, good morning, guys.
Jason Hollar: Um, maybe I'll just circle back to Kevin's question from earlier on potential pharma tariffs. If I think about historical trend, right, generic inflation was a benefit to drug distributors such as yourself. So just curious, I mean, if tariffs are pushed through for drugs, should that be inflationary? Or is there anything I'm missing in that thought process? Thanks.
Speaker Change: Maybe I'll just circle back to Kevin's question from earlier on potential pharma tariffs.
Brian Jefferies: Think about historical trend rate.
Brian Jefferies: Inflation was a benefit to drug distributors such as yourselves. So just curious I mean, if tariffs are pushed through drug showed that'd be inflationary or is there anything I'm missing in that thought process.
Jason Hollar: Yeah, we continue to look at it from spread basis. And it's a matter of the buy and sell side, and not just any one side of that. And so there have been some instances historically that you're talking about, but there's also been plenty of instances where the two have moved in tandem as well. So we see consistent market dynamics. That continues to be an environment today. And we think it's prudent to assume that that will continue.
Brian Jefferies: Yes, we continue to look at it from a spread basis and it's a matter of the buy and sell side and not just any one side of that and so there have been some instances historically that you are talking about but it's also been plenty of instances, where the two have moved in tandem as well. So we see consistent market dynamics I continue to be an environment today, and we think it's prudent.
To assume that that will continue going forward.
Operator: Next question, please. Thank you.
Brian Jefferies: Next question please.
Brian Jefferies: Thank you.
Steve Valiquette: And our last question will be coming from Steve Valiquette of Mizzou Hall. Please go ahead. Great. Thanks.
Speaker Change: And our last question it will be coming from Steve Valiquette with Mizuho. Please go ahead.
Aaron Alt: Good morning, Jason and Erin. Thanks for taking the question here. So the company's ending inventory level on the balance sheet seemed pretty normal for a March quarter, with some typical inventory drawdown during fiscal 3Q. Can you just remind us, is there any dynamic for this year where it makes sense for the company to procure higher levels of certain product inventory ahead of potential terrorists, either in the pharmaceutical or medical segments? Or should we just assume fairly normal inventory levels for the company exiting fiscal 25 and into early fiscal 26, the way things stand right now?
Steve Valiquette: Great. Thanks, good morning, changing there and thanks for taking the question here.
Steve Valiquette: So the company's ending inventory level on the balance sheet seem pretty normal for a march quarter with some typical inventory drawdown during fiscal <unk> can you just remind us is there any dynamic for this year, where it makes sense for the company to procure higher levels of certain product inventory ahead of potential tariffs either in the pharmaceutical or medical segments.
Steve Valiquette: Or should we just assume fairly normal inventory levels for the company exiting fiscal 'twenty five in <unk>.
Steve Valiquette: And too early.
Steve Valiquette: Early fiscal 'twenty, the way things stand right now thanks.
Aaron Alt: Thanks. Yeah, I think you should assume it's fairly normal. I did the math myself. I think we were up maybe like 8% in inventory, and it's obviously fairly in line with, you know, overall growth that we're seeing in much of the business. I did make some comments around some target aspects within GMPD. That's an element of what we were managing through there. But I wouldn't think about anything extraordinary that's being done elsewhere in the enterprise, because, you know, back to your math there at $16 billion, that is less than one month's worth of sales. And so if you try to escalate that quickly, it obviously creates an incredible burden on the balance sheet and cash flow.
Steve Valiquette: Yes, I think you should assume it's fairly normal.
Steve Valiquette: Myself I think we were up maybe like 8% in inventory.
Steve Valiquette: Obviously fairly in line with <unk>.
Steve Valiquette: Overall growth that we're seeing in <unk>.
Steve Valiquette: Much of the business.
Steve Valiquette: I did make some comments around some target aspects within GM PD, that's an element of what we're managing through there, but I wouldn't think about anything extraordinary that is being done elsewhere in the enterprise because.
Steve Valiquette: Back to your math, there at $16 billion that is less than one month's worth of sales.
Steve Valiquette: Sales and so if you try to escalate that quickly. It obviously creates an incredible burden on the balance sheet and cash flow. So we have to build and manage within that and to that point do been CFO I didn't observe that cash flow remains a strong focus for us and our teams are working hard to ensure that we're optimizing our cash flow both in fiscal 'twenty five in years going forward.
Aaron Alt: So we have to build them out. And to that point, I'd be a bad CFO if I didn't observe that cash flow remains a strong focus for us, and our teams are working hard to ensure that we're optimizing our cash flow, both in fiscal 25 and in years going forward.
Jason Hollar: And we'll talk more about that at investor.gov. Okay, thank you.
Steve Valiquette: We'll talk more about that at Investor day as well.
Steve Valiquette: Okay. Thank you.
Operator: We have no further questions at this stage.
Steve Valiquette: We have no further questions at this stage late to the call back over to Jason Hollar for any additional or closing remarks. Thank you.
Jason Hollar: I'd like to call back over to Jason Hollar for any additional closing remarks. Thank you. Yeah, thanks. Thanks for all the great questions and attendance here. Just real quick, really pleased, obviously, with the quarter shows the continued momentum that we have as a business, but also very pleased with the underlying strategy progression that we're seeing. Bringing these new businesses underneath the Cardinal Health umbrella has been fantastic. Everything is at least what we had anticipated. The people probably the best part of it. We see this being really great drivers of our longer term growth.
Steve Valiquette: Yes, thanks, and thanks for all the great questions and attendance here just real quick really pleased obviously with the quarter shows the continued momentum that we have as a business, but also very pleased with the underlying strategy progression that we're seeing.
Steve Valiquette: Bringing these.
Steve Valiquette: New business is underneath the Cardinal health umbrella has been fantastic everything is at least what we had anticipated the people probably the best part of it we see this being.
Steve Valiquette: Really great drivers of our longer term growth and again welcome to ESG team with us and <unk>.
Jason Hollar: And just again, welcome the ADSG team with us and continue to look forward to working with all the other new entrants as well.
Steve Valiquette: Continue to look forward to working with all of the other new entrants as well alright take care.
Operator: All right. Take care. Thank you very much.
Steve Valiquette: Thank you very much ladies and gentlemen, todays conference.
Operator: Ladies and gentlemen, thank you for attending today's conference. We wish you a good day and goodbye. Goodbye.
Steve Valiquette: Disconnected, we wish you good day and goodbye.
Steve Valiquette: Goodbye.
Steve Valiquette: Yes.
Steve Valiquette: [noise].