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Introduction & Market Context
Cardinal Health (NYSE:CAH) presented its third-quarter fiscal year 2025 results on May 1, showing strong profit growth across all business segments despite flat overall revenue. The healthcare services company’s stock, which closed at $141.29 on April 30 (up 1.04%), continued its positive momentum with a 0.5% increase in premarket trading following the earnings release.
The company’s shares have been trading near their 52-week high of $141.73, reflecting investor confidence in Cardinal Health’s strategic direction and financial performance. This quarter’s results continue a pattern of exceeding market expectations, similar to the company’s Q2 FY24 performance.
Quarterly Performance Highlights
Cardinal Health reported Q3 FY25 revenue of $54,878 million, essentially flat year-over-year, while non-GAAP earnings per share jumped 13% to $2.35. Non-GAAP net earnings increased 11% to $568 million, demonstrating the company’s ability to drive profit growth even without significant revenue expansion.
As shown in the following financial summary:
Operating earnings on a GAAP basis showed a remarkable 98% increase to $730 million, though this was affected by one-time factors. The more representative non-GAAP operating earnings increased 21% to $807 million, highlighting the company’s improved operational efficiency.
Segment Analysis
The Pharmaceutical (TADAWUL:2070) and Specialty Solutions segment, Cardinal Health’s largest business unit, delivered a 14% increase in segment profit to $662 million despite a slight revenue decline. This performance was driven by growth in brand and specialty pharmaceutical sales, MSO platforms (including GI Alliance), BioPharma Solutions, and the company’s Generics program.
The segment’s results are detailed in the following slide:
The Global Medical (TASE:BLWV) Products and Distribution segment showed the most dramatic improvement, with segment profit surging 77% to $39 million on a modest 2% revenue increase. This significant profit growth resulted from successful cost optimization initiatives.
The "Other" segment, which includes Nuclear and Precision Health Solutions (NPHS), at-Home Solutions, and OptiFreight, continued its strong performance with 13% revenue growth and 22% profit growth. This segment now delivers the highest profit margin in the company’s portfolio at 10.28%.
Updated Guidance
Based on the strong Q3 performance, Cardinal Health raised its full-year FY25 guidance. Non-GAAP EPS expectations were increased to $8.05-$8.15, up from the previous guidance of $7.85-$8.00 and representing solid growth from the FY24 actual result of $7.53.
The company also improved its outlook for non-GAAP adjusted free cash flow to approximately $1.5 billion, up from the previous range of $1.0-$1.5 billion. This enhanced cash flow projection comes despite maintaining substantial capital expenditures of $500-$550 million.
The updated financial expectations are presented in detail here:
At the segment level, Cardinal Health raised its profit growth guidance for both the Pharmaceutical and Specialty Solutions segment (now 11.5% to 12.5%, up from 10% to 12%) and the Other segment (now 16% to 18%, up from approximately 10%). The company also increased its revenue growth outlook for the Other segment to 17% to 19%, up significantly from the previous 10% to 12%.
Strategic Initiatives
Cardinal Health’s presentation emphasized its focus on three strategic priorities: building upon the growth of Pharmaceutical and Specialty Solutions by expanding in Specialty, accelerating growth in key areas, and executing the Global Medical Products and Distribution Improvement Plan.
The company highlighted its comprehensive model for supporting community-based physicians, which has become a central element of its growth strategy. This model integrates MSO platforms, specialty community physicians, advanced data and technology solutions, and broad distribution capabilities.
As illustrated in the following slide:
This integrated approach appears to be yielding results, particularly in the company’s specialty-focused businesses, which are showing strong growth and margin expansion.
Capital Allocation Strategy
Cardinal Health detailed its disciplined capital allocation framework for FY24-FY26, balancing investments in organic growth, maintaining an investment-grade balance sheet, and returning capital to shareholders through both dividends and share repurchases.
The company reported progress on this framework in FY25, including $315 million in year-to-date capital expenditures, completion of annual opioid settlement payments, and approximately $875 million returned to shareholders through dividends and share repurchases. Additionally, Cardinal Health completed three strategic acquisitions: Integrated Oncology Network, GI Alliance (expanding into urology), and Advanced Diabetes Supply Group.
The capital allocation strategy is outlined here:
Investment Thesis
Cardinal Health presented a compelling investment thesis centered on its diverse portfolio of businesses with strong growth potential. The company expects 4% to 6% long-term profit growth in its core Pharmaceutical and Specialty Solutions segment, while its at-Home, NPHS, and OptiFreight businesses benefit from favorable industry trends and margin-accretive opportunities.
For the Medical Products and Distribution segment, which has historically been challenged, the company reported momentum in its improvement plan with expectations for significant year-over-year performance gains.
The investment case is summarized in this comprehensive overview:
Overall, Cardinal Health’s Q3 FY25 presentation depicts a company successfully executing its strategic initiatives, delivering profit growth across all segments, and confidently raising its full-year outlook. The positive market reaction suggests investors are responding favorably to both the current results and the company’s forward-looking guidance.
Full presentation:
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