Cardinal Health's stock falls after company says contract with OptumRx will not be renewed after June

By Ciara Linnane

Drug distributor backs fiscal 2024 profit guidance despite end of contract that generated 16% of its revenue last year

Cardinal Health Inc.'s stock fell 4% early Monday, after the drug distributor and medical-laboratory products maker said its contracts with pharmacy-benefits manager OptumRx will expire at the end of June and will not be renewed.

The Dublin, Ohio-based company said it still expects 2024 EPS of $7.20 to $7.35 despite the end of the contract, which generated 16% of its revenue in fiscal 2023.

"We have plans in place to continue delivering profitable growth in fiscal 2025, and we are pleased to reaffirm our long-term targets for the pharmaceutical and specialty solutions segment and enterprise, despite this nonrenewal," Chief Executive Jason Hollar said in a statement.

The company reiterated its pharmaceutical and specialty solutions long-term segment profit compound annual growth rate (CAGR) target of 4% to 6% and its consolidated adjusted per-share earnings CAGR target of 12% to 14% for fiscal 2024 to 2026.

Cardinal Health has not yet offered guidance for fiscal 2025 but expects growth in both segments and to achieve an adjusted profit. It expects to offset the loss of the OptumRx contract with new customer wins, specialty growth and other actions.

About 90% of its 2023 sales to OptumRx were non-specialty bulk shipments to the company's mail-dispensing facilities, which had a "meaningfully lower operating margin" than the overall pharma and specialty-solutions segment.

Cardinal Health is expecting to generate adjusted free cash flow of about $2 billion on average from fiscal 2024 to 2026, although it does expect the metric to be lower than average in fiscal 2024 as the OptumRx deal unwinds.

The stock (CAH) has gained 2.7% in the year to date, while the S&P 500 has gained 4%.

-Ciara Linnane

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04-22-24 0946ET

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