Cardinal Health reported its 4th quarter and full fiscal 2017 results this morning:Q4 Adjusted EPS up 15% year-over-year
Fiscal 2017 Adjusted EPS up 3% year-over-year
15% EPS growth in the 4th quarter is an excellent result. Adjusted EPS growth of 3% for the fiscal year isn’t spectacular, but isn’t cause for alarm.
Despite strong results in Cardinal Health’s most recent quarter, the stock price plunged (down 9.6% at the time of writing this email).
The reason for the decline is poor guidance for fiscal 2018. 2017 Adjusted EPS of $5.40
2018 Expected Adjusted EPS of $4.85 – $5.10
2019 Expected Adjusted EPS of $5.60
An earnings decline is never cause for celebration. In Cardinal Health’s case, the company lists the vague ‘discrete items’ category as why earnings will be down.
Digging deeper, the company identified the 3 categories that discrete items fall into in its previous conference call:Tax and reserve adjustments
Updating IT infrastructure for pharmaceutical distributions
The company has tried to cut a bit to far in the name of efficiency, and is having to move in the opposite direction. This is a situation similar to what Wal-Mart (WMT) dealt with over the last few years.
While a price decline is never fun, Cardinal Health remains a buy (more so now after the price decline) and solid long-term hold. The company should return to growth in fiscal 2019, and continue to regularly raise its dividend payments far into the future.