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Cardinal Health’s Medical Segment: Key Growth Driver?

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Medical segment

In fiscal 2017, Cardinal Health’s (CAH) Medical segment reported robust demand in areas such as surgical kitting, lab services, post acute, and medical services. While the company’s brand product portfolio had 4,800 stock-keeping units (or SKUs) across 470 product categories in fiscal 2012, it has risen to 12,000 product SKUs across 850 categories in fiscal 2017. These products are targeted mainly at healthcare providers who focus on quality, standardization, and cost efficiency. After the integration of Medtronic’s Patient Recovery Business, Cardinal Health’s SKUs will be around 21,000 across 1,200 product categories.

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Cardinal Health expects its Medical segment to report revenue growth of 15.0%–19.0% on a YoY (year-over-year) basis in fiscal 2018. The company also expects to witness double-digit growth in segment profits in fiscal 2018. The company’s Medical segment will thus continue to pose strong competition to other pharmaceutical wholesalers such as AmerisourceBergen (ABC), Express Scripts (ESRX), and McKesson (MCK).

Cardinal Health makes up 0.68% of the Health Care Select Sector SPDR ETF’s (XLV) total portfolio holdings.

Performance in fiscal 2017

In the fourth quarter of fiscal 2017, Cardinal Health’s Medical segment reported revenues of $3.4 billion, which is a 6.0% rise YoY. For 2017, the segment reported revenues of $13.5 billion, which is a 9.0% rise YoY. A rise in demand from existing as well as new customers and targeted acquisitions have been the key factors driving revenue growth for the company’s Medical segment in fiscal 2017.

The Medical segment’s profits rose 13.0% YoY to reach $138.0 million in the fourth quarter of fiscal 2017, driven mainly by the company’s expanding distribution portfolio, rapid uptake of post-acute solutions, and favorable reimbursement terms. However, the profits were partially affected by the subdued performances of certain Cardinal Health brand products such as those acquired from the Cordis acquisition. For fiscal 2017, profits of the Medical segment were $572.0 million, which is a YoY rise of 25.0%.

In the next part, we’ll look at the acquisition of the Patient Recovery business.

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