Cardinal Health Inc. (CAH) announced that its pharmaceutical distribution contracts with OptumRx, which expire at the end of June 2024, will not be renewed. OptumRx is a subsidiary of UnitedHealth Group Inc. (UNH).
Despite the nonrenewal of the OptumRx contracts, Cardinal Health reaffirmed its fiscal 2024 adjusted EPS guidance of $7.20-$7.35, in line with the consensus estimate of $7.29. The company also reiterated its long-term segment profit CAGR target of 4%-6% for its Pharmaceutical and Specialty Solutions segment and its consolidated non-GAAP EPS CAGR target of 12%-14% for fiscal years 2024 to 2026, relative to a fiscal 2023 baseline.
Sales to OptumRx generated 16% of Cardinal Health’s consolidated revenue of $205 billion in fiscal year 2023. Approximately 90% of these sales were serviced by the company’s Pharmaceutical Distribution business and primarily consisted of non-specialty bulk shipments to Optum’s mail dispensing facilities. Total sales to OptumRx generate a meaningfully lower operating margin than the overall Pharmaceutical and Specialty Solutions segment.
Cardinal Health expects to partially offset the impact of OptumRx through a combination of new customer wins, specialty growth, and other actions. The company anticipates generating an adjusted free cash flow of approximately $2 billion on average from fiscal 2024 to 2026.
“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,” said Jason Hollar, CEO of Cardinal Health.
“We are excited about the many other opportunities in the marketplace, such as the onboarding of new customers and the additional capabilities from the integration of Specialty Networks in fiscal 2025,” said Debbie Weitzman, CEO of Pharmaceutical and Specialty Solutions.
