Earnings from continuing operations fell 45 per cent to $204m, hit by a $67m charge relating to an ongoing restructuring that will see staffing cut by 4,200 - around 7 per cent of the total workforce - and the closure of 25 facilities around the world. Revenues rose 13 per cent, however, to $18.4bn.
Cardinal - which has operations spanning drug distribution, pharmacy automation and packaging and formulation services for drugmakers -already saw the departure of its chief financial officer last December in the wake of an inquiry into the way it booked revenues from its pharmaceutical distribution business. And financial controller Gary Jensen is the latest to quit the company, along with other executives, after an internal accounting review led to disciplinary actions.
Robert Walter, Cardinal's chairman and chief executive, told a conference call that the disruption caused by the audit were partly to blame for the financial performance in the second quarter, but that the company was well on the road to recovery. From 2006, he expects the company to post percentage earnings growth higher than its recent mid-teens average, as the restructuring efforts boost operating earnings by up to $500 million.
Looking at the performance of Cardinal's business units in the second quarter, the picture mirrors the company's over-arching financial results. Pharmaceutical distribution revenues climbed 15 per cent to $15.1bn, although operating earnings declined by 9 per cent to $213m as margins were squeezed by pricing pressures on pharmaceuticals.
Medical products and service sales rose 6 per cent to $2.4bn, with operating earnings flat at $170m, and Cardinal's pharmaceutical technology business saw revenues rise 7 per cent to $760m. However, operating earnings in the latter unit declined 22 per cent to $89m, primarily related to sterile-manufacturing costs associated with delays in opening new facilities and from existing facilities operating below their planned capacity. This weakness was partially offset by an increase in demand for softgel products, including those it supplies for Abbott's HIV drug Kaletra (lopinavir).
Pharmaceutical technology will see operating-earnings improvements in the second half of fiscal 2005 and fiscal 2006, said Cardinal, helped by increases in production at Cardinal Health's sterile manufacturing facilities, as well as from restructuring benefits.
In addition, Cardinal Health has signed a letter of intent with VaxGen to fill, finish and package a recombinant anthrax vaccine. The companies plan to have a full supply agreement in place by the end of June, subject to the approval of the US government, and Cardinal believes the agreement could result in revenues of $100-$150m over the two-year period ending December 2007.
Finally, revenues for the clinical technologies and services segment increased 38 per cent to $547m, while operating earnings decreased 21 per cent to $76m.