Cardinal Health ((CAH)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Cardinal Health’s latest earnings call painted a broadly upbeat picture, with management emphasizing strong revenue and EPS growth, powerful free cash flow, and standout performance in Specialty and other growth businesses. While acknowledging tariff pressures, a Navista impairment, higher SG&A and interest costs, executives stressed that fundamentals remain durable and capital deployment disciplined.
Top-Line Momentum and EPS Upside
Cardinal Health reported Q3 revenue of $61.0 billion, up 11% year over year, supported by broad-based strength across the portfolio. Gross profit rose 18% to $2.5 billion, driving enterprise operating earnings up 18% to $956 million and non-GAAP EPS up 35% to $3.17.
Pharmaceutical and Specialty Engine
The Pharmaceutical segment remained the core growth engine, with revenue up 11% to $56.1 billion and segment profit up 18% to $784 million. Specialty continued to outperform, growing over 20% in the quarter, while GLP-1 revenue climbed more than 30% and contributed roughly six percentage points to overall revenue growth.
Other Growth Businesses Outperform
Businesses such as At-Home Solutions, Nuclear & Precision Health Solutions and OptiFreight collectively grew revenue 31% to $1.7 billion. Segment profit in these areas climbed 34% to $179 million, driven by >30% growth in Theranostics, nearly 20% growth in OptiFreight and steady progress integrating ADS into At-Home Solutions.
Cash Generation and Capital Deployment
Cardinal generated $1.7 billion of adjusted free cash flow in Q3 and finished the quarter with nearly $4.0 billion of cash on the balance sheet. Management lifted full-year adjusted free cash flow guidance to $3.3–$3.7 billion and continued returning capital, including $1.0 billion of share repurchases year to date and early repayment of $100 million on a term loan.
Upgraded Fiscal 2026 Outlook
The company raised and narrowed its fiscal 2026 non-GAAP EPS guidance to $10.70–$10.80, a roughly $0.50 increase at the midpoint and implying 30–31% annual EPS growth. Pharma segment profit growth expectations were increased to 22–23%, while profit guidance for the Other growth businesses was lifted to 36–38%, signaling confidence in higher-margin areas.
Operational Execution and Service Levels
Management underscored record service levels and smooth execution despite winter storms and supply chain challenges during the quarter. The integration of recent acquisitions, including ADS and the onboarding of Solaris and GIA distribution volumes in Q4, was highlighted as a key driver of operational resilience and customer satisfaction.
Navista Goodwill Impairment Signals Strategy Reset
On the GAAP side, Cardinal booked a $184 million pretax, noncash goodwill impairment related to the Navista business, reflecting a higher risk profile and discount rates. While non-GAAP results were unaffected, the impairment effectively marks a pullback in part of the MSO strategy and illustrates selective pruning within the portfolio.
Tariff-Driven Pressure in GMPD
In the Global Medical Products and Distribution segment, revenue was flat at $3.1 billion but segment profit slid to $25 million under the weight of tariff costs. The company has paid roughly $200 million in IEPA tariffs so far and, while potential refunds could generate an estimated $100 million net benefit, management stressed that timing and amounts remain uncertain.
Rising SG&A and Financing Costs
Headline SG&A expenses increased 17% year over year in Q3, or about 7% when adjusting for mergers and acquisitions, reflecting heavier investment alongside higher operating spend. Net interest and other expense reached $117 million, and full-year interest and other is now expected to be about $340 million, up from $325 million previously due to Q3 adjustments and acquisition-related financing.
Revenue Mix Headwinds and IRA Impacts
Revenue growth was dampened by mix and policy factors, notably Wholesale Acquisition Cost adjustments tied to the Inflation Reduction Act that shaved about six percentage points off Q3 revenue growth. GLP-1 sales remained vibrant at more than 30% growth but moderated from earlier quarters, while generic launches and loss-of-exclusivity events created offsets on the top line even as profit dynamics improved.
Policy and Tariff Refund Uncertainty
Management addressed the evolving regulatory backdrop, including tariff and pricing risks that could alter economics over time. Following a Supreme Court ruling, IEPA tariff refunds are possible, but Cardinal has not booked any benefit and cautioned that ultimate outcomes, administration and sharing of any refunds with customers remain unclear.
Guidance and Outlook Reinforce Confidence
Looking ahead, Cardinal’s updated outlook embeds stronger earnings, cash generation and tax efficiency, with adjusted free cash flow targeted at $3.3–$3.7 billion and a lower effective tax rate near 19%. The company expects Pharma revenue growth at the low end of its prior 15–17% range, GMPD revenue growth of 1–3% with profit of $150 million, and robust expansion from Other growth businesses, supporting the raised EPS framework.
Cardinal Health’s earnings call showcased a company leaning into higher-growth, higher-margin areas while managing regulatory and cost pressures with cautious discipline. For investors, the mix of accelerating EPS guidance, strong free cash flow and active buybacks, offset by tariff and policy uncertainty, frames a story of solid fundamentals with manageable but notable risks ahead.