Morningstar | Cardinal CFO's Departure Likely a Reflection of Increasing Competitive Pressures
Cardinal Health announced that Jorge Gomez has resigned as CFO and will vacate the position Aug. 9, a day after the scheduled release of fourth-quarter results. He will be the CFO and head of IT at Dentsply Sirona. Cardinal's CEO will serve as interim CFO until a permanent replacement is secured. This announcement follows our recently revised narrow moat rating with a negative bias reflecting the swelling pressure in the competitive landscape.Although the three largest distributors have secured 90% of the market, Cardinal is the smallest of them. Despite Cardinal’s scale, fierce pricing competition, declining reimbursement, continued generic deflation, increased government intervention for pricing transparency, increasing opioid litigation pressure, and weak market positioning of the distributors within the current infrastructure may negatively affect the company’s ability to differentiate or win purely based on price. Cardinal’s challenges in integrating Cordis, a recent medical device manufacturing acquisition, may also be a contributor to the CFO’s departure.
Recently, pharmaceutical market growth has slowed significantly from the double-digit growth observed a few years ago. As the distributors are largely compensated as a percentage of revenue, they have aggressively used pricing to poach clients. Cardinal’s loss of Walgreens (25% of the pharmacy market) a few years ago was probably the largest such casualty. Distributors have also had challenges in differentiating themselves and have sought growth in an anemic market through acquisitions outside of core operations. Each distributor has stumbled in integrating these acquisitions. Cardinal Health has had challenges integrating Cordis and has aggressively rationalized its product offering and exited 15 countries. We expect the company to report fourth-quarter non-GAAP earnings per share of $0.99 on Aug. 8 and $5.14 for fiscal 2019, closer to the high end of full-year guidance of $5.02-$5.17.
Cardinal Health is a healthcare services and products company providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories and physician offices. The company's segments include: Pharmaceutical and Medical. The company's Pharmaceutical segment distributes branded and generic pharmaceutical, specialty pharmaceutical and over-the-counter healthcare and consumer products in the United States. The company's Medical segment manufactures, sources and distributes Cardinal Health branded medical, surgical and laboratory products, which are sold in the United States, Canada, Europe, Asia and other markets.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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