Blaming a stagnant economy that's forcing hospitals to curtail expenditures, Cardinal Health on Thursday lowered its fiscal-year guidance for 2009.
Despite a slowdown in its Clinical and Medical Products business, the Dublin, Ohio-based company is going ahead with plans to spin off that division from its sluggish drug distribution business, which ranks second in the nation in size behind rival McKesson.
"We're continuing to proceed forward," said R. Kerry Clark, the company's chairman and CEO, during a Thursday conference call with investors. He said the company plans to file the appropriate forms by the end of the quarter and proceed with the spin-off this summer.
"With the delay in hospital capital spending, we expect softness in our capital equipment sales to continue in the second half of the fiscal year," said David Schlotterbeck, CEO of Clinical and Medical Products, in a press release. "It is important to note that more than 40 percent of our Clinical and Medical Products business comes from the sale of disposable products and remains stable. There are also segments of our capital equipment business less affected, and therefore we expect Clinical and Medical Products segment results for the fiscal year to be flat or better than last fiscal year."
The company now expects to post a profit of $3.50 to $3.60 per share for the fiscal year ending in June, down from a previous forecast of $3.80 to $3.95 per share.
"It is difficult to forecast the exact duration and potential long-term changes in hospital spending patterns, but the company is taking appropriate cost actions to mitigate the impact," said Clark.
The company's healthcare supply chain services business, meanwhile, is doing well, with projected sales growth of 6 percent - though profits for that unit are expected to be flat or down 5 percent. Company officials said they expect a return to profitable growth by the second half of the year.
"Our team has made considerable progress over the past nine months, and in spite of an extraordinary economic climate, we remain on track to achieve our goals for fiscal 2009," said George Barrett, CEO of Healthcare Supply Chain Services.
Company officials announced plans for the spin-off last September, saying the new, publicly traded company would have revenues of roughly $4 billion and "would place the independent company among the largest medical-technology firms globally." Schlotterbeck was named CEO of the segment at that time, and Clark announced that he would retire once the spin-off is completed.
The company has struggled in recent years amid a market defined by increased pricing power at large drugstore chains and a tougher environment for generic drugs.
Last July, the company consolidated its businesses into two primary operating and reporting segments -Healthcare Supply Chain Services, which includes the company's network of pharmaceutical and medical product distribution centers and nuclear pharmacies, and Clinical and Medical Products, which includes products for infusion, medication dispensing, respiratory care, infection prevention, medical diagnostics and surgical procedures. The company also announced that it would cut about 600 jobs, or 1.5 percent of its workforce.
The $91 billion global company employs more than 40,000 people on five continents.
