Cardinal Health's per-share earnings are outrunning operating profit

Cardinal Health's drug-distribution business delivered another strong quarter. But the 28% rise in adjusted earnings per share also got help from two changes outside the operating business: a lower tax rate and fewer shares.

The combination lifted adjusted EPS to $3.26 in the first quarter of fiscal 2027, compared with $2.55 a year earlier. Adjusted operating profit grew a slower 17%, to $1 billion. Cardinal has now raised its annual earnings target, with stronger operations, taxes and buybacks all contributing to the outlook.

The drug business supplies the operating gains

Pharmaceutical and Specialty Solutions, by far Cardinal's largest business, increased revenue 6% to $62.6 billion. Segment profit rose to $783 million from $667 million, helped by brand-name and specialty drugs and the company's generic-drug program.

The smaller businesses grouped as Other also advanced. They include nuclear and precision-health services, home medical supplies and logistics. Their combined segment profit rose to $193 million from $166 million.

Those gains supported $67.5 billion of group revenue, up 5%. Reported operating income rose 13% to $753 million. The adjusted operating figure removes specified acquisition-related costs and compensation, restructuring, asset-disposal effects and litigation recoveries.

Tax and buybacks amplify the per-share result

The adjusted effective tax rate fell to 18.5% from 21.9%. That helped adjusted net income grow 24% to $759 million, faster than the operating result.

A smaller share count added another lift. Average diluted shares fell to 233 million from 239 million after buybacks, so the higher earnings were spread across fewer shares. Cardinal completed a $500 million accelerated repurchase during the quarter, half its existing $1 billion annual buyback target.

The updated annual assumptions carry both effects forward. Cardinal now expects an adjusted tax rate of 18.5% to 19.5%, down from 19% to 20%, and 231 million to 232 million diluted shares, down from about 233 million.

For the year ending June 30, 2027, adjusted EPS is forecast at $12.80 to $13, up from the $12.40 to $12.60 range first issued in August and reaffirmed on October 1. The annual buyback budget remains unchanged.

One division still needs to improve

Global Medical Products and Distribution went backward. Sales were roughly flat at $3.2 billion, while segment profit fell 28% to $33 million. Lower distribution revenue and unfavorable currency effects outweighed growth in Cardinal's own-brand products.

Cardinal kept that division's annual profit target at $200 million to $220 million. By contrast, it raised expected annual profit growth for the pharmaceutical business to 10% to 12%, from 8% to 11%, and for Other to 17% to 20%, from 15% to 18%.

The higher group target therefore comes with an uneven recovery across the portfolio. Medical products have more work to do, even as drug distribution and the smaller growth businesses support the upgrade.

The cash target stays unchanged

Operating cash flow rose to $1.40 billion from $973 million. After capital spending, $1.24 billion remained, enough to cover the quarter's $500 million buyback and $126 million of dividends. Cardinal's $1.58 billion adjusted free-cash-flow measure adds back net litigation payments and specified physician-unit repurchases.

Despite the stronger start, annual adjusted free cash flow remains forecast at $3.5 billion to $4 billion, with about $700 million of capital spending. Those targets are unchanged from August.

There is also a distinction in the earnings-growth comparison. Cardinal's 17% to 19% annual EPS growth forecast removes a $0.31 tariff-refund benefit from last year's adjusted earnings. Against the $11.26 actually reported for fiscal 2026, the new forecast represents growth of about 14% to 15%.

The Cardinal Health company profile tracks these targets, the completed Solaris and Strive acquisitions and the pending AdaptHealth diabetes-business purchase. The next quarters will show how much more the operating businesses can deliver alongside the help from taxes and the smaller share base.