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Cardinal Health braces for August contract expiration with Walgreens

Strategies in place to mitigate impact, CEO reports, and fiscal 2013 results won't be impacted

DUBLIN, Ohio — In the wake of a new partnership announcement between Walgreens and AmerisourceBergen, Cardinal Health announced on Tuesday that its pharmaceutical distribution contract with Walgreens that is scheduled to expire at the end of August 2013 will not be renewed.

"Although we are not yet ready to provide fiscal 2014 earnings guidance, our portfolio has considerable balance and we have prepared strategies to mitigate the impact of a Walgreens nonrenewal," stated George Barrett, Cardinal chairman and CEO. "Based on this, we will target a 2014 non-GAAP diluted earnings per share from continuing operations to be at least similar to the fiscal year 2013 guidance range of $3.42 to $3.50 we provided in our fiscal 2013 second quarter earnings release. We intend to provide more color on fiscal 2014 during our fiscal 2013 third and fourth quarter earnings calls."

The company also noted that earnings for the current fiscal year 2013 would not be negatively impacted as the current Walgreens agreement remains in place throughout fiscal 2013.

Sales to Walgreens, one of Cardinal Health's two largest customers, generated approximately 21% of consolidated revenue for fiscal 2012.  For this period, approximately 60% of revenue from Walgreens was classified as bulk sales, which, as described in the Form 10-K for the fiscal year ended June 30, 2012, has significantly lower segment profit as a percentage of revenue than non-bulk sales. 

After the expiration of its contract with Walgreens, Cardinal anticipates a significant net working capital decrease based on reduced inventory and accounts receivable, partially offset by reduced accounts payable. Based on the expected working capital decrease and other factors, it is anticipated that the expiration of the Walgreens contract will result in a meaningful net, after-tax benefit to cash flow from operating activities in fiscal 2014.

 

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