Cardinal restructures its operating units

Chain Drug Review,  August 18, 2008  

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DUBLIN, Ohio -- Cardinal Health Inc. is formally restructuring into two primary operating and reporting segments. The move is intended to reduce costs and align the company's resources with the particular needs of each segment.

The company had already divided its operations into two overall sectors with two subunits in each. Under Healthcare Supply Chain Services, Cardinal grouped its pharmaceutical and medical supply chain services.

The pharmaceutical supply chain segment, the largest revenue producer, has suffered from weakened sales growth due in part to customer disruption resulting from enhanced anti-diversion controls and slower overall market growth. Operating income in the unit fell 21% during the third quarter.

Cardinal's Clinical and Medical Products Sector, meanwhile, consisted of medical products and technologies as well as clinical technologies and services.

The change will enable the company to eliminate about 600 positions, of which about 160 are currently open. Cardinal will book a restructuring charge of $63 million, most of which will be recognized in the current fiscal year, in connection with the workforce reduction.

Under the new structure Healthcare Supply Chain Services, led by vice chairman George Barrett, will consist of Cardinal's network of pharmaceutical and medical products distribution centers and nuclear pharmacies, which handle materials used in nuclear medicine. This segment, with annual revenues of about $80 billion, distributes prescription drugs and medical products to customers in North America.

The Clinical and Medical Products segment, meanwhile, will handle products for infusion, medication dispensing, respiratory care and infection prevention for use in hospitals and other primary care facilities. This unit, under vice chairman David Schlotterbeck, generates revenues of about $5 billion annually.

"Through this restructuring we sharpen our focus on two distinct and growing segments of the health care industry by aligning our resources, reducing costs and helping to speed decision making for our customers," says R. Kerry Clark, chairman and chief executive officer of Cardinal Health. "These changes formalize the organization we began to put in place 18 months ago and will make us a stronger company that has a greater focus on both our supplier-customers and provider-customers, with a goal of creating more value for shareholders."

As part of the restructuring, Cardinal will separately report results for a group of other businesses, including Pharmacy Services (outsourced hospital pharmacy management services), Tecomet (orthopedic implants and instruments), Medsystems (enteral devices and airway management products) and Medicine Shoppe International. Over the next 12 months management will conduct an in-depth review to assess how these businesses fit in the new dual-segment structure.

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Management also reaffirmed its guidance on fiscal 2008 diluted earnings per share from continuing operations (excluding special items, impairment charges and other items), which are expected to come in about the middle of a range from $3.75 to $3.85.

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