Drug wholesaler Cardinal Health Inc (CAH.N) reported a better-than-expected 16 percent rise in quarterly earnings on Tuesday, driven by increased sales of generic drugs and medical products such as surgical gowns and instruments.
Net earnings in the second quarter ended December 31 rose to $303 million, or 88 cents a share, from $262 million, or 75 cents a share, a year earlier, the company said on Tuesday.
Earnings from continuing operations excluding one-time items were 93 cents a share, up from 81 cents a share a year earlier. Analysts on average were expecting 86 cents a share, according to Thomson Reuters I/B/E/S.
Cardinal's shares rose 2.1 percent to $44.59 in morning trading on the New York Stock Exchange.
Revenue fell a less-than-expected 7 percent to $25.23 billion, as the addition of new customers to some extent offset the loss of business from pharmacy benefit manager Express Scripts Holding Co (ESRX.O), which replaced Cardinal with rival AmerisourceBergen Corp (ABC.N) in October.
Analysts on average were expecting revenue of $24.61 billion, according to Thomson Reuters I/B/E/S.
The Dublin, Ohio-based company said it expected adjusted earnings from continuing operations of between $3.42 and $3.50 a share in fiscal 2013, a slight tightening from its previous forecast of between $3.35 and $3.50.
Analysts are expecting 2013 earnings of $3.45 a share.
Revenue from the company's pharmaceuticals business fell 8 percent to $22.7 billion, while the division's profit rose 12 percent to $441 million. Generic drugs sell for lower prices, which depresses revenue, but they are higher-margin products that boost profits.
Later this year, Cardinal's contracts with CVS Caremark Corp (CVS.N) and Walgreen Co WAG.N will expire. Cardinal's chief executive officer, George Barrett, said on a conference call with investors that the company will likely have a sense in the March quarter of whether it is likely to win a renewal of those contracts.
Revenue from Cardinal's medical products business rose 3 percent to $2.5 billion, reflecting the benefit of last year's acquisition of Futuremed Healthcare Products, a Canadian supplier of nursing home products and specialized furniture equipment, and the effect of one additional sales day than in the year-earlier quarter. Excluding the acquisition and extra sales day, revenue growth was flat.
Analysts said the quarter's results came as a relief to investors, some of whom had feared that Cardinal's decision, announced last month, to sell certain assets as part of a restructuring of its medical business, would hurt profits.
The company attributed the flatness to continued softness in key U.S. markets, particularly in the volume of medical procedures. Profit in the medical supplies business rose 11 percent to $94 million, helped by acquisitions and the sale of more branded products.
"While continued brand-to-generic conversions and the previously announced movement of the Express Scripts contract drove a revenue decline in the Pharmaceutical segment, excellent performance from our generic programs and new customer wins fueled profit gains," Barrett said.
(Reporting by Toni Clarke; Editing by Lisa Von Ahn and Alden Bentley)