Cardinal Health Morgan Stanley 24th Annual Global Healthcare Conference

Good morning, everyone. Welcome to the Morgan Stanley Global Healthcare Conference. I'm Erin Wright, Head of Healthcare Services Research at Morgan Stanley. We're happy to have Cardinal Health with us today, CEO Jason Hollar, as well as David Frost, who heads up the IR effort. Thank you so much for coming. I'm going to hand it over to David for some quick remarks.

Yeah, perfect. Thank you for hosting us, Erin. It's great to be here. Before we begin, a little housekeeping. We will be making forward-looking statements today, which are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied. For a description of these factors, please review our SEC filings, which can be found on our investor relations website at ir.cardinalhealth.com. Okay, let's get started. Yeah.

Important disclosures. Please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures, if I didn't say that at the beginning. Okay, so let's kick it off with some Q&A. Thanks so much for coming. Obviously, starting off, you introduced initial fiscal 2027 guidance in August. Your EPS guide calls for 13%-15% growth. That is above the long-term target of 12%-14%. Can you break down a little bit how much of that growth is expected to come from the operational kind of performance versus some of the below-the-line items, lower interest, other, tax rate, and just some of those dynamics that we should be thinking about in terms of the important swing factors as we think about this year?

Sure. Yeah. Well, first of all, thanks for having us, Erin, and thank you all for being with us here. How I would think about fiscal 2027 is very much a continuation of the success we've seen in the last couple of years. The words that really come to mind for me is breadth and depth of our execution and our results. In fiscal 2026, every one of our five operating segments had fantastic performance, not just the P&L, but also in cash flow. We went truly five for five this last year, and our guidance for fiscal 2027 is a continuation of that success at a little bit more normalized rates.

We are, again, anticipating a very similar level of breadth of performance that we expect all of our businesses to be in a very constructive period for fiscal 2027, and it is also why we reiterated our long-term guidance for the 12%-14% longer term and 13%-15% for fiscal 2027. When I look at each and every one of these five businesses, I would then categorize it into two key components. First of all, the underlying volume, the market, the utilization remains very constructive. I like that word because it means it sets us up for success, but it is not going to be the reason for our success.

The volume growth is solid enough that we have confidence to invest into the business, to provide the investments necessary, both organic and inorganic, to continue to grow and to be successful, whether that be for efficiency purposes or other growth vectors. When you look at each of these five businesses, they have their own growth investments and growth opportunities. Of course, you have to start with our largest, most significant business. Our Pharma segment remains also in a very constructive period. We anticipate 2%-3% volume growth within our generics business. We have seen that running a little bit better than that, and we expect it to be slightly better than that in fiscal 2027. It generally is in a very consistent, resilient level.

Specialty was the real hallmark for 2026, where we had 25% growth there, and we are anticipating closer to double-digit type of growth for fiscal 2027 and beyond. Now, 2026 had some key catalysts that are unlikely to repeat in the same way. We had significant M&A. We had some big new customer wins in areas like BioPharma Solutions. These all added to that incremental growth that, while it gives us great momentum coming into 2027, we just do not think it will be at the same level. So we will continue to invest organically in the Pharma business, inorganically with additional bolt-on M&A with our MSOs. We do consider M&A in other areas like BioPharma Solutions, but it remains a very good place for us to be. Our other growth businesses, each of these three businesses, have their own secular trends within healthcare, growing faster than underlying market.

We are also making discrete investments in each one, whether that is Nuclear with our theranostics and our high-energy PET programs, the new cyclotrons there in the 11 key markets. Certainly, our OptiFreight business expanding from the medical side of the industry to inclusive of pharmacy products. Then of course, at-home solutions, which is a combination of both organic investments into our distribution centers, automation, but also additional M&A. Very successful transaction that we did about a year ago, a little over a year ago with Advanced Diabetes Supply, and we are replicating that in a little bit smaller bolt-on type of way with Strive Medical and AdaptHealth's diabetes business.

Our GMPD business continues to have significant opportunity with growing Cardinal Health brand volume, as well as the simplification work that continues there, both of which drove significant value for us in fiscal 2026, allowing us to more than offset the tariff impact, sharing that cost with our customers, and setting us up for a constructive 2027 as well there. We do anticipate some puts and takes below the line. We had strong cash flow in 2026. That will help interest. Our tax rate is maybe slightly higher in 2027 versus 2026. These things are going to be aided by our $1 billion that we have highlighted for share repurchases this next year as well.

It will be a little bit of the below line too, but it will be driven by operating income growth through each of those three key reporting segments, each of the five key operating segments.

Okay. I hate to ask this up front, but I did not see an 8-K before I stepped up here, but just the obligatory question on the contract renewals. We just had McKesson up here. Anything to update on that front in terms of your relationship with CVS or any other relationship of size that we should be thinking about in terms of, I guess, how would you characterize it currently?

The relationship is very strong. You have to start with the core of the business. What this leadership team has done for the last several years is prioritize the core of our business. Customers like CVS. That is what they want to see. Yes, they, like everyone else, likes to see us investing in growth parts of the business to remain relevant in areas like specialty. Ultimately, what is important is are they getting the products that they need each and every day, very efficiently, very effectively? That, we are doing better than anyone in the industry. We feel good about the service that they are getting. We certainly feel good about the strategic relationships and partnerships that we have.

Yes, the distribution contract comes up for renewal at the end of this year, but we have ongoing, longer-dated relationships in areas like Red Oak Sourcing, a few additional years beyond that. Our Averon Sourcing joint venture on biosimilars, our partnership as it relates to over-the-counter products with IQ Purchasing. We have a variety of different relationships with them that are much more strategic and not just transactional. It is an all-of-the-above type of relationship with them, and we feel very good about the service that they are getting.

I mean, it is an onerous process to switch these larger contracts, right?